NBN: Black Holes in Coalition FTTN Plan

Previously I've written that the Coalition Financials don't add up for their majority FTTN NBN Plan: they've deliberately omitted material figures.

One of the major differences between Fibre and Copper on the "last-mile" is ownership and reasonable reimbursement for a compulsorily acquired asset:

• For copper lines, 100% are acquired and each must be paid for, in service or not.
• For Fibre, compensation is only required for loss of earning capacity: only services in-use must be compensated by NBN Co.

Those are just the tip of the iceberg... Below is my current list, totalling around $22 billion extra in CapEx.

• Financial projections supplied have material amounts omitted:
• Interest, Depreciation, Change in Working Capital.

• Modelled period is "short", only to 2019.
• Every other model is to 2021 or 2024.
• Model projections are cited for 2021, so we're told the model was run, just withheld.

• Model omits critical expense and revenue inputs: passed and connected subscribers.
• Following the assumptions included in prose, I was unable to recreate the figures within a reasonable margin.
• Those numbers are in the NBN Co Corporate Plan and were necessary to create the Revenue figures.

• Large CapEx items, now clearly identified by NBN Co, seem assumed away:
• CapEx for Wireless & Satellite is around $3.1 billion, we can presume are included,
• but there is another $6 billion of CapEx for necessary facilities that may be missing.
• This was always apparent as the difference between the FTTP CapEx ($28.5B) and full CapEx ($37.4B) in the 2012 NBN Co Plan.

• Major cost inputs, with high uncertainty, seem to be missing from the calculations:

• The only FTTN cost that can be infered is the $900/line guesstimate for 8.9M lines.
• $8.1 billion seems to be the full FTTN cost assumed by the Coalition.
• That appears to be around half the Coalitons' own estimates to purchase the Telstra line asset.

• Telstra line costs, either as CapEx or OpEx aren't mentioned:
• Purchase over 3 years at current PSAA rates (MT: $1500, SJ: $1200) for 8.9M copper lines: $13.35 billion or $10.68 billion.
• We know the lowest price to be $11.3 billion from the recent NBN Co figures on FTTP Access.
• Lease 8.9M lines over 25 years at current ULL rates of $16/mth/line ($192/yr/line) or $1.7 billion per year.
• Telstra would likely contest this with the ACCC and ask for increases based on increased maintenance required for higher-spec lines, plus remediation and reconfiguration costs.
• Telstra could ask for $27/mth/line, the same wholesale price charged by NBN Co and agreed to by the ACCC,
• or $2.9 billion OpEx from 2017.

• Copper network costs are not apparent:
• Reconfiguration for DSL,  not Phones: Telstra has commented that 40% fewer nodes are needed, but only if the network is reconfigured, requiring major labour input and new copper to be run.
• It's not free, but is cheaper at 1500m than extra nodes.
• At $120/line for 8.9M lines: $1 billion.

• Rehabilitation/remediation of last-mile copper for DSL: Telstra's copper "last-mile" is reportedly very degraded and needs extensive repair/replacement to bring up to DSL-spec.
• In 2005, Trujillo seems to suggest $4.7 billion could be paid by the government to rehabilitate the network for 12 Mbps, not 25Mbps.
• $2.6 billion was quoted for 6Mbps as part of $5.7 billion for only "Big 5 cities".
• Later than year, Telstra presented a VDSL solution for ~90% national coverage for $11 billion, with Trujillo citing $15 billion for 98% coverage a year later.
• Telstra has halved its lines workforce since 2005, we can't presume the network has improved.
• The minimum copper-only rehabilitation is $10-$15 billion, based on the 2005 figures.
• This might be as low as $5 billion with 28% Fibre & 62% copper.
• Telstra in 2005 highlighted remediation as a major cost, comprised of:
• Removing 7,500 Pair Gain systems (RIM's and CMUX's), now more
• Bridge taps and loading coils
• replacing copper.

• Customer Premises Equipment, NTD's (Network Termination Devices) are not mentioned, presumably a cost to now be borne by the subscriber.
• The NTD now marks the edge of the Telco network, it must be installed by them.
• The current NTD's provide 2 Phone sockets and 4 "UNI" sockets for broadband and other digital services, such as video.
• The NBN is VLAN based, not PPPoE like current ADSL services.
• Current ADSL modems may work for a short transition period,
• all subscribers will need to be upgraded to NBN compliant NTD's.
• My estimate is $450/premise ($200 + $250 labour). For 6.3M FTTN services connected,
• $2.8 billion extra is transferred to subscribers or is missing.

• Compulsorily acquired assets appear now not to be compensated.
• Network Operators currently relying on ULL and LLS access will have their investments orphaned when the copper is cut to install nodes. These include:
• DSLAM's not fully depreciated.
• Phone services over non-Telstra networks
• Telstra RIMs and CMUX's.
• The biggest compensation due may be to Optus and Telstra for phone services and RIM's.
• There will be 10-20,000 devices involved.
• Compensation might be $1-$3 billion.

• Full Node Costs, both number and Cost-per-node are unstated in the plan. Nor is the critical determining factor, the distance rule stated: Is it 400m, 800m or somewhere in-between?
• "60,000" nodes have been spoken about,
• maybe at $30,000/node + $75/line-card + my guess $3,000 for 10Gbps GBIC's (4/node: dual uplinks and 2-per-end). 
• $1800M + $650M + $180M
• ~= $2.5 billion
• There's also 81,000 km of fibre to be laid and jointed at $25,000/km
• $2 billion
• And a share of the $1.7 billion transit network and PoI's
• Plus extra for Exchange switches and other equipment.
• 1,000 exchanges with $250,000 of switches and ancillary equip.
• $250M, minimum
• Scaling up from 1500m to 800m and onto 400m is not simple:
• whilst the area per cell is notionally "radius squared", four times as many cells are needed when reducing the distance by half, in practice other effects come into play:
• For 1500m to 800m, I'll assume a 3.5 ratio allowing unserviced areas.
• For 800m to 400m, I'll assume 2.1 ratio to allow for majority "same run".
• The best data we have are the 2006 Analysis Mason estimates  of 38,457 nodes (20723 for "Big 5 cities" + 17734 for a full FTTN)
• This was for 12Mbps ADSL2+ at 1500m with 33% services direct from exchanges, costing only 40% of lines off Nodes.
• Without a 40% improvement from network reconfiguration
• Nor with the 28% FTTP coverage in the Coalition Plan
• or 62% of FTTN coverage via Nodes.
• Fewer services can be directly connected to cheap exchange lines as distance reduces by geometric area:
• 1500M: 33.3% = 66.66% node-equivalents in the field
• 800m: 8.3% = 91.7% in field
• 400m: 2% = 98% in field
• Using the 2006 Analysis figures, 57,685 node-equivalents were needed.
• For 800m:
• 57,685 * 3.5  (scale factor) * 0.6 (reconfig) * .917 (field) * 0.62 (fibre)
• = 68,872 nodes or $2.9 billion with previous cost estimates
• For 400m:
• 57,685 * (3.5 * 2.1) * * 0.6 (reconfig) * .98 (field) * 0.62 (fibre)
• = 154, 567 nodes or $5.7 billion with previous cost estimates
• Tesltra commented on the FANOC proposal, cutting the copper and adding new nodes would cost $1 billion extra at least, plus massive disruptions. That was for only "the Big 5 cities", add 50% national.
• The Coalition does promise that in the second upgrade, to 50Mbps in 2017-2019:
• only 90% of FTTN premises will be guaranteed 50Mbps.
• Is that an 800m rule with vectoring, a software upgrade, or
• through a 400-50m rule?
• Transmission lines reduce 'exponentially' with distance.
• If 25Mbps is available at 400m, only 20Mbps at best is available at 500m and 6Mbps at 800m. Distance losses are much higher with VDSL than ADSL2 and 1, so attainable rates will be lower.
• A $3.5 billion difference in 800 vs 400m.

• Existing Phone services are not mentioned:
• The two 2005 Telstra plans seemed to assume ATA's within the nodes, allowing non-DSL subscriber service to continue unaffected.
• Current NBN NTD's place those ATA's within them, either requiring transitional node equipment or special through-cabling, or the disconnection of phone-only services.
• There are no arrangements or costings mentioned for ownership, control and operation of the new Phone network, based around VoIP and Soft Switches.
• If they are assumed to be already provided by NBN Co, they are a major cost item
• and commercial arrangements for existing network operators like Optus need to be clarified.