Tuesday, 4 December 2012

NBN: What does the Coalition know that the Experts Didn't in 2009?

I've never understood a central point about the Coalition Broadband Policy, post 2009:
What do they know, as in understand better, than the members of the NBN Tender Assessment Expert Panel?
The Expert Panel made these observations on core Technical and Regulatory issues which I've never seen directly addressed nor ever refuted in Coalition documents or statements:
8. The Proposals have also demonstrated that rolling out a single fibre-to-the-node (FTTN) network is:
  • unlikely to provide an efficient upgrade path to fibre-to-the-premises (FTTP), because of the high costs of equipment associated with rolling out a FTTN network that would not be required for a FTTP network (i.e. FTTN is not a pre-requisite for the provision of FTTP); and
  • likely to require exclusive or near-exclusive access to Telstra’s existing copper sub-loop customer access network (CAN), the so called ‘last mile’, thereby confirming that strong equivalence of access arrangements would be essential. ... In any event, the Panel considers that no Proponent could accept the cost risk [compensation to Telstra] and continue to have a viable business case.
In a nutshell: an FTTN is a throw-away and Telstra have to be paid for their assets or using them, making it uneconomic. If the best minds in the country came to this conclusion, 3 years ago now, what do the Coalition know that they didn't? How does the Coalition justify supporting an uneconomic, born-obsolete solution?

Who were the panel? The Department's NBN website says and their biographies:
The Panel is chaired by the Secretary of the Department of Broadband, Communications and the Digital Economy, Ms Patricia Scott.

The other members of the Panel are:
  • Dr Ken Henry AC, Treasury Secretary.
  • John Wylie AM, Lazard Carnegie Wylie CEO. [investment bank]
  • Laureate Professor Rod Tucker, University of Melbourne.
  • Professor Emeritus of Communications, Reg Coutts, University of Adelaide.
  • Tony Shaw, former Australian Communications Authority Chairman.
  • Tony Mitchell, Allphones Chairman.
The Expert Panel was assisted by Specialist Advisers:
The Department had appointed a number of specialist advisers, following competitive tender processes, to assist with the National Broadband Network.
  • KPMG Corporate Finance (Aust) Pty Ltd was appointed as the Investment, Financial and Commercial Adviser
  • Gibson Quai - AAS Pty Ltd was appointed as the Technical Adviser
  • Corrs Chambers Westgarth was appointed as the Legal Adviser
  • Frontier Economics Pty Ltd was appointed as the Regulatory Economics Adviser
  • Following a call for Expression of Interests to all members of the Department's Legal Services Panel, the Australian Government Solicitor (AGS) was appointed as probity adviser for the NBN project under the Department's Deed of Standing Offer with AGS.
The Technical, Economic, Business, Legal and Regulatory knowledge and expertise of the Panel and their Advisers seems impecable: you couldn't find better in Australia or from around the world.

Their mission was plain: assess the competing bids and report on them against the Governments' Criteria and Objectives.

The Request for Proposal, RFP, Clause 1.3, lists the Governments' Objectives:

  1. covers 98 per cent of Australian homes and businesses;
  2. is able to offer broadband services with a minimum 12 Mbps dedicated downlink transmission speed over each connection provided to a premises;
  3. supports symmetric applications such as high-definition video- conferencing;
  4. is able to support high quality voice, data and video services;
  5. uses fibre-to-the-node or fibre-to-the-premises network architecture;
  6. enables uniform retail prices on a national basis;
  7. is rolled out and made operational progressively over five years from the date of execution of a contract between the Commonwealth and successful Proponent;
  8. continues to promote the long-term interests of end-users;
  9. has sufficient capacity to meet current and foreseeable demand and has a specified upgrade path within clear timeframes, consistent with international trends;
  10. facilitates competition through open access arrangements that ensure equivalence of price and non-price terms and conditions, and provide scope for access seekers to differentiate their product offerings;
  11. enables low access prices that reflect underlying costs while allowing Proponents to earn a rate of return on their investment commensurate with the risk of the project;
  12. provides benefits to consumers by providing choice to run applications, use services and connect devices at affordable prices;
  13. provides the Commonwealth with a return on its investment of up to $4.7 billion;
  14. is compatible with the Government’s related Fibre Connections to Schools initiative;
  15. meets Government requirements for the protection of Australia’s critical infrastructure;
  16. is consistent with national security, e-security and e-safety policy objectives including compliance with laws relating to law enforcement assistance and emergency call services;
  17. is consistent with Australia’s international obligations; and
  18. facilitates opportunities for Australian and New Zealand small and medium enterprises (SMEs) to provide goods and services to the project.
And Clause 1.4 of the RFP lists the Evaluation Criteria, not in order of importance:
  1. the extent to which the Proposal meets the Commonwealth’s objectives for the NBN project (as set out in clause 1.3);
  2. the capacity of the Proponent to roll-out, maintain, upgrade and operate the network;
  3. the nature, scope and impact of any legislative and/or regulatory changes that are necessary to facilitate the Proposal;
  4. the cost to the Commonwealth of the Proposal;
  5. the acceptability to the Commonwealth of the contract terms and conditions proposed by the Proponent and the extent to which the Proposal departs from the Commonwealth’s notified commercial terms (if any); and
  6. the extent of the Proponent’s compliance with the RFP.
The Evaluation Criteria are straightforward and would be the same for any Tender evaluation like this.

The two Panel Observations are not affected if the publicly stated Coalition Broadband Objectives are substituted, indeed many of the key Objectives are identical:
  • 90+% fixed-line coverage, rest covered by Fixed Wireless and Satellite.
  • 12Mbps effective downlink be universally available.
There are two clear points of difference in Coalition Policy Objectives:
  • enables uniform retail prices on a national basis;
  • continues to promote the long-term interests of end-users;
Whilst the Paul Fletcher MP book, Wired Brown Land, does call for Regulatory reform, perhaps an open-access network, it isn't a general Coalition Policy.

The only low-cost FTTN solution available under the current Regulatory regime that will fulfil the Coalition tag-line of "Better Broadband: Cheaper, Sooner, More Affordably" seems to be a closed-access Telstra solution. i.e. an updated version of the 2005 and 2007 proposals, in parallel with competing Broadband solutions from existing fabrics: HFC (Optus) and the few small FTTN solutions, like TransACT.

But overall, the central Expert Panel Observations that an FTTN couldn't be economic, unless built by Telstra, and even then it is a dead-end investment, a throw-away, stands.

In what world could the electorate want that Telstra-only FTTN as a Broadband solution?

What other wrinkles can the Coalition add to wish away the fundamental Technical problem: an FTTN doesn't provide a cost effective or efficient upgrade path?

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