Friday, 27 September 2013

Copper cheaper than Fibre? Only if you "cook the books" radically!

Comparing costs is only half the picture, profits are what drives business. Turnbull has omitted anything to do with revenue, charges or profits from everything he's released.

Using the correct Discount rate of 4.6%, nearly all sets of FTTP/FTTN costs put Fibre ahead, or at the same cost as Copper, even with the highly unrealistic costs chosen by Turnbull: Fibre costs 100% higher than actual and leaving out all Telstra payments for Copper.

If you include payments to Telstra, Copper is always more expensive than Fibre.

If you use the actual Fibre costs of NBN Co, then at worst the difference is negligible ($17/year) or the Copper FTTN is from 50%-60% more expensive than Fibre over 15 years.

Comparing the Costs of Fibre (FTTP) and Copper (FTTN) networks

Turnbull hasn't just viciously and aggressively attacked anyone and everyone, he was very publicly accused of lying, a claim he's not refuted in nearly six months. When does that become an admission?

It's a given that any politician will distort, select and manipulate figures to support their cause. Turnbull has done this in spades with his NBN Node Plan. This piece will focus on just one point where we can pin him down.

Previous blog posts here have included why Fibre makes a Profit whilst Copper cannot,  a discussion of real costs to taxpayers and critical policy points, like charges, are still unaddressed by the Coalition.

The first outrageous cheat by Turnbull was to not pay Telstra anything for their copper! Turnbull estimated this at $1500/line, considerably more than the $900/port he allows for FTTN.

The next cheat was using fabricated FTTP install costs of $3600/service when very reliable costs of ~$2350/service had been released by NBN Co in good time for him to add to his documents.

The last is more subtle, Turnbull used a usurious rate-of-return, or "Discount Rate", such as Telstra or Optus might use. The "Discount Rate" is what you might otherwise earn from your money. For Government, it's zero, they don't invest or earn profits. NBN Co has a very modest target of ~7% placed on it by its shareholder, as it's prime concern is not lining the pockets of investors, but providing affordable services to taxpayers.

Another wrinkle is that Turnbull omitted the effects of inflation.The "Discount Rate" needs to be further reduced by the inflation rate for these figures to be meaningful.

Lastly, the most blatant and colossal distortion of reality is to never, ever speak of revenues, charges or profits! Any business person knows that there are two sides to the ledger, and focusing on just one side, either revenues or expenses, leads inevitably to ruin. Businesses survive solely by making a profit. A more subtle point that has killed many a small businesses, and one that Turnbull trades on, is a positive cashflow (cash surplus) which is not a profit. Business have to cover non-operating expenses, like Depreciation, and payback their loans, something you can't do with positive cashflow and no profit, as Turnbull has as his target for the NBN.

In this "example", as elsewhere, Turnbull focuses solely on costs, where he can manufacture an advantage, pretending that is all that matters to a business. He then proceeds to choose outrageous, unrealistic and unjustified assumptions to create the outcomes he wants. Very easy to do if you don't submit your full figures to independent scrutiny and verification.

Even the manufactured cost advantage of Copper over Fibre fails if you use real, Australian data, not fictions dreamt up in the backrooms of Turnbull's offices.

Source: Background Papers, The Coalition’s Plan for Fast Broadband and an Affordable NBN.

Coalition Net Present Value example of FTTN/FTTP expenses, page 14.

These figures are also available as a downloadable spreadsheet.

The first line, in blue, is the Coalition example. Values marked in red are where Fibre is cheaper than Copper. You'll notice for the majority of cases, Fibre is cheaper than Copper, even when unrealistic costs are used.

Notes on reading table:
The first seven columns are the parameters input to the two NPV values calculated in the Coalition example to compare which approach is cheaper over the period.

The two NPV calculations are the cost of building FTTP versus building FTTN initially, then upgrading later to FTTP, with half of the FTTN cost wasted, as per the Coalition "50% CapEx Reuse".

Disc- ount Rate
Year of FTTP upgrade
Years of NPV
8% 3 3 $900 $90 $3600 $60 -$3755 -$3633 $122

FTTN to FTTP upgrade cost

The Coalition Background Papers use a FTTP CapEx cost of $3600 and $60/year OpEx, with FTTN costs of CapEx: $900 and OpEx $90.

The real-life difference is actually much worse for FTTN than is detailed here:
  • For FTTP, payments are only made to Telstra when active services are transferred to NBN Co.
  • While for FTTN, we can assume every copper pair cut, active or not, will require payment to Telstra.
    • For FTTN, Turnbull estimates a markedly lower take-up of 75%, increasing the Telstra payments per active copper service by 10%-25%.
    • In the Telstra customer access network, there are many unused copper pairs . This increases Telstra payments by another 10%-25%.
Assumptions in the Coalition "Net Present Cost" model presented are:
  • There will be an upgrade from FTTN to FTTP at some future date.
  • The example given uses an unrealistic replacement time of 3 years. This is well before the $900 investment can be recovered, somewhere between 10 and 20 years.
  • Half the FTTN investment is wasted, $450 is deliberately wasted in the Coalition Plan.
  • An unrealistic 8% discount rate is used. This is a figure that Telstra and Optus may obtain as they expect far higher returns for their shareholders. NBN Co, because it is not driven by profit-hungry shareholders, seeks a very modest shareholder return of 7.1% in comparison.
  1. -($3,600 - $450) - $90 =  -$3,240 [Coalition model figures]
  2. -($2,350 - $450) - $90 = -$1,990  [Actual costs for NBN Co]

1. Telstra "PSAA" Payments estimated at $1500 by Coalition and used in their modelling.
a. FTTN $900 excludes lead-in cost
b. FTTP $3600 includes lead-in cost

Comparing FTTN & FTTP CapEx costs on same-same basis:
c. $900 v $2100 without lead-in
d. $2400 v $3600 with lead-in

2. Real FTTP CapEx Costs
From  NBN Co report, 19-Apr-2013.
a. $1100 lead-in
b. $1100-$1400 Fibre ($1250)

3. FTTP CapEx (Capital Expenditure)
a. $3600 = $2500 + $1100 leadin
b. $2350 = $1250 + $1100 leadin

4. FTTP OpEx to CapEx ratio. Lead-in costs excluded.
a. $60 claimed by Coalition for $3600 FTTP
b. For current FTTP cost of $2350, same ratio is $30. ($60 * ($1250÷$2500)

5. Discount Rate (the earnings/interest rate the money could otherwise make in the business)
a. 8% ignores inflation, long-term rate of 2.5%
b. 4.6% is NBN Co IRR (Internal Rate of Return), adjusted for inflation
 4.6% = (7.1% - 2.5%)

Thursday, 26 September 2013

Correcting wrong-headed Journalistic Myths & Memes

I found myself again this morning with my blood boiling over statements that are not just flat-out wrong, but deceptive and misleading.

Turnbull has "taken the helm", so there's no reason to keep obfuscating these key points.

I've been frustrated getting the attention of Mainstream Media journalists - they ignore anyone outside their "bubble".

I'm not talking about false progress measures, like "premises passed" or "years late" etc, when NBN Co have just entered the mass-rollout phase and only 3-months behind schedule, something Kohler has finally noticed!. Nor the absolute fallacy and fantasy of comparing the economics of incumbent Telcos Overseas to NBN Co... These are/were topics the ALP/Conroy should've defended and didn't.

The whole "review" process will be highly political and biased, we know that.
Without informed media scrutiny, Australia is going to be right-royally screwed, not just 'screwed' for the next 75 years.

Turnbull playing the "human flamethrower" is vicious, vindictive and wholly untruthful & misleading - everything you expect in a barrister, but antithetical to an informed public debate.

My pet peeves:

1. "We need a Cost Benefit Analysis for the NBN".
Eg. AIG calling for a Cost Benefit Analysis and "public debt funding for roads":

2. "The Cost of the NBN is $37.4/$44.1 billion versus the Coalition's $20.5/$29.5 billion".

3. "Cheaper" and "Cost-Effective" are the sole Figure-of-Merit or assessment criteria, not Rate of Return.

1. "We need a Cost Benefit Analysis for the NBN".

NO!!! It's the wrong measure for an investment! It doesn't cost the taxpayer a cent over its full lifetime.

CBA's only makes sense for fully public projects where Govt don't 'invest' but spend with NO return to them. By definition, ALL returns & benefits are to the public, direct or indirect, and none to the Govt.

That's why they are tricky, costs are easy to identify (look in the Budget) while benefits are diffuse, time-delayed and

You'll also note that the Coalition, and folks like AIG, are NOT querying Abbott/Turnbull on the CBA's for their road infrastructure spending.
This is precisely where they should be done, yet they aren't.
Are the Coalition hypocrites, deluded or in denial? I don't know and don't care - it a reasonable question for journalists to ask & pursue in the public interest, but aren't currently asking.

The full cost to the Goverment, to 2033, for the NBN is zero.

Dividing by zero has one answer: infinity.

Any investment that makes a return, by definition, has an infinitely high Cost:Benefit ratio...
It's simple Maths, not even high-school Maths. What's difficult with the concept?

The "razor" question is: What does BHP do?

Do large mining companies run "Cost Benefit Analyses" or something else?
They run extensive modelling, discounted cash-flows, NPV's and finally compare options on "Internal Rate of Return" (IRR).

NBN Co is a company, admittedly wholly Govt owned, but a private-sector enterprise with an ABN, tax-file number, a Board and a duty to pay taxes and return value to its shareholder(s).

It is NOT an on-budget Government expenditure program, nor a Government Department/Agency.

Is this off-budget investment so hard to grasp??

There doesn't NEED to be a CBA because it's wrong.
There does need to be an assessment of the full-term options.

Turnbull needs to be up-front, saying he'll compare the full-term project costs on a sound commercial basis: Internal Rate of Return, IRR.

He ran a comprehensive spreadsheet model of his 4-way network proposal, but didn't release it, or the full-term Rate of Return and payback period.

Why has that not been reported and picked apart?
Are journalists too ignorant, stupid or just too blinkered to understand business basics?
I can't see a valid reason for it not being reported or the questions not asked.

2. "The Cost of the NBN is $37.4/$44.1 billion versus the Coalition's $20.5/$29.5 billion"

Now with the "$1.6 billion" extra peak funding- all paid out of direct borrowing and still returning 7+% Rate of Return.

Every-time this nonsense is repeated I bristle. The NBN Co budget has nothing to do with the Federal Budget, in the same way that what's owing on your house isn't important for your personal budget, only meeting the month repayments.

There's a world of difference between direct, on-budget expenses and independent, off-budget investments. It's not even Accounting 101, so why don't journalists understand and report this???

The real cost to the taxpayer is the on-budget costs, the interest on the loans used to provide the $30.5 Billion equity for NBN Co. While the yearly Equity owed hasn't been released, we know that it peaks in 2018 at $30.5B and doesn't start to be paid down until 2025, with full pay-back by 2033. From 2033 to 2040, it provides the "return on investment" of around $50 billion in total (7.1%/year equivalent).

My calculation of interest on equity, for the whole on-budget cost to 2033, is $12.5 billion at 2.5%.

Turnbull has never once mentioned the difference between on-budget costs directly out of the taxpayer pocket, nor how his spreadsheet model paid down the equity. There's only one statement on needed returns, and that's imprecisely worded. It could be "cashflow positive", which means it pays back interest and operational costs, but doesn't pay off the equity or cover depreciation.

This is Accounting 101: Expenses used to calculate profit must include non-cash charges, like depreciation.

Profit = ( Revenue - Expenses)

Cashflow is not profit, as many a small business has discovered too late to prevent ruin,

Why aren't journalists asking for the full on-budget cost to taxpayers over the full life of the project?

Turnbull calculated all this in his spreadsheet model, just refused to give any details of half the equation (Revenues and Charges), and only released a fraction of his full model for the period 2014-2019.

It's time that journos demanded his full spreadsheet model for the full life of the project. This has to include the second-phase that he's modelled, the replacement of the FTTN.

This is needed as a baseline for comparisons with the full FTTP Corporate Plan and the new 4-networks Corporate Plan.

We already know he's scammed the cost of FTTP ($3600/premise, not $2350) and FTTN line ($900, excludes the Telstra lead-in etc payments).

3. "Cheaper" and "Cost-Effective" are the sole Figure-of-Merit or assessment criteria, not Rate of Return.

Would you rather buy as an investment "The best house in the worst street" or "the worst house in the best street"?

Investors know that cheap is not always most profitable, in fact, almost never.

This is why Taxis are bigger, more expensive cars, not the smallest, cheapest, nastiest little cars on the market. There are so many taxis on the road, that if buying a Hyundai, Getz or other cheap piece of crap, could be profitable, we'd see them out there. The fact we don't is proof of: "cheap is not always best".

Same for long-distance trucks. The majority of prime-movers are $250,000 or more, where alternatives that look the same on paper are available for one-third that. Truck fleet owners look well past the initial
purchase price to full lifetime ownership costs: running, repairs and reliability. Just one unscheduled breakdown may cost more in penalties than a decade's profits.

According the Turnbull rhetoric, there is only ONE method of assessment for investments: initial purchase price (CapEx).

Its truly idiotic and ludicrous to compare real investments without examining both sides of the Ledger: Revenue and Expenses.

All the profit of the NBN is generated by the top 25% of high-demand users. The rest of us get a free-ride, either at cost or subsidised.

The high-demand users have already shown they are very willing to pay a lot more for guaranteed faster access: they place a value on their time and lower their total costs by reducing unnecessary wait times.

Turnbull had to have very detailed revenue forecasts to create his spreadsheet model, and those figures rested on his charging model and pricing.

Why has the mainstream press ignored the most important part of the business equation, profits, focussing only on expenses while entirely ignoring the other half the ledger, revenue?

For the every-person: Why you want Fibre to _your_ Premises


The full Fibre NBN is the biggest free kick we'll be offered in our lives: Grab it now or lose it forever.

Businesses end up paying for the network. They will provide the cash for our cheap, reliable Internet and really fast access, because "Time is Money" - it's far, far cheaper for them to buy a high-speed service than pay the wages for time lost waiting for downloads and especially uploads.

When you understand the technical, economic and social realities of the full Fibre NBN, you appreciate  the Tony Windsor's quote: Do it once, do it right, do it with Fibre. It's cheaper, faster and pays for itself to boot.

Reliability: Copper problems are never permanently fixed. Fibre still works when the pits are full of water.

Durability: Fibre doesn't corrode and suffer electrical problems like copper. The first Australian long-distance fibre laid in 1986 is still running, carrying hundreds or thousands of times more traffic after multiple upgrades. The fibre laid in 2020 will still be running after 50 years and capable of vastly more, simply by swapping the electronics on the ends. Copper-based networks degrade faster and require many times the maintenance and more frequent replacement. They are a 1925 solution for a 2020 network.

Availability: Fibre is automatically remotely tested, end-to-end, from a central location providing ideal monitoring and fault resolution. The NBN Techs know before you there's a problem and will initiate repair before you are aware of it.

Ubiquity: More commercial services will be offered if fibre is universally available. That's cheaper goods and services to customer, faster service and more turnover for business. This is what the Internet is designed for: doing business and creating new businesses.

Guaranteed and Upgradable services: Fibre speeds aren't "best efforts" and variable, you get exactly what you pay for. The fibre doesn't provide the speed, the silicon electronics at each end do. These are cheap and already units are in production at not just 100Gbps, but 96 times that by sharing the one fibre. Off the shelf now, fibre provides anywhere from 0.1Gbps to 9,600Gbps. If you want it, you can have it, without costing the earth. That's a great deal for any business, researcher or hobbyist who can use high speeds.

Affordability and Utility: Fibre is profitable, with top 25% high-demand users generating all profits and the rest of us getting a free-ride, either at cost or heavily subsidised. Speed tiers allow customers to decide how much money they want to trade for saved time, the "utility" of the service. Single data charges mean nobody is disadvantaged by where they live or how they access. Already, 30% of NBN subscribers have chosen the fastest access rate they can, years ahead of forecasts. On the copper Fibre-to-the-Node we will, presumably, be charged the same way as for current ADSL: "a random speed and one price fits all".

Uploads and Backups: Your data is precious and irreplaceable, both for your business or home records, videos and pictures. The guaranteed fast upload speeds allow everyone to be able, and afford, to back up locally and to  the cloud. Your data is available in any location, should your home or business suffer a catastrophe or be robbed.

Support services: Computers can be fixed quickly by remote sharing the PC desktop with your ISP support staff. This is only possible with fast, guaranteed upload speeds.

Telephony and VoIP: Every member of the family can have their own number and have conference calls. Decent upload speeds are needed if a couple of people are on the 'phone whilst someone else is downloading. Fibre "NTD"'s, the device installed gratis by NBN Co, come with high-priority network connections for your telephone, making sure you always have crystal clear calls, especially when the network is busy. This cannot happen with the Copper Fibre-to-the-Node where you plug in your own modem and take pot-luck.

New Services for Telework, TeleHealth, Aged Care: Hi-Def video conference saves a lot of time and money, especially for the old and infirm, not just Teleworkers. It allows Aged Care to be delivered in-home, giving the aged cheap, easy and safe access to family, friends and community support groups. The most cost-effective investment in roads is the NBN by allowing effective teleworking and reducing peak-hour traffic. The Health Dept will find it considerably cheaper to provide cameras, PC's and NBN connections and avoid hospital or nursing home stays - but only with Fibre and their NTD's.

Safe & Reliable: Fibre is safe in electrical storms and does not have a lot of sensitive, expensive electrical equipment as is needed in the Fibre to the Node network. These Nodes sit exposed to weather, fire, vandals, vehicle accidents and worse.  Fibre is not going to blow up in a storm, breakdown in the middle of summer or burnout in a few years when ants, termites or mice nest inside. When the power goes out, as it will, Fibre has big batteries and backup-generators, while every Node have their own small batteries which fail within 24 hours, as Canberra residents discovered after the 2003 fires. Checking 250,000 batteries every year and replacing them every 3-4 years is a big, costly waste of time. The Copper solution is barely cheaper but just won't last, in fact, it's designed to be thrown away.

Real Choice: You, the subscriber, choose the speed and the plan YOU want and you receive exactly what you pay for. YOU, not the capricious copper wire network, decide what speed you get. YOU are in charge and choose the "model" that works for you, just like you choose the model car you want, not have it forced on you by Big Brother.

Wise Investment: Invest, not spend, the money once while the interest rates are the lowest in 54 years. This is literally a "once in a lifetime opportunity" and should not be squandered. The whole point of the NBN is that it doesn't cost the taxpayer anything! Rather the reverse, by 2040 it will have made $50 billion in profits that the Government gets to spend, not have to raise new taxes for. We don't know if the Copper Fibre to the Node network will even break-even, let alone make a profit. If it is "more affordable", it cannot be "more profitable" as well. Unless it's all given to Telstra, who'll make sure we all pay through the nose, as they've done since deregulation in 1992.

Equity: A Universal commonly-priced Fibre NBN is equitable for all, especially rural, regional and remote subscribers. Subsidising, via network charges, those in the country who will benefit most from faster, more reliable networks is more economically efficient and "Cost-effective" than "direct Government subsidies". It's more efficient to charge a few percent more for those in urban areas and 30%-50% less in country areas than taxing urban dweller at higher rates, collecting that tax and then paying it to those "in need". There will also be inevitable inequity, some people getting subsidies they shouldn't and others needing them, not getting subsidies. Do it once, do it right, do it with Fibre, and the same price for everyone!

It "Just Works", not "works, just": "Shared media" networks, like wireless 3G and Cable HFC, have huge problems with contention ratio and performance. Everyone tries to talk at once on the same thin wire. You might have 100Mbps, but it could be shared with 50 or 100 other people. When the school buses get home, kiss goodbye to your internet. With "shared media", throughput and latency cannot be guaranteed.

A personal view from South Australia:
I heard about a couple who drove to  his mother's place in a country town to make a video call for an overseas job interview because they didn't have a reliable internet connection at their home. [He got the job because of it.] 
In Adelaide we have suburbs flooded every year in heavy weather and the 'phones don't work, sometimes for a couple of weeks. 
Beach side suburbs have their Telstra pits filled with salt water. This happens in Port Pirie too with its levies that keep seawater out and flood water in.

Ziggy Switkowsky: No Rocket Scientist

In the assessment yesterday of ABC business reporter, Peter Ryan:
In the world of telecommunications, it's hard to find a more experienced local operator than Ziggy Switkowski. 
The one time nuclear physicist is a former chief executive of Telstra and before that he ran Optus and the Australian operations of Kodak.
On paper, it's a formidable CV. But more importantly, his Liberal Party connections run deep. [emphasis added]
Malcolm Turnbull was quoted as saying:
He's obviously highly qualified and I think most people would think it would be, would regard him as an eminently suitable person. But no decision has been taken by a Coalition government because as, not least because we haven't even been sworn in yet. 
Is any of this true? I don't think the facts support the proposition that Switkowski is either competent or experienced enough to successfully lead NBN Co. He's failed twice in local Telcos.

Ziggy's Wikipedia page tells us he studied and researched Nuclear Physics until age 30, when he joined Kodak (Australia), working there for 18 years, rising to Managing Director and Chairman for 4 years, with a $3.5 million severance. The same Kodak that received a massive government bail-out and is now defunct.

Ziggy's time at Optus, replacing the foundation CEO, Bob Mansfield was brief, May 1996 to 13-Jun-1997. Hardly a CV enhancer and never cited by him, such as Suncorp or Bloomberg Businessweek.

Ziggy joined Bob Mansfield at Telstra in Sept 1997 as "Group Managing Director, Business & International until replacing Frank Blount as CEO in Mar 1999, contracted until Dec-2007. Mansfield was Telstra Chairman from 2000-2004.

Mansfield's qualifications for CEO of Optus, and presiding over the multi-billion debacle of the Cable TV/HFC rollout, started as CEO of MacDonalds and MD of Tyco investments After Optus, he went on to be CEO of Fairfax for a year. In 1997, he was given a senior political appointment by Prime Minister John Howard: 'major projects facilitator'.

The 1995-1997 HFC  rollout passed an estimated 2.5M premises, 80% duplicated and cost an estimated $6-$7 billion between Optus and Telstra. By 2000, over $4 billion was written off.

However, Ziggy stepped down three years early after very poor performance:

Dec. 1  2004 (Bloomberg) -- Ziggy Switkowski quit as chief executive of Telstra Corp., Australia's largest phone company, ending a five-year tenure where he presided over a 42 percent slide in the share price and more than A$2 billion ($1.5 billion) of losses from a failed expansion in Asia. 
The resignation of 56-year-old Switkowski comes seven months after Bob Mansfield quit as chairman, following the board's rejection of a plan by the pair to bid A$3.5 billion for John Fairfax Holdings Ltd., the nation's second-biggest newspaper publisher. Switkowski will leave by July 1, Telstra said in a statement.

Switkowski, who spent more than $5 billion on acquisitions as chief executive, according to data compiled by Bloomberg, abandoned the expansion strategy in June in favor of returning A$4.5 billion to shareholders through buybacks and increased dividends during the next three years. 
Switkowski led Telstra's expansion into Asia, which was marred by more than A$2 billion in losses. The company last year wrote off its investment in Reach Ltd., an undersea cable venture with Hong Kong-based PCCW Ltd., which was once valued at A$965 million. 
He had staked his job on achieving at least 4 percent growth in domestic sales, the industry average, by 2006. Domestic sales rose just 1.7 percent to A$19.3 billion in the fiscal year ended June 30. 
The former government monopoly's share of the telecommunications market fell to 60 percent from 75 percent under Switkowski, according to independent industry researcher Paul Budde Communication Pty Ltd.
 Ziggy successor at Telstra, Sol Trujillo, in 2005, just 6 weeks after assuming control, gave a very frank presentation on the parlous state of the business and it's bleak commercial outlook. Without direct criticism of the previous management, Trujillo made it very plain they had performed very badly: 13 of the first 15 slides detailed the problems, describing it as a "meltdown" and adding there had been at least $2 billion of under-investment in the network, both Capital and Operational expenditure. [slides 8 & 14].

Trujillo's pitch at the time, guaranteed to address the business's problems, was a $4.7 billion injection of government money into a National Broadband Network, with Telstra fully in control. The Howard government had the chance to change history, fix the Telecommunications market and structurally separate Telstra and forcefully rejected it.

Trujillo was forced into an ambitious and extensive modernisation programme of all aspects of Telstra's business. Not unsurprisingly, Trujillo and his team failed to meet all their goals and created a lot of criticism, including mine. Perhaps Trujillo did very well as an import 'parachuted' into a highly dysfunctional and internally riven organisation. He certainly set the business up for David Thodey and the doubling of the share price since the NBN agreements were signed.

The Communications Workers Union has a unique take on the business and people of the time, including some comments on the internal factions within Telstra management and their view of the Howard agenda.

One time Liberal Communications Minister, Richard Alston, weighed into the NBN debate in early 2009, but interestingly describes the massive failure in the Telecommunications market on his watch:
So when in 1994, in partnership with leading US cable operator Continental Cablevision, Optus unveiled a brand new $4 billion hybrid fibre coaxial cable network to take on the slumbering giant, there was cause for serious optimism. 
But Telstra quickly adopted a classic defensive strategy and built a parallel network, which almost bankrupted the new entrant. This experience undoubtedly had a searing demonstration effect, sufficient to deter other international challengers and since the tech wreck of April 2000 there has been a dearth of any serious direct facilities-based competition, despite a fundamentally new regulatory regime introduced in 1997 with the support of both main parties.

Switkowsky didn't just get turfed out of one Telco for over-promising and under-delivering, but two, Optus and Telstra.

He was unqualified to run Telstra and inexperienced in Telecommunications in 1999. Nothing has changed since 2004. It took a real Telco exec, Sol Trujillo (cf Maltby & Quigley), to understand the problems and solutions and start to execute on them - starting with standing up to the bully boys in the Howard Government.

Bob Mansfield, his mentor and ally, also has demonstrated poor commercial judgement running two Telcos, but his career path under the Liberals shows that who you know and what you believe are far more important than

And what of Ziggy's judgement in his own field, Nuclear Science? In 2011 he was telling us that the threat of meltdown at Fukushima was only minor and more nuclear reactors should be built.

The Japanese government has just shutdown the last nuclear reactor in Japan, despite their reliance on them, domestically and industrially, for electricity. Groundwater contamination and pollution of the sea are still unresolved problems for Tepco, the owner/operator of the triple meltdown at Fukushima.

Switkowsky's unbridled enthusiasm and naive optimism on Nuclear power in the face of overwhelming contrary evidence seems to me to provide more evidence of poor judgement and a lack of critical analytical abilities.

Monday, 23 September 2013

The death of NBN Co: OZ Telecoms permanently screwed.

Alan Kohler today gives Ziggy advice on accepting the  "hospital pass" which is the NBN Co CEO/Chair role. He's forgetting that Ziggy presided for 5 years over the meltdown of Telstra's PSTN business and ran a strong under-investment strategy for the Howard Government. We know this because Sol Trujilo  penned these words just 6 weeks after assuming control in 2005.

An aside on Kohler: I'm starting to think he's "a fool or knave, or both".

He has never asked the most important, and obvious business questions of Turnbull, perhaps because he now works for News/Murdoch, perhaps because he's a dyed-in-the-wool Conservative:
  • What's the on-budget cost, the interest on loans, over the full life of your Plan?
  • What's the pay-back period and Rate of Return (IRR) of the Turnbull NBN Plan?
    • Which should've led to "where's your full spreadsheet/model to 2040, not just 2014-2019?"
That Kohler let himself be distracted and misdirected by Turnbull's technical B/S means he was in-league with Turnbull and the Conservatives or simply doesn't understand business. Given he made many millions from selling out to Rupert, he just might be a competent businessman.

Ziggy does what he's told and is happy to do so, I've written about the differences between him and real Oz Telco CEO's with backbone: George Maltby, Sol Trujilo and Mike Quigley.

Somehow under the Turnbull Plan, all the cheap/easy work will be done privately (and NBN won't 'overbuild' because that's not 'cost-effective' when an area is already 'fully serviced') while NBN Co becomes "supplier of last resort" and gets ALL the most expensive and least profitable installs.

It is NOT possible for NBN Co to make a profit under these conditions, but Ziggy has already presided over the foreseeable and preventable meltdown of one Oz Telco, Telstra, and we know both what's coming and why he's been chosen.

My prediction for the "free competition" and "cost-effective" policies of Turnbull:
  • Telstra will move quickly and offer a residential FTTN network in the cheap and profitable areas, with other players taking the MDU market (30% of services at just 4% of street addresses. Neatly clustered.)
  • TPG, OpenNetworks and a very few other "well-connected" businesses will dominate the large apartment complex market, with a few smaller players taking a share of the mid-sized apartment market.
    • This is because "management agents" used by Body Corporates are the gatekeepers to almost all apartment blocks.
    • Telcos need only sign one management agent to control huge portions of the MDU market.
    • In return for a sweet commission, the Telco's will get exclusive long-term access to the private wiring inside the building.
    • The trouble for other Telcos is that access within the complex is privately owned. It is ONLY equal access to the network interconnection point.
  • NBN Co will be left with the most expensive, least profitable crumbs, making it impossible for them to provide a single, low wholesale price or cross-subsidise the expensive services and service their debt.
To me the resignation of the NBN Board says they won't be the fall guys for when NBN Co goes broke, as it must and as Turnbull has always known that it must, under his Plan.

Think about the 3 networks NBN Co is building and why they're building them - if the Operational rules are changed, NBN Co won't make a profit, no profit = can't pay bills = liquidation = "Told you so, worst Govt ever".

Which is really cynical, vindictive and an appallingly deliberate waste of taxpayer money, not to mention destroying the future productivity and competitiveness of the nation. What do they care, so long as their masters' agenda is met?

Costs of the 3 networks:
  • 93% FTTP. - upper-limit set by cost of next technology, $300 - $2,400/premises (+$1,100 leadin)
  • 3% Fixed Wireless - roughly constant price per premises ~$3,500/premises
  • 4% Satellite. constant price for system + cost for dish, ground station and install. >$3,500
The single price is only possible because of cross-subsidies.
Allowing "competition" kills the economics of the 93%, which kills the cross-subsidies.

This is why LNP will push for different pricing "in the bush" and has promised to give out explicit (taxpayer funded) subsidies to them.

It's a really, really bad model:
  • there's nothing to protect rural/remote subscribers from lowering/withdrawal of the subsidy.
  • it's economically inefficient to give savings to one group, collect taxes from them, then redistribute the taxes to a small group.
The cross-subsidy is efficient and effective because it happens at source within the cashflows of one commercial entity, but doesn't put money in the hands of Mal's Mates, so cannot be allowed.

History might show this one decision to be the worst economically, socially and politically that has ever been made in Australia. There is NO coming back from an eviscerated NBN Co. Once they are prevented from executing a universal roll-out of Fibre, it can never happen again. Like Banks and Insurance companies, the majority of customers never change Telcos, especially for fixed-line, it's just too hard for customers.

A rational, national wholesale network can never happen after the market is fragmented into a zillion pieces. Nobody will ever again be able to get sufficient coverage and market share to rollout a single network. Not even Telstra.

The Balkanisation of Telco access to premises, with areas controlled by just one provider, will create the worst possible commercial outcome with the highest possible prices for retail customers. Turnbull's "Competition" model is the exact opposite, it's a set of permanent monopolies handed to the favoured few.

The Liberals are the "party of business", but have an almost complete disregard for small, even medium business. They are the political wing of the IPA and the Sydney & Melbourne clubs: Abbott and Co are executing the wishes of their corporate masters, not providing the best outcomes for the populace.

Tuesday, 17 September 2013

The ALP "arms-length" direction of NBN Co. and the NBN tender

These comments, republished with permission, are from an I.T. consultant and small business owner. They are exactly the sort of person that should be in the Liberal heartland and a vigorous supporter of the Coalition NBN. Minor edits and added emphasis.
... while the ALP did frame the parameters, they only did so as a result of expert advice; the politicians and bureaucrats had zero input on actual cost estimates or technical targets, all they did was choose to take the expert advice they had paid for.
Plenty of governments have been criticised by the opposition for performing an enquiry and then ignoring the recommendations, so why does the LNP have such a huge problem with the advice of experts qualified in the area?
In fact, the LNP have heavily leaned on their FTTN choice when that decision does appear to have been chosen by politicians and their advisors in absence of actual professional advice. 
Otherwise, they would be waving around their own enquiry/professional investigations where actual experts (not partisan "know it alls" who barely understand the debate) have done a thorough analysis of the engineering, costs, time line and finance involved and recommended FTTN as the best, most economically sensible solution for Australia's telecommunications needs. 
Show me the engineers and infrastructure designers who would sign off on that and I'll show you someone who has just ruined their future career prospects...
I'd add that the "Kevin '07" campaign promised $4.7 billion, the 2005 figure requested by Telstra, would be given to the preferred tenderer, a direct cost to the taxpayer with NO returns. The non-political evaluation committee rejected the Telstra bid as it was "non-compliant", then rejected all others as "commercially unviable". Without Telstra involved, any FTTN project was doomed to failure, a situation that hasn't changed, only worsened.

The expert committee, including Economic and Business experts, advised the Government a) an FTTN without Telstra was doomed to failure as having to rent the Copper from Telstra would make it unviable commercially and b) investing in a stop-gap solution and improving an asset they didn't own was a gross waste of taxpayer money.

Contrary to the LNP assertion that the FTTP plan was worked out on a coaster or napkin on a plane trip, it resulted from detailed analysis and advice from a team of relevant, cross-disciplinary experts. It certainly came as a surprise to the LNP and electorate.

Monday, 16 September 2013

Turnbull still doing "rant-o-matic"

The election is over, Turnbull's team won and now there's nobody to tear down and oppose. He's now "The Man".

Does Turnbull engage his civil, rational, considered side, looking for support & consensus? No, he continues his mindless ranting, this time attacking yet another private citizen. This puts on display his very poor judgement and lack of control, raising the question: Is Turnbull a fit and proper person to be a Minister of the Crown?

Less than a week after the election, Turnbull has already forcefully rejected the normal democratic process, pillorying the largest ever on-line petition. Apparently, a group so large that it would've changed the election outcome, is irrelevant in his mind. The fantasy of "we have a mandate" prevails.

I haven't read the full rant. The wonderful irony is Turnbull, the master of misdirection and deception, is yet again calling on someone uninvolved and with nothing to gain, to "tell the truth".

On 12-Apr-2013, Turnbull was written up on a high profile Technology site as openly lying, something he has never addressed, never asked to be retracted, never asked for an apology over and, given his legal background and contacts, has never pursued a defamation action on. In law, "silence is assent", meaning this non-action is an admission of the allegation by Turnbull.

Given Turnbull's aggressive, combative nature, if he had the least grounds or chance of winning a suit, he'd have pursued it.

This is what Renai LeMay of Delimiter wrote:
This is very much the definition of lying: There is intelligent awareness of an intent to deceive.
In my professional opinion as a journalist, Conroy is right: Turnbull is lying about the cost of Labor’s NBN. [emphasis added]
So, the man who admits to lying about the NBN, is extorting others to tell the truth. Sheer hypocrisy and complete arrogance.

This is how Turnbull finishes his rant:
The strategic review will consider all those matters - openly and honestly. No spin. No politics. Just hard facts. And that will make the debate much better informed.  [emphasis added]
Turnbull has demonstrated he's a liar and hypocrite, that his words and judgement are not to be trusted, and that all he knows is attack, attack, attack.

Will his "open and honest" review be any more revealing than his NBN Policy? Will his responses to questions on "hard facts" be yet another tirade of abuse and invective? Not on current evidence.

Sunday, 15 September 2013

Turnbull's Fantasy: The Copper Fairy will come in the night and fix everything.

One of the consolations of losing the All-Fibre NBN (for the 93%) will be watching Turnbull's political career unwind.

Will his leaving politics be gracious and dignified like Julia Gillard or the mother of all dummy-spits? With his sharp tongue and unlimited belief in his ability and infallibility, I'm looking forward to the dummy-spit.

Turnbull delivered for the Libs in the election campaign with a "blocking" move: the NBN was removed as an election issue, regardless of what the real Coalition plan is. There is probably nobody else that could have done this, which for me, raises deep questions about Turnbull's integrity and character. He was very happy to destroy the current NBN for a political end, can anything he says now be trusted?

This tweet by RickW (on the Tooth Fairy theme) reminded me of one of the "drop dead" project risks of a (Telstra) Copper Node Plan: First, stocktake the assets and audit the records/database to see if the plan is still even possible.

I've never seen an estimate for this additional cost of the Turnbull Node Plan, either in time or money.

It's somehow magically assumed by the all-encompassing $900/port and "will take no time at all". Just ask Turnbull, as if he's ever going to provide any actual numbers (put your fireproof suit on, if you do ask).

Turnbull would like us to think the opposite of what's true, the "counterfactual" spell:

  • he's experienced in dealing with Telstra, not just as a customer, but as a regulator or peer acquiring their assets when he doesn't, and
    • [Telstra play "hard-ball", ask Senator Conroy]
  • he has Big Project, even Telecommunications, experience, when the most he's done is push paper and sign cheques for an antiquated email provider, small by current standards. 
    • [Ask BHP about the surprises in Big Projects. They are hard and sometimes even the best and brightest have to walk away. Size Matters, Experience is necessary.]

We already know there are two large significant and uncosted parts of the Turnbull Node Plan: remediation and reconfiguring the Telstra copper Customer Access Network (CAN), the last 800m that he desperately needs to work.

In 2005 and 2008 Telstra went on record with real plans for a Fibre to the Node network where their first priority was remediating the Telstra Copper network, including removing all pair-gain systems (8500 RIM/CMUX's out there) and "bridge-taps". In 2007 we learned in a Telstra response to the G9/FANOC proposal, they needed to reconfigure the (Telstra) copper to make nodes, not exchanges, the centre of each "distribution area", reducing the number of nodes by 30%-40%.

In 2005, 12Mbps at 1500m to Metro-only customers was an appropriate solution. It seems Turnbull and the Liberal Party didn't get the memo that it is now 2013 and both demand and technology have moved on many-fold. The "window of opportunity", where an FTTN could be economic and technically feasible, has long shut.

Before anyone can move building an FTTN, an audit of the whole line records database is required (20-50 million records) to reach acceptable, not perfect, "data quality", a "ground-truth" survey to get the database in sync with Reality and an assessment of the condition of every single metre of the 100-200 million pair-kilometres of the Telstra copper network.

To "fix the worst first", you first need to identify the worst and then define a test to "fix, replace or go Fibre?". There are at least 200-250,000 cable-km in those 800m passing 75% of fixed-lines Turnbull wants to thrown down the FTTN well? Compare this to the 208,000 cable-km in the whole FTTP rollout of NBN Co.

To survey the last 800m in one year, Turnbull needs to examine and test 1,000 cable-km every day. How big a team does he need? Thousands? How good will the results be? Variable. (If you rush, the results will be incomplete and/or inaccurate. If your intent is complete, correct records then rushing makes that impossible.).  Where will he find that number of spare, skilled and competent contractors? Not in Australia.

What's that 100,000 "man"-years going to cost Turnbull? $10 billion a time, because it has to be repeated. Remembering that he's not included either the cost or delay in his (public) plans...

The problem for Turnbull is, that unlike Fibre, the Telstra Copper Access Network is in a constant state of flux. As soon as an audit and "reality-check" are done, they are out of date. Guaranteed.

Turnbull has to pay twice for a complete database audit, ground-truth survey and line test:

  • Once before planning can get underway, and
  • immediately prior to cutting the Telstra copper in every Distribution Area.
    • The second audit and survey/test is hidden in the cost of works.
    • Starting from better quality data, the cost is 25%-50% of the first audit.

There's also the small matter of doing all this again in 10 or 20 years when the Telstra Copper is finally retired and replaced with Fibre. That's written in the Coalition NBN Plan, they choose to not emphasise  it. That additional $10 billion audit and survey of all premises has to be added, along with the deliberate wastage or "CapEx Reuse", to the budget of the Coalition NBN Plan. What's another $10 billion for the taxpayers to cop?

I know that it took 6 months for a major bank to have it's 120,000 network devices audited/checked when new network contractors were hired. Their records were 60%-70% accurate and these had been used for billing. The number of sites was a tiny fraction of the 9 million premises Turnbull wants to cover.

One of the first delays for NBN Co was "simply" creating an accurate premises database. The street address of every service in Australia: this wasn't available before NBN Co created it. Wouldn't you expect the Telstra records to already have that? This is proof positive that as recently as 2011, the line record database was inaccurate and inadequate for any major project, especially for an FTTN.

But there's more...

As RickW points out, what Telstra is giving NBN Co to run Fibre for the current $11 billion is prepared ducts.

This is necessary for the Turnbull Node Plan rollout as well.

After the audit, survey and test, before the remediation and reconfiguration of the Telstra Copper Access Network, the pits, pipes and ducts must first be "prepared", but that's code for repaired and remediated. The Copper Access Network is two separate parts: the cables and the access-ways. If you can't run the new Fibre to the Node or fix and reconfigure the (Telstra) Copper distribution pairs, then you can't build your FTTN.

Turnbull might be happy he's duped the public with his uncosted "NBN Lite", but he's also completely ignorant about the real size, costs and schedule of any project touching connections to every premise in Australia.

Size Matters. "Getting to scale" is difficult and requires great skill, ability and experience.

This is why Google, Amazon and Apple have survived while hundreds of "wannbe" competitors have fallen by the way in the last 15 years: Execution at 'scale' is hard. Something Telstra knows and has warned of [slide 12&18] many times.

Turnbull and his advisers simply don't have the experience or ability to complete or control an FTTN project, let alone get it done on-time and on-budget. But worse, they don't even know they don't know.

It's the taxpayer that is going to pick-up the tab for Turnbull's inevitable failure and we will have to wear the decade or two wait for better Broadband. Australian Business Productivity, and hence Competitiveness, will suffer and we will get even further behind the rest of the world. The all-Fibre NBN is simply a catch-up, not an overtake.

If Turnbull's magical "Cost Benefit Analysis" doesn't uncover these drop-dead project risks and predictable schedule challenges, then we'll know it was just a predictable sham and smoke-screen.

The Turnbull Node Plan is based on the Copper Fairy coming in the night and magically transforming decades of neglect and decay into a bright, shining new network. Telstra knows this and will lead Turnbull a long and merry chase, extracting tens of billions in taxpayer dollars in the process.

Remember back to late 2001 when the World Trade Centre came down and Ansett Airlines were stopped from flying. QANTAS kept "negotiating" with them to wet-lease their fleet (planes, fuel, crew, facilities) until the clock was run out and Ansett lease payments were due, forcing the company into liquidation. Who saw that coming? [A: Everybody but the Ansett management, seemingly.]

Just as Ansett were blind-sided by QANTAS, Telstra will 'take' the Coalition government for everything they can, forcing Turnbull to be sacked and rightly pilloried for his failure. The recriminations and fireworks within the Liberal Party will be quite something to watch. Not useful or helpful to Australian voter and taxpayer, but at least some sort of recompense for destroying our future.

The two guaranteed outcomes of the Turnbull Node Plan: Telstra will do well out of it! And the taxpayers will pay billions of ongoing dollars more than the full fibre scheme would have cost.