NBN CBA fetes Feds' fickle, flagging fibre faith

NBN CBA fetes Feds' fickle, flagging fibre faith

Summary: The Vertigan cost-benefit analysis has further downgraded the role of fibre in the multi technology mix (MTM) model for the NBN - even though it also suggests that fibre isn't as relatively expensive as it used to be. What are we to make of this?

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One of the most interesting things about the Coalition's long-awaited cost-benefit analysis (CBA) is how it differs from the previous NBN Strategic Review (NBNSR) on a number of rather significant points.

Foremost among those is the CBA's conclusion that continuing with Labor's fibre-to-the-premises (FTTP) rollout, in the 'radically revised FTTP' form first described in the NBNSR, is now considered to represent a premium of just $10 billion over the government's preferred multi technology mix (MTM) model.

Fibreoptic
The cost gap between FTTP and MTM is smaller than ever – so why did the CBA downgrade it even more than the Strategic Review? Image CC BY-SA 3.0 BigRiz

This is far less than the tens of billions that Malcolm Turnbull, spruiking hard for a pre-election win with policy costings that would later turn out to be $12 billion too conservative, warned the country we would face if we continued what he dismissed as Labor's FTTP pipe dream.

Remember this is the same man that somehow convinced a not-insignificant portion of the Australian public – or its media, at least – that Labor's version would cost up to $94 billion while the Coalition could get the job done for total funding of $29.5 billion.

Even that figure represented upwards movement on the Coalition's pricing: those with even moderately good memories will recall that Labor was going to roll out FTTN for $4.7 billion, and that the Coalition went to the 2010 election promising to fix Australia’s broadband with a spend of around $6 billion.

It wasn't too long ago that the Coalition was arguing that the FTTN upgrade should only have costed around $15 billion, with the NBNSR pushing it even further upwards to the point where we are now committing to a $41 billion MTM rollout that even Turnbull STILL won't guarantee is going to work.

The mostly-FTTP model, by contrast (adding, necessarily, fixed wireless and satellite services to the last few percent), has become cheaper with every passing report – even those commissioned by Turnbull. The NBNSR cut his claimed savings of $64.5 billion to just $23 billion, and the CBA – upon further reflection of a cost model that has been intrinsically structured to favour the Coalition's NBN policy – now says the gap between the existing FTTP and planned MTM model is just $10 billion.

If this keeps up, we won't even need unicorns to build an all-fibre network, as telecoms luminary and NBN Co board member Simon Hackett so colourfully suggested in a speech to the Australian Network Operators Group this week.

“It’s not ideal,” he was quoted in industry journal Commsday as saying, “in the sense that I’d much prefer the thing was built with fibre; I’d personally prefer we spent A$60 billion, or whatever it cost, to build it all with fibre. The world would be great, unicorns would jump through the fields and we’d all be happy ever after.”

“The problem is it’s not my money, directly... it’s all of our money, indirectly, and the government of today is not prepared to spend the money to build the network that would be the perfect world.” But would it be prepared to spend that money if the quantity of that money was not so much – for example, if NBN Co could figure out a less expensive way to roll out FTTP?

Now that Vertigan's CBA suggests the difference between the models could be as little as $1 billion per year for the next decade – is there a case for spending that little extra to do an all-fibre infrastructure right?

Herein lies one of Turnbull's weak spots: he has not, outwardly at least, done anything to optimise the Labor rollout he has criticised so resoundingly; he has only been focused on moving away from it, even though the NBNSR suggested the radically revised strategy had a much more reasonable price tag. Now that Vertigan's CBA suggests the difference between the models could be as little as $1 billion per year for the next decade – is there a case for spending that little extra to do an all-fibre infrastructure right?

This may be optimistic thinking, however: the second significant difference between the NBNSR and the CBA is that the CBA seems to have rather significantly reduced the amount of FTTP that will be rolled out in the network.

The NBNSR, in constructing the MTM for the first time, proposed that on the completed network around 26 percent of customers – around 3 million based on a total of 12 million premises to be connected – would get FTTP services.

Other NBNSR scenarios, remember, were predicated on other penetration rates for FTTP services: 19 percent in Scenario 5 (FTTN & HFC), 63 percent in Scenario 4 (exclusive use of HFC in HFC areas) and 87 percent in Scenario 3 (where FTTN is only used on the shortest length services to ensure high levels of performance).

Despite its other procedural flaws the NBN Strategic Review was correct in actively considering the role that FTTP would play in a true multi-technology solution, and some of its options explored quite generous penetration of the technology.

The CBA, however, was designed from the get-go to malign FTTP – and has reduced its role to unprecedented low levels as a result. It's right there on page 11: even though the MTM scenario included 26 percent fibre services when the NBNSR was handed down, that percentage has now been reduced to 15 percent.

This is a significant and fatal departure from the terms of engagement and even the government's own proposed architecture, as set down in the NBNSR. In other words, in assessing the net benefit of additional bandwidth to Australia, the authors of the CBA have actually handicapped the FTTP model by minimising its penetration – and, therefore, minimising the potential economic benefits (including both subscription revenues and onflow benefits) of fibre in its modelling.

Even though the MTM scenario included 26 percent fibre services when the NBNSR was handed down, that percentage has now been reduced to 15 percent. This is a significant and fatal departure from the terms of engagement and even the government's own proposed architecture.

No wonder the FTTP solution compared so poorly against the MTM option in the CBA's analysis: in Vertigan's vision of Australia's broadband future, fully 1.3 million fewer homes will get fibre broadband. This omission has likely distorted the projections about realisation of benefits, as well as marginalising the increase service profile and reduced maintenance a fibre infrastructure offers.

The CBA may well justify this omission based on its premise that economic benefits will flow sooner and better if those premises can be serviced using FTTN rather than FTTP – but these discrepancies suggest, more broadly, that the Coalition's actual broadband policy is still as vague, confused and indifferent to technological reality as ever.

Does this mean Turnbull is continuing on his perceived mission to eradicate fibre – and, in the process, any memories of Labor's NBN architecture – from his own? Is it a subtle adjustment made for the purposes of bolstering the CBA's case for the MTM model? Or is it just a continuing indictment of fibre's perceived high cost and longer rollout times, which are outlined in the CBA in ways that inaccurately suggest an all-fibre network would cost 2.71 times as much as a MTM model?

What do you think? Is Turnbull squeezing out FTTP with each successive report? Is Vertigan doing that job for him? And, is it better to have FTTN now than FTTP later?

 

Topics: NBN, Broadband, Fiber, Government AU

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Australia’s first-world economy relies on first-rate IT and telecommunications innovation. David Braue, an award-winning IT journalist and former Macworld editor, covers its challenges, successes and lessons learned as it uses ICT to assert its leadership in the developing Asia-Pacific region – and strengthen its reputation on the world stage.

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28 comments
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  • Cost of NBN and Federal funding

    "But would it be prepared to spend that money if the quantity of that money was not so much – for example, if NBN Co could figure out a less expensive way to roll out FTTP?"

    There is a big issue here that people do not understand federal money. The government can spend as much as it likes. It has no implications for inflation or any other nasties. The federal government cannot carry cost or debt over int next or any future years. No debt will be left for the future. None at all.

    So not building the ALPNBN as designed is a fraud on the people of the country. It will not cause debt it will not cause anything other than the delivery of a world class service.

    Also the price to be charged for NBN service is arbitrary as the government will have no debt or costs to pay off. For those that have difficulty with this, here is something of interest for you.
    http://www.forbes.com/2011/03/18/deficit-cut-danger-budget-jobs-leadership-managing-employment.html
    jimspc
    • Federal Funding

      So this non debt doesn't incur interest payments? What is the 13.2 billion set aside in the budget for then? It is interesting, pardon the pun, about how flippant the article author is about $10 billion bucks.
      I don't think anyone would deny FTTP is the best, but how many "net" users use the net for email and a bit of surfing and nothing more. I am pretty sure the question hasn't been answered. The assumption seems to be that everyone will want to spend all day watching IPTV, while downloading other content.
      As a tax payer I don't want the country to spend on FTTP infrastructure that may be overkill. If you want FTTP as a user, then pay for it yourselves. Which is what I will happily do.
      AussieChief
      • What about the benefits?

        Don't you think its reasonable for a government to pay for infrastructure if it is beneficial for our economy? The cba attempted to measure these benefits but unfortunately they used incorrect assumptions. If you don't think watching tv is beneficial for the economy you might not want to see the government taxes paid by Netflix?
        tw6666
        • Taxes

          Thats the thing they are building the infrastructure that will support FTTP and you can extend it to your premise if you want to. The real benefits to the economy may not be known for years and I would say that no one can calculate the benefit yet. I am pretty sure businesses that need FTTP can do their own cost benefit analysis on extending fibre for their business. Netflix isn't officially in Aus yet so I am guessing they are not paying tax here.
          As an aside, I am literally hanging out for the NBN as I live 7.5 kms from the exchange and get a whopping 1.6 Mbps on my ADSL link to share between 4 adults, so needless to say not much streaming happens. My take is I would rather have up to 100 Mbps in a year or two, no sign of it on the NBN map yet though, than wait a decade for fibre to arrive.
          AussieChief
          • Foxtel then.

            I know Netflix isn't 'officially' in Australia but my point was that they provide content over IP. I'm sure Foxtel want to emulate their business model though. But this extends to potential other (Australian) businesses that want to provide video content over IP to the masses. The cba underestimated what video technology we will use in their forecast. You can view the link I put in my comment below for proof.
            It's not a case of if you need it you should pay for it... By under investing on this infrastructure we are preventing businesses from living up to their full potential. Which has consequences for our economy.
            tw6666
          • Upgrade later. Do it now

            The cost to provide fibrer to the house during the NBN build is a government funded "its done" no interest, no pay next year.

            However every 'upgrade' or change made by private enterprise AFTER initial construction will cost and it will leave a debt. That's the difference between a government funded NBN and an add on at a later date. The LNP are going to make people pay in the future for what should be an all inclusive package right now. OK, some time new hardware at both ends of the fibre will be needed and that may cost. But the initial ALPNBN had no additional cost to the user for fibre to the premises The LNPNBN pay extra for anything. Again the usage charges are arbiary. The government has no money to get back. It cannot accrue debt. Or leave debt for payment next year or any year in the future.
            jimspc
          • Tax payer

            There is no such thing as government funded, it is tax payer funded. Private enterprise will do what is best for their enterprise. Capital expenses that are less than $10k are 100 percent written off in the year year they are incurred, so unless the business is losing money or not making very much money there wouldn't be much if any debt. Most businesses that I have encountered in my work already have hooked up to the net with capacity that works for them. From your point of view I can see that you think it is better for the government to carry the debt. I think it should be up to individuals to provide what they need as long a they can connect somehow. Overriding all this is that the NBNCo was a disaster waiting to happen, putting in board members and many senior people without telco experience was where the incompetence started. It would have been better to get the major telcos to pony up for a consortium. The problem is the ALP hate Telstra (and big business) for some reason and now we have the situation where the existing telcos wont upgrade their existing infrastructure because the NBN is coming. Creating a start up to do a tens of billions of dollars roll out was incompetence on a massive scale. Five years later and there has been very little progress, unless you move to a green field development.
            The sad thing is I'll probably be pushing up daisies before any kind of NBN gets to my home.
            AussieChief
          • tax payer funds nothing. ever

            "There is no such thing as government funded, it is tax payer funded"

            You have not been following the links.

            " From your point of view I can see that you think it is better for the government to carry the debt."

            There is no debt to a federal government. Its time you started to learn about federal funding and government spending. I have given you links use them.

            " It would have been better to get the major telcos to pony up for a consortium"
            Disagree. The NBN employees and board do not do the work. They pay for the expertise to be 'bought' in. Then set up contracts to award parcels of work to tenderers. The work oversight may be performed by employees or contracters. There are also finite resources for this work so instead of training people for redundancy on completion a slower level of installation may be preferred. That's a NBN management issue.

            Once again. Your tax is not paying for it and it leaves no carry over debt.
            What the government funds and what private enterprise funds is a political issue. Private funds do and will require borrowing and repayment with interest. Federal government funding will not.
            jimspc
          • Links

            The only link I saw was the Forbes.com link, which is American, but presumably applies here to some extent, I would still like to know what the 13.2 billion is for in the budget. There was no link to the PDF that I could see. So apologies for not reading that. If the Forbes article is right, why don't we have high speed trains, highways and internet across the country, super villages for retirees, universities, hospitals etc? The buck must be paid back at some point.
            You should watch this, I think Simon presented yesterday from an FTTP fan who is in the know. http://simonhackett.com/2014/09/06/rebooting-the-nbn/#more-1633. It doesn't sound that bad, especially at the end where he says it isn't set in concrete.
            AussieChief
          • links and money

            " If the Forbes article is right, why don't we have high speed trains, highways and internet across the country, super villages for retirees, universities, hospitals etc?"

            Indeed why not? There are a couple of reasons. We have limited resources as far as a workforce goes. We could only manage a certain number of projects a year. We need to be mindful of how much the government spends in relationship to the private sector. It would be very easy for the government to outspend the private sector in creating assets. That may not be good. The real over arching answer though is politics. It is a political restriction imposed by government. Sometimes through paradigm driven ideology sometimes through ignorance. But Yes. It is possible to have it all.


            The link is good. But I cannot help feeling that Simon Hackett has been misled. The limit on the LNPNBN is government imposed. It is not a funding or money availability issue. Its a bit like issuing fire departments with 10meter hoses to go on 20meter ladders to fight fires on 50meter buildings when the money for a full compliment of 50meter equipment is in a bucket already. The whole thing in fibre should have been the task. Not finding competent people who can build a lesser version for a political value not a workable cost. Note the "option" of fibre to the premises. It will cost a fortune at a later time. It should have been done now.
            jimspc
          • A thought

            How can it cost a fortune in the future, if the money isn't really the issue?
            AussieChief
          • A thought answer

            "How can it cost a fortune in the future, if the money isn't really the issue?"
            Simple money is not an issue when the federal government pays for it. there is no debt there is no interest.
            However if as part of the building they 'do it cheap' intending it to be upgraded later by third parties or new owners. Then the costs of doing upgrades and modifications which are not government funded will cost in commercial terms. The cash has to be borrowed and the interest has to to be paid, and yes that does incur debt this time because its not federal government money. The user will have to pay this either directly or across the board if apportioned to the whole network.
            This is the bit that shows the government is just plain being nasty. They want users to have the pain of paying for upgrades to make it work fast. When everyone could have had that in the first place. They are just so scared that people may 'get' something.
            jimspc
          • It's an investment, not a debt

            The NBN will actually pay all that money back, plus some interest.

            And I guess after that the government will dip in and take more like it does with other GBE's
            Tinman_au
          • Semi correct

            You are semi correct in that it can be extended to the home if you want (Fibre that is). What you aren't considering is that the hardware (node in this case) will be a bottleneck point that will have to be upgraded at a further cost.

            Last I looked, the hardware to be used doesn't support more than 5gbps (I read 2 somewhere, but 5 elsewhere, assuming the better number). 300 premises into that. Now, not everyone is using that true, but it is still a point that will need upgrading less than 5 years from now using the coalitions own numbers if we are to avoid what we currently have.

            Also, as an aside, your 1.6mbps connection won't improve substantially according to data from similar rollouts in the UK etc.
            idryss
          • Link speed

            "Also, as an aside, your 1.6mbps connection won't improve substantially according to data from similar rollouts in the UK etc."

            Well, that is flippin depressing!
            AussieChief
      • More federal funding and info

        The government still needs to make a budget. It needs to see where the balances in the budget sectors stand. It still needs control. It can't have one group going off and doing its own thing. It all needs to be looked at objectively. The issue to do something or not is more political than financial.

        You may also be interested to learn that your tax funds nothing. The government taxes you to reduce your spending power. The government does not collect tax to spend it on things, it is just removing it from circulation. Like wise banks do not need deposits to enable them to make loans.

        States however do require to balance the books as do households. But the federal government no. it does not. If you have time this 64 page PDF explains a lot.

        So to recap the lesser model of NBN is actually robbing us all. The ALP had it right.
        jimspc
      • upgrade

        Now i didnt read the full cba just the important bits, the cba claims that the future upgrade will cost 20% less than the full cost of fttp so around $28.24 billion on top of the $24.9 billion already spent. I see this as a waste of money as it could be done for almost what labour originally guessed of $35.3 Billion, saving $17.84 billion in the long run of around 5 years when the upgrade will be needed
        dxm101
        • Don't trust the figures.

          There are so many things wrong with the cba you would be better rounding up a linesman feeding fibre into the ground and asking him "is this thing gunna work?". I don't think there's ever been a government that has gone to greater lengths to deceive and manipulate the voting public (on infrastructure I mean) Hitler doesn't count. The lies machine that is this government is a stain on our history and we will all pay the price.
          tw6666
        • Upgrade? why?

          Yes. Its all a load of abbott bull. The full installation of the fibre NBN would cover a few years on roll out as would the neutered version. The reality is the cost in each year is paid in full with no debt as a federal government paid project. So why we are quibbling over the cost of this against the coat of that, is crap. Its just a line transfer in the treasury. It costs us noting and does not have to be repaid at any time. The LNP is a deceiving disgrace.
          jimspc
      • MikeK

        I quess the reason that David mau appear to be flippant about $10b is because its 10b spread over 10 years, now when government expenditure is about 1.3 trillion dollars per annum, 1b per year more on comms is loose change.
        We can sit here and argue until we are blue in the face but the simple fact is that comms copper technology started about 120 years ago, its old, it can't do the job any more (mmmm sounds like me), it needs to be put out of its misery. Telstra is currently spending 700m to 1b per year in maintenance. That savings alone would easily pay for the difference between FTTN/FTTP. Let it go people, don't be afraid embrase the future. Anyway the only part of our comms system that's still copper is the last mile, the rest from exchange to exchange, coast to coast and over seas is all fibre but don't let the coalition know that or they may replace it with copper.
        Mike Keir