Optus out to stop NBN scope creep

Optus out to stop NBN scope creep

Summary: The National Broadband Network Company's attempt to backhaul all traffic to interconnect in seven state capitals was a huge example of scope creep. It took the firm well beyond the realm of offering last-mile access. Do we need to look out for more?

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TOPICS: NBN, Broadband, Telcos, Optus
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The National Broadband Network Company's attempt to backhaul all traffic to interconnect in seven state capitals was a huge example of scope creep. It took the firm well beyond the realm of offering last-mile access. Do we need to look out for more?

Maha Krishnapillai, Optus' director of government and corporate affairs, has used the point of interconnect argument to warn of the potential for future scope creep by NBN Co. We're already seeing NBN Co's product set offering varying classes of service — the sort of smarts that most wholesale customers would want to add to the network themselves. Is the new telco moving beyond its remit of offering a pure Layer 2 service?

Krishnapillai was talking this week at the Communication's Alliance Broadband and Beyond 2011 conference in Sydney. NBN Co CEO Mike Quigley also spoke at the conference, outlining the progress of the NBN Co, including the roll-out of first release sites and the reasons for delays in the next round of sites. In effect, the company is building a network of which the design is fundamentally dependent on the detail of the company's agreement with Telstra.

That Telstra agreement is also certainly central to Optus' fears of scope creep, with Optus undoubtedly concerned about the potential for a backroom deal between Telstra and the government. What will be agreed in the interests of getting the paperwork signed in a timely fashion? That's why Krishnapillai mentions the need for an independent adjudicator to be party to all deals and material decisions made by the NBN Co.

There are already concerns about the role politics is playing in some NBN decisions. For example, to what extent was a $24 wholesale AVC (access virtual circuit) price arrived at to give a low-cost headline rate to satisfy the great unwashed? In today's Twisted Wire I question the decision by NBN Co to restrict speeds at all — isn't it a case of retail pricing principles being applied to a wholesale offering?

Building a brand new network with a new regulatory framework is complicated and clearly questions remain unanswered. Questions will continue to emerge as the network is being built. How do we ensure decisions made are in the best interests of the industry and the consumer, rather than just being a convenient short-term solution that suits NBN Co? And does a strict line need to be drawn around the activities of the NBN Co?

Krishnapillai is probably right. There does need to be some sort of body to oversee the roll-out and ensure transparency. Otherwise scope creep is a real issue.

Running time: 27 minutes, 31 seconds

Topics: NBN, Broadband, Telcos, Optus

About

Phil Dobbie has a wealth of radio and business experience. He started his career in commercial radio in the UK and, since coming to Australia in 1991, has held senior marketing and management roles with Telstra, OzEmail, the British Tourist Authority and other telecommunications, media, travel and advertising businesses.

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16 comments
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  • Regarding your questioning around CVC/AVC, the reason there is the artificial pricing for AVC (as you mentioned, there shouldn't be any different between the 12/1 and 1000/400) is because NBNCo is using a shared system (GPON) which is similar to HFC, where as our current network is direct point from the exchange to the house (possibly extended with a CMUX)

    The GPON can only share ~2.4/1.2 gbits across a 32 user split, so if you could give everyone 1gbit then some poor **** would be stuck with dialup speeds when someone else in the 32 user group downloads their movies at extraordinary speeds. Simple maths shows that the only rate you can in fact guarantee is ~77/44 mbits

    Now this isn't really an issue if a vertically integrated telecommunications company is rolling out *PON shared systems (like NTT or Verizon is doing), since they can manage contention and upgrades within their own network. However as you pointed out, it creates havoc when you actually are trying to create an open access network. So yes, as you stated, it is the exact same as Telstra Wholesales pricing, however in this case its because of
    1. The way that the NBN network is designed (PON)
    2. They need to make $$$ to pay off CAPEX
    In the case of Telstra, they were just genuinly offering a wholesale service. Of course, pre 2006, before ULL/LSS existed, every ISP was forced to wholesale through Telstra. I would refer to this as the dark age for telecommunications in Australia, because compared to the rest of the world, Australia had horrific quotas as ISP was forced to pay extortionate contention prices (AGVC). Any ISP in that period that tried to provide unlimited (or anything close to it) quickly went bust. It was only when ULL/LSS opened up, allowing ISP's to bypass any type of CVC or AGVC, then quotas skyrocketed, TPG abusing this to the full

    Of course, the other reason for AVC/CVC is simply to pay off the network. As you can see from the business case on pages 111/112, NBNCo's CVC (which is something that currently no ISP pays when they go through ULL/LSS, and its a scaling charge proportionate to how much the ISP's users will download), is again a charge put in just to pay off the NBN. There is no reason for NBN to manage contention if the data rate for each person on the 32 PON split is guaranteed (i.e. you have lets say 15 users on 12/1, a few on 25/4 and a couple on 100/40) as long as it doesn't add up over 2.4/1.2, then you can guarantee those speeds to every user (otherwise the PON will need to be upgraded)

    Now obviously ISP's that overcharge for their quota and have a market share of light/medium users won't incur that much CVC charges (iiNet, Internode, Telstra) so its not surprising that they support the NBN. However for ISP's like TPG, who offer $60 unlimited (and due to ULL/LSS, do not pay any charge for contention), with many more heavy users, its highly unlikely that they will be able to offer an equivalent service on NBN (12/1 unlimited for $60 a month). Its not surprising that TPG has stayed silent in regards to the NBN.

    If you wanted a pricing system similar to the current ULL/LSS, it would have had to been a point to point fiber connection (or at least a PON system that has a much larger default split). But then again, while our ULL is $6/17, the fiber equivalent would probably be ~$40-50 (which is why when Conroy firstly announced FTTH everywhere, the massive prices where released). The way that AVC/CVC is set up, these costs are still there, they are just "hidden", or all squashed into a single market
    deteego
    • Sorry, whenever I mentioned the 2.4/1.2, I mean 2.4/1.2 gbit (so ~2400/1200)
      deteego
  • Thank deteego - that explains it in part - but it doesn't account for the five times price difference in AVC speeds. I think your other point, that they need to make the business case stack up - which I refer to in the podcast - is nearer the mark.
    phildobbie
    • "Thank deteego - that explains it in part - but it doesn't account for the five times price difference in AVC speeds"
      Most obviously, as you said, they need to make revenue to pay off the debt (thats the whole thing about the business case assumption that it relies on people paying more for internet for the bigger speeds to pay off its debt). They have to pay off that 27 (or 36) billion dollars of just capex somehow ;)

      Another reason is the steep price differential is a way of managing the contention for the shared PON network, i.e. creating a premium for the higher speeds creating a disincentive to go for those really fast speeds. If the AVC for the top 1000/400 (or even the 500/200) service is a lot higher then the 12/1 service, its less likely users would opt for the service, which means that NBNCo doesn't have to worry so much about the over-congestion of the ~2400/1200 split. Its obvious that price is the major factor (in general) for internet plan choices, make the premium speeds too cheap and you will just need to upgraded your GPONs which you just installed

      The pricing tiers is required due to the PON. If we assume that for a moment NBNCo didn't have to pay the capex for the original build (and NBNCo just "got" the money), you would still need tiered AVC pricing (although it would most likely be lower then it is now) because you need to manage the fact that 32 people are sharing a ~2400/1200 mbit service.

      The alternative to this is what NTT did in Japan, which is just providing everyone with a cap of 100/50mbits per second, even though its higher then the guaranteed speed (which is ~77/40) its highly unlikely that you will have 32 users downloading 100mbits on the same split at the same time, so its more or less guaranteed in practice. The speed tiers (AVC) are there because a shared service is being used. If you make the 1000/400 or 500/200 prices too cheap, you run the risk of everyone picking those speeds and then NBNCo having to upgrade all their PON systems. The major factor for the steep prices difference was the revenue, a minor factor would have been the factor I outlined above of a possibility of people over-congesting the shared GPON service (because there are too many 1000/400 or 500/200 services on a single shared GPON)
      deteego
  • 14 POIs is not scope creep as Oputus claims, but rather delivering a level playing field according to NBNCo's mandate.

    NBNCo proposed two redundant POIs in each capital city, reserving the right to add others in regional areas if needed. Adding another 106 POIs increases the cost base for NBNCo (operating the extra facilities, plus added network complexity). It also leads to situations like that delaying the first-release site in Townsville.

    If RSPs can sell services to a Townsville customer using a cheap link from their capital city based network to a Brisbane POI, more RSPs can compete for the Townsville business. If they must now lease a costly long-distance link from their network in Brisbane to a Townsville POI they are essentially ruled out, because they cannot compete with the likes of Telstra, Optus and Soul who already own suitable links.

    The ill-informed requirement for 120 POIs merely advantages the big incumbents at the expense of competition, and increases the wholesale cost for us all because NBNCo must recover the additional costs of more POIs.
    umbria
    • It is scope creep, NBN was just meant to be last mile, not the last thousand miles (as the article put it). Arguing otherwise is just splitting hairs and diffusing the issue

      The justification for scope creeping was ubiquitous pricing, and as the ACCC ruled, it wasn't enough of a justification for renationalization of both the last mile and backhaul

      "The ill-informed requirement for 120 POIs merely advantages the big incumbents at the expense of competition"
      This statement is misinformed. Those big incumbents spent their own money in building the backhaul that we are all using, and its not just Telstra/Optus, its also PIPE, greenfields, AAPT. The 14 POI move would have KILLED (not helped) competition, specifically in the backhaul market

      I'm sorry, the point of the NBN was to nationalize the last mile, not nationalize the whole god damn broadband network in Australia. Your points are irrelevant and rhetoric in any case, because differentiation in internal backhaul costs aren't that massive in areas (its other factors that attribute for the high costs)
      deteego
  • @deteego, I'm sorry you think my points are "irrelevant and rhetoric in any case".

    No, the point of the NBN was to provide at least 12 Mbps universal broadband access at the lowest possible fixed price. This is why it required public funding.

    The 2001 Productivity Commission into Telecommunications Regulation outlined a vision for the telecoms regulation that insisted its primary role must be the best outcome for consumers, without any "preferential treatment for incumbents". A decade of failure to deliver reforms to bring this about - usually because a large incumbent lawyered up and opposed them - now sees 70% of Australians unable to get even 2 Mbps, and 30% with no broadband available to them at all, in the second decade of the 21 Century in our wealthy, technologically advanced country.

    Backhaul providers do not depend only on small end users. They also operate VPNs for government departments and corporations, and they will keep these customers with the NBN, because they will not want to operate their internal networks on the internet. Such non-Internet facing WANs ARE explicitly out of scope for the NBN. Fibre backhaul owners (Telstra, Optus, Soul, etc) will also be able to lease capacity to NBNCo itself.

    I'm sure you want to believe every claim that Telstra and Optus make, but their argument that fewer POIs would hurt incumbent fibre backhaul owners is an absolute furphy.

    However, increasing POIs does hurt every consumer, because the increased operating cost to NBNCo will be recovered as a higher universal wholesale access charge. It goes against the primary vision of the Productivity Commission Inquiry, and undermines the primary objective of the NBN of a cost effective universal service.
    umbria
    • >No, the point of the NBN was to provide at least 12 Mbps universal broadband access at the lowest possible fixed price.

      Why is this a good thing? It means the majority of people (people who live in cities) will get a downgrade and pay extra for it. While a minority of people will get cheaper service... but how much cheaper? Over the long run I'm sue not very much cheaper at all.

      If you want the lowest possible price, why do you spend $8 billion to destroy a functional network that can currently deliver speeds of up to 24mbps? And, in the future, perhaps it can do better? It's not just the $8 billion that is lost, it's the loss of the network.
      coolguy4
      • Up to...!!!!!

        My up to 20Mbps plan delivers around 6.7. It has never surpassed 7, whenever I have speed tested. So even if they can improve the theoretical maximum, I'm guessing I'll still get 6.7...!

        So a constant 12 is a marked improvement for me, let alone 100Mbps...!
        RS-ef540
    • "No, the point of the NBN was to provide at least 12 Mbps universal broadband access at the lowest possible fixed price. This is why it required public funding."

      And this does not require renationalizing national backhaul and killing every current backhaul provider. Labor (and Coalition) both had policies to build a regional backhaul to provide competitive pricing compared to current metro backhaul (Labor is doing it with NextGen). The only reason, as Quigley stated, for the 14 POI scheme was to guarantee backhaul pricing (which would allow NBNCo to guarantee end user ubiquitous pricing). It had nothing to do with delivering the lowest possible price, and in fact a monopoly over the backhaul would have done the opposite

      "I'm sure you want to believe every claim that Telstra and Optus make, but their argument that fewer POIs would hurt incumbent fibre backhaul owners is an absolute furphy."
      Telstra and Optus aren't the only national backhaul providers. Or I am assuming that PIPE/AAPT don't exist. Nice work ignoring the facts that are inconvenient

      In other words, you are incorrect, and all the people triping about the 120 POI decision are either extreme left wing socialists that believe everything should be government owned, or people sucking up to Quigley/NBNCo and believe they can never do a wrong decision, and any opposition to Quigley/NBNCo means that they are wrong. If NBNCo started with 120 POI's and they never mentioned 14, you wouldn't even be complaining. You believe in either category, so take your pick

      You are wrong. Case closed. Move On.
      deteego
      • I think the more logical conclusion, rather than "everybody" who disagrees with you is extreme left winged, would be to suggest that everyone is left wing compared to such an ultra extreme rad con, such as you!

        You know my question now, don't you...LOL?
        RS-ef540
        • I said everyone that disagrees with the 120 POI decision, not "me". If people can't differentiate the argument from the person, thats their problem.

          Quigley even mentioned that the 120 POI change wouldn't have had an effect on pricing (or anything else) since the ACCC said it would step in to control prices if a backhaul provider was overcharging their prices. As I said, its a non issue. The original design had 14 POI's because, due to Conroys demand of ubiquitous pricing for equivalent internet plans everywhere, thats the only way NBN could have guaranteed that. He even stated that the increase from 14 to 120 POI's didn't change the final cost of the NBN (although they had to change the business case for obvious reasons)

          As I said, there is no logical argument to disapprover the move from 14 to 120 POI's. The original figure of 14 was always ridiculously retarded, even had AusNOG harping about it everywhere on their mailing lists
          deteego
          • No YOU are claiming that those who whinge about the 120 POI decision are extreme left wingers. YOU claimed this, no one else.

            If you can't differentiate between what YOU say and actuals, particularly when you are 100% wrong, e.g like when YOU claimed the Senate formed government... especially when you wouldn't back down or even admit you were wrong AND STILL WON'T...LOL (you even tried to turn it around and make out the 5 or 6 posters trying to explain it to you were all to blame...OMG)... well, perhaps it's time for you to consider commenting in Cosmo...rather than here!
            RS-ef540
          • "If you can't differentiate between what YOU say and actuals, particularly when you are 100% wrong,"
            Seems like you have issues accepting the truth (or facts)

            Could you show me where I am 100% wrong in the statements I made in this article. Please, I would love to know where I was wrong.

            If I am 100% wrong (as you stated), then the 14 POI scheme never existed, the ACCC never looked into the POI scheme, NBNCo is not using GPON, NTT doesn't exist etc etc. In fact, everything is just a lie. Hell lets go further, NBN doesn't exist, Quigley doesn't exist. Its all just god damn lies to you, my friend

            Yeah............................

            I don't know what you are smoking, or drinking (or transporting into your body by any other means), but I would advise against it.
            deteego
          • LOL... the cover-up continues...

            I specifically gave the one CLEAR example where you were 100% WRONG (Sen/HoR). No arguments or interpretation needed because the Senate numbers DO NOT form government and you know that NOW! -

            But since making that stupid claim and having been corrected, you have dodged, weaved, avoided and covered up, instead going - d'oh yes of course you guys were right... simple...but computer (and particularly ego) says...no...LOL!

            99% of people here, regardless of their beliefs, are honest enough, man enough and decent enough, when corrected, to admit to another/others, that they were wrong on particular issues ... simply "why aren't you"?
            RS-ef540
  • The scope creep is in promised scope, not delivered scope. Rather than make significant progress in activating premises, promises are made that the project will be better.

    It'll be faster. It'll include backhaul. It'll be cheaper than we thought.

    I'd give all of that up for meaningful progress.
    Pragmatic-3e05f