NBN Co warns Turnbull broadband policy may cost more

NBN Co chairman Harrison Young has warned that the long-term costs of running a fibre-to-the-node (FttN) network instead of the current fibre-to-the-premises (FttP) National Broadband Network (NBN) may ultimately end up costing more.

Young made the comments today in a speech to the Committee for Economic Development Australia (CEDA) in Sydney. While he was careful not to address the policies detailed by Shadow Communications Minister Malcolm Turnbull specifically, he said that many of the elements that can be found in Turnbull's policy, such as FttN and utilising existing hybrid-fibre coaxial (HFC) networks, could be costly.

He said that an FttN network would require leasing or otherwise obtaining Telstra's copper network from the node to each premises, which could have unseen complications.

"You might find that negotiating such an arrangement slowed the project down more than you were willing to accept. You might find you were still tangled up in Telstra's legacy IT, which could only be navigated with Telstra's help, turning code into bottleneck infrastructure, and giving Telstra ineradicable advantages," he said.

"When you set the engineers to work on the subject, you might discover both problems and solutions you hadn't imagined. I'm just recommending you bear in mind that an engineering solution does not automatically provide a market structure solution."

Maintaining the copper would also be expensive, Young said, and while the FttN roll-out would save costs on the construction component of the network, it could end up being expensive further down the track.

"Maintaining the copper that connects node to premises is expensive. Coping with legacy IT is expensive. The total system cost of fibre to the node is higher than its front-end cost," he said. "The same is true of fibre to the premises, but less so. The apparent cost advantage of fibre to the node decreases as you lengthen the time frame you look at."

Turnbull has previously suggested that the HFC networks that Telstra and Optus have in place in Sydney, Brisbane, and Melbourne should be kept and opened up to wholesale competition instead of laying out new fibre. Young said that the wealthy residents of those suburbs would end up with worse broadband than the rest of the country, if fibre is rolled out everywhere else.

And if NBN Co did buy the HFC networks, the result could be that another company, or even Telstra or Optus, could then roll out fibre to those wealthy areas and undercut NBN Co's pricing.

"If the National Broadband Network — even if entirely owned and operated by NBN Co — is a patchwork of fibre to the premises, fibre to the node, and upgraded HFC, with different end users getting different levels of service, avoiding cherry picking could become much harder," he said. "This in turn could drive NBN Co to pricing its services with more reference to the cost to serve particular geographies. That would represent a major policy change, which could make it impossible to serve the most expensive geographies on a price-equivalent basis without making the subsidies explicit and transparent."

Turnbull has yet to detail the costs of his policy, stating that it will be announced closer to the 2013 federal election. In a blog post published this afternoon, Turnbull said the coalition's approach wasn't "FttN — good; FttP — bad" but rather whatever technology was most cost-effective.

He said the coalition supported subsidising the "most expensive geographies" and said those subsidies should be completely transparent so the public is aware of how much it costs.

Turnbull was also accused of hypocrisy again today from Communications Minister Stephen Conroy, who said that Turnbull is investing in Spanish telecommunications giant Telefonica, which is rolling out an FttP network.

"If Australians want to know what Malcolm Turnbull really thinks about investing in fibre to the home, they need to follow his money, not his mouth," Conroy said.

"Alongside his investment in France Telecom, which plans to connect 15 million homes with fibre by 2020, Mr Turnbull has also bought bonds in Telefonica. These bonds are helping build a fibre-to-the-home network in Spain's major cities, including Madrid and Barcelona."

Conroy said that if Turnbull believes FttP is good enough for France and Spain, he should support it in Australia, too.