Time for a reality check on Labor's CBA-less NBN strategy

Time for a reality check on Labor's CBA-less NBN strategy

Summary: Labor-hating has become so popular that few bother remembering the real reason FttP was introduced without a CBA in the first place. But as the Coalition crows about a cost-benefit analysis justifying an FttN NBN 10 times costlier than Labor's own FttN policy, it's worth taking time out for a reality check.

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Force of repetition has turned Labor's failure to produce a comprehensive cost-benefit analysis (CBA) for its fibre-to-the-premises (FttP) National Broadband Network (NBN) strategy into a mantra for proponents of the Coalition's substantially revised plan.

"Labor should have conducted a CBA before it committed to FttP" is the gist of such comments — which have this week been followed by some sort of indictment of the previous government's haphazard planning, as well as a loud "thank you" to the current government for saving us from economic disaster.

Is Vertigan's CBA sound analysis, or just blowing more smoke on FttN's real costs?
Is Vertigan's CBA sound analysis, or just blowing more smoke on FttN's real costs?
(Image: CC BY-SA 3.0, Ildar Sagdejev)

The CBA has in truth done anything but that, as I will explain in greater detail in coming days, once I have had the opportunity to give this long and complex document its due consideration.

For now, however, in the wake of such constant vitriol against Labor's CBA-less NBN, it is worth remembering a simple fact: Were the previous government not so bold as to proceed with the project five years ago, we would still be trying to pretty-please get Telstra to start investing in the fibre-to-the-node (FttN) plans that it quite emphatically shelved back in 2006.

That's right: In today's revisionist mindset, it's easy to lump all the blame with Labor — but the truth is that it was during the previous Coalition government, back in 2006, that the government came to such a loggerheads with Telstra that the then freshly ex-monopolist publicly proclaimed in an ASX filing that negotiations "have reached an impasse. Until Telstra's actual costs are recognised and the ACCC's regulatory practices change, Telstra will not invest in a fibre-to-the-node broadband network."

Eight years later, Telstra still has not invested in such a network; it is happy to continue marketing ADSL2, milking profits and undertaking minimal maintenance on its network with nothing even vaguely resembling a FttN node installed. As you would expect, Telstra remains interested in profits, rather than arbitrary technological progress, believing that anything else is naive folly.

Intervening years have seen a raft of efforts to get the industry to pull itself up by its bootstraps to facilitate such an outcome; just have a look through this 2007 presentation from the multi-telco G9 consortium if you've forgotten about one of the higher-profile efforts.

Were the previous government not been so bold as to proceed with the project five years ago based on the belief that it was the right thing to do, we would still be trying to pretty-please get Telstra to start investing in the FttN plans that it quite emphatically shelved back in 2006.

The government's peace offering, in which Telstra had the chance to lodge a reasonable and fair bid to deliver FttN services under a formal tendering process, descended into farce when the company famously lodged a tender bid that was as non-committal and non-responsive as any of the company's earlier musings.

It was the failure of this process that left Labor with no alternative but to find a different way forward — and that way, as we all know, was to set in motion the plans for the current FttP network.

While few would question the value of a good CBA before a major investment, to say that the Labor government should have run a CBA before embarking on this FttP rollout remains one of the rather inaccurate mantras of the modern telecoms era.

The reality is that Labor had already run its CBA in the form of its FttN tender — in which a panel of experts weighed the various proposed paths forward and found that none would effectively deliver a value-for-money outcome. It is true that the possibility of a fully FttP network was not formally weighed against these objectives, but it is also equally true that then-Communications Minister Stephen Conroy had absolutely no other option.

At that point, it was FttP or nothing, since Telstra had shown with its December 2008 submission that it had absolutely no interest in playing ball according to the government's rules. To suggest that Labor failed to consider alternative architectures is simply incorrect; since any rationally thinking person would at that point have dismissed suggestions of buying Telstra's ageing copper network out of hand, the only other option was to build the network from the ground up.

And that meant fibre, since not even Labor was crazy enough to try to build an alternative copper network to compete with Telstra's. While Labor certainly did miss some opportunities to speed up its rollout — its lax contractor management and rejection of a compromise fibre-to-the-basement (FttB) topography remain soft spots in its telecoms legacy — the fact is that without the framework Labor put in place, we would today have no hope of improving Australia's broadband at all.

Many have forgotten that the Coalition government, the same one that was elected just under a year ago in an emphatic get-stuffed vote against Labor, went to the 2010 election with a farcical broadband policy that was credited with helping the Coalition lose that election.

Had the Coalition gone to the polls promising to spend more than AU$40 billion to implement a piecemeal and extremely expensive network whose replacement was already being discussed, it would have been laughed out of the spotlight and sent back to the drawing board yet again. But Labor lost the election for reasons entirely unrelated to the NBN, and the project has been one of the biggest casualties of the change of government.

At that point, the Coalition believed that it could fix Australia's broadband with around AU$6 billion of investment, and was lambasting Labor's commitment of AU$43 billion for the task. It was seen as a one-upping of Labor's AU$4.7 billion FttN policy, which itself was a slight nudge up from the AU$4 billion with which Telstra said it could have delivered "high-speed broadband connectivity to 4 million households" by December 2009.

Five years later, we have the same Coalition government extolling the virtues of its AU$41.7 billion plan, backed by a pair of documents whose preordained outcomes will now be used as justification for renationalising Telstra's copper access network and indulging in a telecommunications U-turn the likes of which the world has never seen.

Had the Coalition gone to the polls promising to spend more than AU$40 billion to implement a piecemeal and extremely expensive network whose replacement is already being discussed — had this been the Coalition's honest policy at the 2013 election, it would have been laughed out of the spotlight and sent back to the drawing board yet again. But Labor lost the election for reasons entirely unrelated to the NBN, and the project has been one of the biggest casualties of the change of government.

The true costs of the Coalition's policy have only become clear since it secured power, riding a wave of anti-Labor sentiment that has been extraordinarily successful in polarising normally objective observers who have failed to remember the entire context in which Labor's NBN was hatched. Once spruiked as a cut-price alternative to Labor's CBA-free policy, the Coalition's NBN has exploded in size, scope, complexity, and cost.

As expected, the CBA has justified the government's policy on paper — and loosed the chain on Turnbull's wrecking-ball NBN politics. However, once the dust has cleared, Australia's broadband future may yet look much different than anybody would have expected.

What did you think of the CBA? Were there any surprises? What would you change? And where do we go from here?

Topics: NBN, Fiber, Government, Government AU, Telstra

About

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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24 comments
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  • VDSL

    Was being trialled by at least two or three ISPs at sites in Canberra, WA and elsewhere up until Labors NBN which put a holt to all that.

    So without the NBN there would already be commercial VDSL based products in the marketplace instead of yet another trial just getting underway.

    The NBN was (and probably still is) going to create Telstra MkII which means in 10-20 years from now we will all be having the same discussions about a monopoly player controlling the market.

    There is just so much bad history with both sides that it really is a question of where to now?

    Would it have been better to just offer a first in first served pool of money and let the ISPs fight it out, or leave metro to the market and concentrate on a government funded roll out to non-metro areas?

    Given new estates and new apartment buildings where getting Fibre in '09 the metro areas would surely have been sorted out by the ISPs after all - and doesn't competition down to the wire make for true competition in the marketplace instead of the faux competition that the NBN will bring?
    aesonaus
    • Fibre was also being trialed

      Why blame the NBN just because it's handy? At the end of the day, this country needs a government owned broadband infrastructure in place. The Coalition had a huge chance to do this when they sold Telstra, but they failed miserably by not breaking it up then.
      The NBN is not a nice thing, it is a requirement for us over the next 50 years if we are to have any ability to succeed in the new world economy. Unfortunately, as a political exercise the Coalition are once again trying to fail miserably. They could have been heroes and repaired the rollout problems that Labor was having...I know that I would have voted for the party that did that. Instead, they keep appearing to be the party of Professional Opposition...only able to criticize and not to actually constructively govern.
      viditor
  • VDSL

    Was being trialled by at least two or three ISPs at sites in Canberra, WA and elsewhere up until Labors NBN which put a holt to all that.

    So without the NBN there would already be commercial VDSL based products in the marketplace instead of yet another trial just getting underway.

    The NBN was (and probably still is) going to create Telstra MkII which means in 10-20 years from now we will all be having the same discussions about a monopoly player controlling the market.

    There is just so much bad history with both sides that it really is a question of where to now?

    Would it have been better to just offer a first in first served pool of money and let the ISPs fight it out, or leave metro to the market and concentrate on a government funded roll out to non-metro areas?

    Given new estates and new apartment buildings where getting Fibre in '09 the metro areas would surely have been sorted out by the ISPs after all - and doesn't competition down to the wire make for true competition in the marketplace instead of the faux competition that the NBN will bring?
    aesonaus
    • Monopolies

      - and doesn't competition down to the wire make for true competition in the marketplace instead of the faux competition that the NBN will bring?

      So with your understanding we would end up like US cable mini monopolies holding there area to ransom as not one will over build each other. So does that sound like competition.
      While NBN is giving access to all ISP so they can fight it out on supplying the best value that the customer wants. Now that sound like competition.
      JasonKent
      • competition

        I was actually looking closer to home for as an example. That being Australia. Telstra, Optus and others all have separate infrastructure in some areas already, and during the 90s the Telstra and Optus HFC networks were rolled out next to each other.

        So I was more suggesting that instead of starting from scratch, why not learn from the past - look at what has worked, and what hasn't in previous rollouts both here and around the world and then go from there.

        I agree with the US concern - we definitely don't want that to happen and that would be a "mistakes of the past" situation.
        aesonaus
        • Convenient Memory?

          How is Optus Cable a good example of competition "to the wire"?
          It flopped massively, so much so that there is no competition over the wire again! You get a choice of Foxtel through a Telstra cable or Foxtel through an Optus cable!
          In my books that's not a choice at all!

          Even if you consider that a success, what about the other 80% of the population that Optus couldn't justify rolling cable to? Or the other 60% that Telstra/News Corp couldn't justify?

          Learning from the past, we know that private companies are unwilling to roll out expensive infrastructure without Monopoly guarantee and only 40% of the population are (or at least were) viable to roll out to.

          Secondly, NBN Co isn't Telstra MkII at all.. It offers no services to the customer, just the wires and Infrastructure for other companies to offer services to the customer.
          StevoTheDevo
        • ...

          Telstra and Optus are the problem, just like in the USA.

          Also, Telstra and Optus are not good for competition, because they have not rolled out anything since Cable Wars.

          We are also forced to pay for over priced and under-delivered services (I mean an example is Foxtel - what a ripoff of a service that is).

          Telco Industry in USA for example are aggressive as ever, they try to buy and lobby politicians so they can lockout other providers or their local governments be forced to use providers like AT&T, rather than running their own network that would be supportive of creating jobs and putting money in their own economy (rather than money in Corporate America big business).

          They only just started to see some actual competition, that is because of Google rolling out 1Gbps, now AT&T and Centurylink (and others) rolling out 1Gbps.

          Sounds like you don't have any experience or understanding what is happening at all or is biased towards Coalition Party in some manor.
          DanielZenno
    • A Dose of Reality

      "
      The NBN was (and probably still is) going to create Telstra MkII which means in 10-20 years from now we will all be having the same discussions about a monopoly player controlling the market.
      "

      You seem confused.

      Telstra caused monopolistic problems as it was the holder of the infrastructure as well as a "retailer".

      It could therefore prejudice the market in favour of itself (in a manner that drives prices high to maximise profits - while at the same time giving no incentive to manage infrastructure - outside of it's own use - adequately).

      The NBN was conceived as a "wholesaler" only (that is as a holder of the infrastructure) with no retail "arm". Therefore it's only source of income is to provide the best, cheapest service.

      The difference is just too stark to waste time talking about.
      aDoseOfReality
      • Why would it be the best or cheapest

        aDoseOfReality you state " only source of income is to provide the best, cheapest service.".

        Without any form of competition where is the incentive to best or the cheapest. Look at any government department or Telstra prior to Optus for examples of bloat and expensive services
        chapo-90066
  • You might want to put more info in the title...

    ZDNet is visited by people all over the world. Had no idea what this story was about, thought it was about labor unions at first.
    Rann Xeroxx
    • OK, any Australian articles should start with...

      ... 'for US readers, Australia is a not country next to Germany in Europe, m'kay dudes?' and stipulate that intelligent comments are required not the usual flame infested MS v Apple v Linux wackofests that most US tread comments descend into... m'kay, dude?
      btone-c5d11
  • What it was really about

    Back whenever, when Labor first announced the NBN, my firts thought after a loud cheer was that this was as much as anything about breaking Telstra, once and for all. Now the bastards seem to be solidly back in the game and holding most of the cards. Thanks, Mal.
    splatman
  • Flawed

    I don't how much money was spent conducting this study but it would have been better spent on Malcolm's white board presentation. To be honest I haven't read the entire document but I was stunned after reading the modelling description. Fundamentally flawed by their own lack of understanding network data communications.
    My only conclusion is that the CBA was reverse engineered by some graduate from ANU and now working for the Communication Chambers, then interpreted to the panel of experts?
    Firstly, their bewildering approach to network speed is amateur at best. On page 35 they state that it is common to assume that bandwidth demand will move proportionally with traffic, with a footnote to a European study. But the Communications Chambers decided not to use this methodology because, I assume their desired outcomes would benefit from an alternate approach. BIG FAT FAIL...
    This must have been an embarrassing misinterpretation by the graduate? In fact, with data transfer speeds, bandwidth is proportional to traffic if time is constant. If we consider that data speed (time) is what this whole debacle is about, then we must view bandwidth and traffic as proportional.
    Consider the following, their determination is (seen on page 107) that if you have a network bandwidth of 50MBps and you download a 4K movie it will use 30MBps and therefore you will have 20MBps available bandwidth. This is laughable. The movie does in fact use all available bandwidth (all 50MBps) it just downloads faster. Their assumption that you can allocate a set bandwidth to certain applications is a joke, considering they completely disregard time elapsed to transfer data.
    I can picture Henry Ergas in the thinking pose while they explained this to him, undoubtedly engaged and nodding his head in approval? I'm sure his only concern was the money they were paying him.
    To conduct a cost benefit analysis in this manner is a disgrace. I won't mention the other aspects to the modelling as it is so needlessly complex that it is hard to conclude it has any meaning whatsoever?
    I guess their method was to make it so confusing people would switch off and accept it. Well, I think it's worked. But that doesn't excuse them from getting the absolute basics of data communications wrong. I've never held Malcolm Turnbull in high regard. He is a fraud, and he's done significant damage to our ability to compete on a global scale.
    My question would be to Malcolm, did the CBA include the cost of tech start-ups moving their businesses to New Zealand? They have a lower tax rate and it still doesn't exclude them from doing business in Australia, a win win...
    tw6666
  • Pay a shill for a CBA and guess what you get ...

    Assumptions in this CBA about time frames and cash flow only match last years review if you stick your head in the sand and believe Malcolm's rollout is going to keep its schedule. The reality of a massive delay in switching over to FTTN rollout because of the poor state of the copper network is going to hit over the next 2 years and make this CBA irrelevant. Well actually, the Vertigan report made itself useless because of its poor consideration of actual impacts on the rollout of the network choices.
    RBH191
  • Selling off Assets - example of negligence by L & L

    I hope you all agree that selling off of assets is NOT acceptable, this and Commonwealth Bank are examples of failures to sell to create competition. It infuriates me that people accept this stupidity and then say, oh where is the competition in banking or why does it take an hour to download a movie or 3 hours for data for my work? NBN is going to be a farce because Labor and Liberal fear the BS agitated by MSM with regards to some percieved debt.
    OctaPC
  • NBN

    Competition will make things better and cheaper. pfft! When did that ever happen in the real world? It's very simple. The lying Nationally Party/Murdoch coalition want to create a commodity to exploit. Labor's FTTN would be a utility to benefit all of us. Look at Canada, South Korea and Japan.
    throwthismobout
  • Fruadband

    We're lucky the Abbott crew weren't here at the turn of the century, they would have been recycling the words of the chief engineer of the British Post Office, Sir William Preece, in 1878: "The Americans have need of the telephone, but we do not. We have plenty of messenger boys." Ducking and weaving their way out of building a telephone network.
    Plenty of real experts have made huge errors underestimating the need for technology.
    As late as 1977 the chairman of digital equipment said "there will never be a need for a computer in the household"
    Bill Gates in 1990 said Microsoft would never build a 32 bit operating system and 128k of ram was big enough for any home computer.
    The head of IBM in 1943 declared "I think there is a world market for maybe 5 computers".
    I look back 12 years when 512Mbs ADSL was a technical nirvana compared to dial up, now 512Mbps is the new dialup that ISP's give you when you have exceeded your downloads, it's less of a leap from very bad ADSL at my 10Mbps to NBN Fibre to the home than was the leap from dialup to ADSL 512.
    There were no "experts" on this panel, no representatives from ISP's, nobody from the giant tech houses, Google, Microsoft, Apple and Steam, Nobody from the equipment makers, Alcatel, Cisco and Huawei.
    These so called experts are simply third rate bean counters from sources friendly to the government, previously employed by companies opposed to the competition of NBN and on the record for their opposition.
    It's a Humphrey Appleby enquiry "There's no point in an inquiry if you don't already know the result".
    Nobody is fooled by any of this the vast bulk of the population know what they want.
    Kevin Cobley
    • Minimum Speed Tracking

      "I look back 12 years when 512Mbs ADSL was a technical nirvana compared to dial up, now 512Mbps is the new dialup that ISP's give you when you have exceeded your downloads, it's less of a leap from very bad ADSL at my 10Mbps to NBN Fibre to the home than was the leap from dialup to ADSL 512"

      That's a very interesting way to interpret and track market expectations of connection speed...
      Using that logic and time frame, the **minimum** expected connection speed will be 15Mbps (considered to be "fast" today - if you can get it) by the completion of FTTN 2020ish (not average of 15Mbps as assumed in the CBA).
      StevoTheDevo
  • They're clutching at straws

    Remember that the lack of a CBA is the only solid argument the anti-NBN camp have. The reality of the reasons TO do Labor's NBN are laid out in abundance. Even though its implementation had major problems, it is still absolutely the right thing to do for the country.
    MartyvH
  • NBN was a failure of public policy and revisiting history changes nothing

    David suppose you were given the task of advising Bill Shorten on a policy strategy in relation to the NBN to take to the next election. Would you advise a strategy of denial or would you recommend starting by holding an enquiry into how it went wrong?

    Yes back in 2006 broadband plans were being left behind by other countries. Yes there were issues with Telstra including a non compliant bid. None of this justifies the NBN.

    Telstra recently privatised went through a number of CEO’s as it adapted from being directed by government and electorate needs to being directed by the need to maximise return on invested capital. At the same time they found themselves in a substantial monopoly position. Since that time we have seen changes that have opened up Telstra to competition including the unbundled local loop and the contract of sale of the Telstra pits and ducts to the NBN. Getting to that point took a long time, it could have been pushed along faster but then that might have scared off private enterprise investment.

    Over the years there has been a change in thinking on what infrastructure should be owned by Government and what should be owned by free enterprise. Marx of course believed that everything should be owned by Government believing that financial risk should not require a risk premium. In the first world we determined that some situations like Utilities like those that provide the poles and wires should be publically owned because they have a monopoly. These days the trend has progressed further: electricity poles and wires are privately owned but the owners subject to the Australian Energy Regulator. Yes we still have not got this system right. Having private enterprise bear the financial risk has its advantages. If like the cross-city tunnel things go bad, you don’t have to then cut back on welfare.

    The NBN on the other hand was like going back in time by 50 years: a massive investment risk owned and run by Government, very badly managed, and ...

    It became a massive pork barrel, rolling out to locations not on the basis of return on investment but instead on the basis retaining power.
    gwilo graham