Turnbull's NBN claim over Telstra copper is not supported by logic

Turnbull's NBN claim over Telstra copper is not supported by logic

Summary: Malcolm Turnbull still believes Telstra will gift its supposedly worthless copper network to the Coalition for its FttN plan – but his reasons why, make no sense at all. With the election looming, has Turnbull simply abrogated any responsibility for NBN accuracy?

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It’s great to see that, despite the pressure of an election campaign and a near-ceaseless stream of media appearances, Malcolm Turnbull may have lost his grip on logic but still has his sense of humour.

One must assume he was joking, after all, in a Sky News interview in which he not only decided that Labor's NBN will now cost "upwards of $100 billion" – but in which he picked an old chestnut out of the fire by once again claiming that Telstra is going to simply hand over its copper network for a Coalition government to do with it what it will.

Turnbull-NBN-Telstra
Coalition FttN NBN to be built on same copper network Telstra will be paid to cut: Turnbull. Screenshot: David Braue/ZDNet

“We’re not proposing to pay them anything,” he said (video here, skip to 4:50). “Telstra already has an arrangement with the NBN Co, a contract in fact, whereby they are being paid about $1500 for every premise as it is cut over to the NBN and they decommission their copper network.”

If that’s the setup, here’s the punchline: “Their copper network in the context of an NBN world is of no economic value,” he continued. “It can’t be used anymore, so I’m very confident that we can acquire access, ownership if you like, of the last mile copper for no additional payment.”

It’s not the first time Turnbull has argued this curious point, which flies in the face of both logic and everything we know about how private enterprises work. But it’s only when you consider the internally contradictory nature of his argument that you realise that Turnbull’s entire FttN policy continues to be based on the assumption that Telstra will simply hand over its copper network.

The problem, of course, is that Turnbull’s statement is both correct and incorrect – but mostly the latter.

Turnbull’s theory is only correct if you’re talking about Labor’s NBN....FttN is by definition impossible to execute without reliance on Telstra’s copper network. So how can Turnbull's plan still involve paying Telstra $1500 for every premise it disconnects from the very same network on which that FttN network will rely?

It is correct, of course, in arguing that Telstra’s copper network “is of no economic value” without any connected customers. When everybody has been transitioned to an alternative network that doesn’t touch Telstra’s copper, well, of course it has no economic value and its maintenance would be an unwanted cost for Telstra.

The thing is: Turnbull’s theory is only correct if you’re talking about Labor’s NBN – the one that shifts everyone onto a separate fibre network where Telstra’s copper is no longer needed.

Once you try to implement a FttN policy, however, it is by definition impossible to execute without reliance on Telstra’s copper network. So how can Turnbull be claiming that his FttN plan would still involve paying $1500 for every premise the company disconnects from the very same network on which that FttN network will rely?

This makes no sense at all. The Coalition plan intrinsically relies on that copper and will in fact change the fate of that copper network – giving it a stay of execution and, I would say, suddenly giving it economic value again.

Turnbull spoke of Telstra’s “very significant vested interest” in having the NBN built, but that doesn’t mean it wants the NBN built any sooner than absolutely possible: as long as the rollout is delayed, Telstra continues to rake in billions from landline services that it has already throttled back to maintenance mode. If the NBN takes an extra five or ten years, Telstra will still get its money under its $11b deal with the government – and, under the current plan, it will retain the copper, to do anything or nothing with as it pleases.

Sure, Turnbull may be talking tough in order to prevent Telstra from getting too cocky when a Coalition government sits down at the negotiating table to execute what he has previously termed, what was it, “slight adjustments” to the current agreement with the government. But he also comes across as being either incredibly optimistic – which he may be – or completely naïve, which we all know he is not.

This then begs the question of how a presumptive communications minister can so confidently go on national TV and say, with a straight face, that he believes Telstra will simply hand over ownership of its network to anybody.

Piled on top of previous indications that he will suborn Australia’s pay-TV infrastructure for his own NBN cause, statements like this should be sending warning signals to an industry that has already struggled enough to cost-justify new network investments. Clearly, Turnbull’s Frankenstein NBN vision is going to require a few compromises of the traditional pro-business Coalition mentality as he applies pressure in just the right places to deliver the outcome he wants.

Forgetting the industry landscape under a Turnbull ministry for a moment, I suspect such a concession by the board of directors would pave the way for a massive shareholder lawsuit. The market doesn’t tend to like it when companies give away core assets for nothing.

Unless they are simply annihilated at the polls, expect Labor and the Greens to mount a strong opposition against every single change Turnbull moves to make to Labor’s NBN. And why wouldn’t they? With the rollout already underway, they have nothing to lose by delaying Turnbull’s NBN vivisection for as long as possible.

I considered this scenario in depth earlier this year. The fact that it’s still a live part of Turnbull’s election stumping suggests that he has either indeed already all but negotiated a favourable deal with Telstra’s leaders – which will introduce its own probity concerns – or that he is simply hoping his self-assured stance and dogged determination will help him sneak this one past a public that hasn’t been made to care enough about the fine details of either party’s NBN platform.

More broadly, however, Turnbull’s statements highlight something that voters really must be aware of as they head towards the polls: he may paint it out like a walk in the park, but Turnbull’s projected rollout timeframes are already optimistic enough without having to allow for more ridiculous delays of the type that Labor has already experienced.

And I’m not talking about actual rollout delays, which are a function of project management and resourcing deficiencies that Turnbull apparently already has completely under control.

No, I’m talking about things outside of the government’s direct control – for example, the molasses-like process of pushing NBN Co’s special access undertaking (SAU) through the ACCC; the painfully long negotiations with Telstra that delayed the entire NBN rollout; the three-month (likely longer) wait for the Coalition’s cost-benefit analysis and updated business plan.

Let’s not forget the dogged opposition that a Labor opposition would surely mount against any of Turnbull’s changes: unless they are simply annihilated at the polls, expect Labor and the Greens to mount a strong opposition against every single change Turnbull moves to make to Labor’s NBN. And why wouldn’t they? With the rollout already underway, they have nothing to lose by delaying Turnbull’s NBN vivisection for as long as possible.

All of these will introduce further delays to the project. Turnbull may like to pretend that his policy will be smooth sailing, but – barring a miracle – if he approaches the transition to FttN with the kind of ignorant optimism he showed on Sky News, he and all of Australia are likely to be sorely disappointed once the electioneering is over and the real work begins.

What do you think? Do you like Turnbull’s chances? Will Telstra really just hand over its network? Or is he simply oversimplifying what will in fact be a painfully difficult process?

 

Video of Turnbull's appearance below; skip to 4:40 for his NBN comments.

 

Topics: NBN, Broadband, Fiber, Government AU, Telcos, Telstra, Australia, Next Generation Networks

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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Talkback

27 comments
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  • Turnbull's NON LOGIC

    According to Turnbull Telstra's copper is a highly regarded great piece of infrastructure that must be fully utilized in his NBN plans to save us the money of laying all that optical cable.
    Mr Turnbull you are also telling us at the same time that this copper is "worthless and we won't have to pay for it".

    Why after installing 50-60 thousand mini telephone exchanges in ten years will we have to then pull them all out to install fibre, which is the end game in telecommunications?

    If on every node there is one subscriber that want's fibre for the 3 grand or is it 5 grand plus some sort of "annual rental" like UK, then NBN co will still have to run fibre down every street anyway so what's the saving?

    The very proposition of pay on demand fibre is to actually discourage it's installation is that a good thing?

    Can Malcolm explain why NZ a much poorer country than Australia, the conservative government has a fibre to the home program?

    Is Malcolm subsidising Business fibre at the expense of the taxpayer?

    Watched tired old Malcolm with his tired old arguments, his machine gun mouth uttered the words "UNO,UNOW,YANNO" a total of 94 times in a 1 hour interview or 6 times a minute for the length of time he talked, sometimes the Yanno's were repeated in a stuttering fashion like "Yanno Yanno". Don't know whether this could be described as English or whether he's coming down with dementia or mad cow disease. He even beats Peter Reith’s record of “Yanno’s” on a couple of occasions. I once recorded Reith saying “Yanno” 13 times in a one minute period and Abbott saying “umm” “umm” “umm” 16 times in a minute. People that incessantly do this suffer from some sort of disability where their mind can’t concentrate on talking and think at the same time. They talk but loose coherency when their minds can’t get the information they are looking for, or their arguments lack voracity and they are playing for time to try to get a coherent argument together. In general it means that there’s not too much up there. This kind of person gets to the elevated positions they hold by their social skills, making themselves liked or holding power that others like to connect to. They don’t get there with the assets between their ears.

    Malcolm has no perception of the future he see’s everything through the fog of the past. His vision of the future is a mere linear extension of today.

    Turnbull's arguments are incoherent that's why we hear all the "yanno's".
    Kevin Cobley
    • Easy Answer

      Thats an easy question to answer. When it comes to New Zealand which was once a shining example of an FTTN rollout a couple of years ago by the LNP. They found that it did not meet expectations and now they are ripping up their FTTN network and replacing it with FTTP.
      Kussie
    • "Malcolm has no perception of the future he see’s everything through the fog of the past. His vision of the future is a mere linear extension of today."

      Such is the demeanor of these types. They fear new important technology developments, want to hold everyone back because it's far too scary for them. I consider it a disability, for the coalition clowns it's business as usual, however that doesn't mean we have to build wheelchair ramps for them. Time for them to grow up instead.
      Hubert Cumberdale
      • "They fear new important technology developments"

        MT does not fear the new technology. It's just that Labor got to it first and since Abbott has always been anti-whatever-Labor-is-doing, then the LNP must do the opposite.

        I am really surprised that anything has gotten done lately.
        Zhyr
  • With any luck

    This is all part of Turnbull's master plan:

    In a scenario where the Coalition win the election, they commission a few pointless studies and ask Telstra to give away their network for free (an idea that beggars belief, as per David's article). Telstra politely declines that suggestion so Turnbull is 'forced to conclude' that FTTH is the better option. They'll make a few cursory changes to pretend they're 'stopping labor waste' or whatever that weeks slogan is, and the (popular) NBN plan gets completed by and large to it's current spec.

    Here's hoping anyway.
    RealismBias
    • They had to differenciate themselves

      I think you have nailed it on the head. If you read the coalition's policy there are plenty of "get out" clauses that would enable the existing technology and arrangements to be kept. Let's be realistic, even if Turnbull quietly supports the current method in principle, it would look totally hypocritical to change position from "while elephant", "selling all NBN assets" from the last election to totally endorsing it. The coalition backed themselves into a corner so they had to differentiate themselves.

      Once they are in government they can easily say "oh it's too hard to change it now" because they didn't have access to all the information. Just look at the myki project in Victoria.

      Given all the problems with FTTN (both technical and reworking contracts) that will add significant delays, I am optimistic much wont change.
      Nimos-92373
      • Everyone can vote Liberal/Nat then

        nothing to worry a out;-)
        Richard Flude
      • The other option...

        They can always play the old Conservative chestnut - "We really thought the outgoing government was being truthful as regards money. However, we now feel it would be irresponsible to continue this program (and others). We will look at implementing the remainder of the program at some point before the next election (or just have it privatised)"
        I sincerely hope we have the best (worst?) type of government for the rest of my time on this planet - The 'Hung Parliament'. Make the bastards work for their fat paychecks ;)
        zackmckrakken
  • "All of these will introduce further delays to the project. Turnbull may like to pretend that his policy will be smooth sailing, but – barring a miracle – if he approaches the transition to FttN with the kind of ignorant optimism he showed on Sky News, he and all of Australia are likely to be sorely disappointed once the electioneering is over and the real work begins."

    Nailed it. Of course there will be a few hapless apologists making predicable excuses for him along the way. Safe to say they can be disregarded.
    Hubert Cumberdale
  • Australia, if you believe Libs' NBN policy you are dreaming

    It is my opinion, that the Libs would be quite happy to have Labour/Greens/Democrats delay any attempts to change the NBN. They don't want it or like it. It costs "too much" money and "we don't need it". So they claim.

    And Telstra couldn't care less to remedy their Asbestos issue in their pits to have their competitor - NBN Co - build their network.

    So I believe NBN or even something like it (the Libs' plan) will not be finished in any meaningful timeframe. The Libs will hand this issue back to the (previously unsuccessful) private sector.

    Australia, you must be dreaming, if you think you are going to get any NBN under a liberal government.
    beau parisi
  • Like your previous article linked to

    David's business knowledge is questionable.

    In response to his previous claims of Telstra signing contract with Labor (wrong), "massively duplicitous" negotiating with the coalition (when obviously sensible and common).

    Again David asserts his business knowledge in the article:

    "Malcolm Turnbull still believes Telstra will gift its supposedly worthless copper network to the Coalition for its FttN plan.

    Worthless and no economic value aren't the same thing. Discussed yesterday in talkbacks.

    "So how can Turnbull be claiming that his FttN plan would still involve paying $1500 for every premise the company disconnects from the very same network on which that FttN network will rely?"

    Because that was the price Telstra negotiated to decommission it's network (ie it's economic value). This has already been agreed, Turnbull doesn't believe this will require additional money. However this doesn't say there aren't benefits to Telstra.

    " If the NBN takes an extra five or ten years, Telstra will still get its money under its $11b deal with the government."

    But they'll get their money much slower, payment when customer transferred. Telstra wants that money as soon as possible; early money has greater value. They also miss out on potential deployment contracts, money for HFC, retail opportunities the NBN presents,...

    "Clearly, Turnbull’s Frankenstein NBN vision is going to require a few compromises of the traditional pro-business Coalition mentality as he applies pressure in just the right places to deliver the outcome he wants."

    Clearly? Frankenstein vision? You might like to explain.

    "I suspect such a concession by the board of directors would pave the way for a massive shareholder lawsuit. The market doesn’t tend to like it when companies give away core assets for nothing."

    This too was addresses yesterday. Under what law David? Telstra Board has already said any renegotiated deal would be voted on by shareholders. $11b is nothing?

    "And I’m not talking about actual rollout delays, which are a function of project management and resourcing deficiencies that Turnbull apparently already has completely under control."

    Challenges under FtTN significantly less that FTtH. Why it is faster and cheaper to deploy; plenty of international examples to support this claim.

    "Turnbull may like to pretend that his policy will be smooth sailing, but – barring a miracle – if he approaches the transition to FttN with the kind of ignorant optimism he showed on Sky News, he and all of Australia are likely to be sorely disappointed once the electioneering is over and the real work begins."

    Also a miracle is required to 1) complete an CBA within 90days, 2) change NBNCo (a GBE responsible to the Minister, not requiring senate approval) statement of expectations, 3) complete basic SAU for ACCC shiwing vastly lower expenditure and earlier revenue (locking in real falling wholesale access charges), ...

    All basic business issues, conformfortably handled in the real world all the time. That the current NBNCo was such a disaster highlights their incompetency and the difficulty of their task with a budget sketched out by Rudd & Conroy on a flight.

    The bigger challenge will be re-negotiation contrac with Telstra but I assume this is well advanced) and their aggressive delivery timetable. Neither show the ignorance claimed by the author.
    Richard Flude
    • Really?

      "David's business knowledge is questionable."
      Like you have a clue? Appeal to superior knowledge, you? Don't make me laugh.
      Even going to try and point out where the problem is?

      "Worthless and no economic value aren't the same thing. Discussed yesterday in talkbacks."
      Defense by symmantics, really?

      "Because that was the price Telstra negotiated to decommission it's network"
      So, you are just going to ignore the billions of dollars they will make from the network before it is decommisioned? Your selection bias work overtime here, don't let things like that spoil your preconceived ludite views. A quick calculation will show that as FTTH is rolled out they will be collecting about $8B in revenue from their copper network, a network that they can run into the ground because it will be replaced. You believe they are stupid enough to want the money sooner when they can effectively be earning 20% or more a year on the delay?

      "Clearly? Frankenstein vision? You might like to explain."
      A monster put together out of bits and pieces of the dead. In this case copper and HFC. One that will cause the downfail of it's creator.

      "All basic business issues, conformfortably handled in the real world all the time"
      Oh yes, people in business slap together multibillion dollar deals in a couple of days. Oh, no wait they do it in years with a lot of effort and a lot of legal work and the whole process can take years. We are not talking about the petty crap you do Richard.

      "The bigger challenge will be re-negotiation contrac with Telstra but I assume this is well advanced) and their aggressive delivery timetable. Neither show the ignorance claimed by the author."
      This statement shows your ignorance however. Do you have any evidence that this renegotiation is taking place? If you do, please let ASIC know, I am sure they would be very interested in it. I am sure though, if there has been any negotiation it wouldn't be more than a "I think we may be able to come to some agreement" sort of comment.

      "That the current NBNCo was such a disaster highlights their incompetency and the difficulty of their task with a budget sketched out by Rudd & Conroy on a flight."
      You are yet to show incompetency of anyone other than yourself. As to sketch out on a flight, does it make you feel better to perpetuate that falsehood? Even if the initial idea was on a plane, there was a lot of planning done afterwards. I wonder how many great ideas are thougt of on the toilet? Does that make them shit?
      Pilfer-52cec
      • The person who claimed to have interviewed me

        "Even going to try and point out where the problem is?"

        Started the very next line.

        "Defense by symmantics, really?"

        The words have completely different financial meaning, why Turnbull is confident of not having to pay more than $11b.

        "You believe they are stupid enough to want the money sooner when they can effectively be earning 20% or more a year on the delay?"

        Unsurprisingly you believe they wont get replacement revenues from retail customers using the NBN in addition to the per premises migration bonus. Telstra has a very powerful retail presence, unparalleled brand recognition.

        "Do you have any evidence that this renegotiation is taking place? If you do, please let ASIC know, I am sure they would be very interested in it."

        Both Telstra and Turnbull have mentioned speaking to "many parties". Given the difference in the coalition plan and potential impacts on revenue it would be a concern if any of the large telco participants hasn't spoken to Turnbull. Why would this surprise you?

        Why do you feel ASIC would be interested (ROFL)?

        The renegotiation requires the last mile copper, you think this will take years?

        What would I know? It sounds impossible;-)

        "Even if the initial idea was on a plane, there was a lot of planning done afterwards."

        Falsehood? I agree with the subsequent planning, unfortunately it was to fit within unrealistic budgets and why it has so comprehensible failed.
        Richard Flude
  • I think people are over analysing this

    1 of 2 possibilities

    Malcolm Turnbull is an absolute, delusional fool

    OR

    There is already a gentleman's agreement in place with Telstra. It couldn't be a binding contract because then it would have to be disclosed and I don't think opposition ministers can lock in deals for when they are in government. None the less, MT wouldn't be so insistent on this if it had no grounding.

    Telstra won't accept anything less than what they have already and they will be looking to capitalise on the new circumstances that FTTN provide. That doesn't have to be additional payments on top of the original deal, the benefit can come in many ways - changes to infrastructure ownership, additional future work (which they will be paid for) etc.

    Just think about it from Telstra's point of view. Why wouldn't you basically design the whole NBN project for the LNP and let Malcolm run with it? They've got nothing to lose and lots to gain.
    RHUL_SP
    • Sensible possibility #2

      Wait until Pilfer reads it!
      Richard Flude
  • Realism Correction

    RealismBias:
    "Turnbull is 'forced to conclude' that FTTH is the better option"
    But, sadly having established that FTTP is simply not affordable, any form of NBN is relegated to the "aspiration" pile and the coalition get on with the job of sacking public servants and stripping benefits from the needy.

    There will be of course no electoral backlash for this because, as John Howard pointed out to journos back in 1999, Australian voters are morons:
    '... you must remember that the Australian voter has a short memory span... in fact, less than 14 days in most cases!'
    Goresh
    • I'm trying to be optimistic

      But you (and John Howard) are/were probably right.
      The unfortunate fact is that while most people can conclude that the current NBN is the better option, even if they don't know (technically) why, it's not enough of an issue on its own for most people to base their vote on.

      The reality is that if you think of how smart the average person is, half the population are even dumber than that. That's how we've arrived at a point where an election can potentially be won on a hard-to-remember pamphlet of 'non core-promises' and a single policy of 'we're not the other guys'.

      So yeah, I choose 'probably-misplaced-optimism' over 'weeping for the future of humanity'
      RealismBias
  • Corporate greed

    Telstra will certainly negotiate at least $10 billion of additional revenue for its copper, because the package deal with NBNCo, approved by 99.25% of Telstra's shareholders, saw $1500 per copper line on the understanding that Telstra would derive large retail revenues by selling high-end services over fibre.

    Telstra will receive lower revenues with upload to 71% capped at 4-6 Mbps on copper, so will expect more up-front to cover the foregone revenue over, say ten years.

    Handover costs of $21 billion would be more in line with the figure of $20 billion they sought in 2008-2009, which put the nails in the coffin of Labor's FTTN attempt, NBN Mark I.

    The coalition FTTN plan is now at least $39 billion, and still includes nothing for new power stations, contractor delays, nor for a $20+ billion universal fibre overbuild it would have to start from 2019.

    Like Macquarie bank with our airports, Turnbull is now happy to hand our comms back to corporate Telstra, whose obligations to maximise returns to shareholders will always trunp the national interest.
    umbria
    • Where to begin

      What is the expected demand difference between 25 (3 years) to 100mbps (5 years) and 1 gbps? NBNCo forecasts (as pointed out by AA) are for low end.

      Upload isn't capped at 4-6mbps. Many vdsl2 ISPs offer more that today.

      Then pull figures out of the air, demand new power stations (really?) than claim the FTTN / HFC are unworkable;-) ignoring both their popularity around the world actually delivering high speed Internet.
      Richard Flude
      • Begin with the facts

        Those NBN revenue projections based on modest bandwidth demand have proven laughably conservative, Richard! After 12 months, regional NBN fibre has seen well over 50% takeup, only a tiny portion of which is entry-level. Due to the demand for the highest speeds, average monthly wholesale revenue is already $38 per premises. Even if all future takeup was entry-level, the claim that fibre recovers its costs has been soundly proven on the ground. If 25% of fibre users take high-end services, they get what they want, and also subsidise the rollout for everyone.

        Malcolm Turnbull stated on national TV last week that his FTTN would deliver upload speeds of 4-6 Mbps for most premises.

        70,000 2KW nodes running 24x365 will require new electricity generating capacity equal to two average power stations, which are nowhere budgeted for. FTTN+HFC is workable, but because FTTN does not compete as well as gigabit fibre it will have lower takeup. Fewer users on FTTN, and wholesale revenue capped at $16 (according to Malcolm Turnull last week), means that FTTN will not cost recover. By allowing Optus and Telstra to take a cash windfall for decommissioning HFC before they need to replace the coax and sitches, FTTP gets 100% of fixed broadband premises, and delivers at least $24 ARPU per month. Economics 101, Richard. You don't have to like it, but these are the facts.
        umbria