Tuesday, 9 April 2013

NBN: The Turnbull Proposition to Unlucky 75%: 2years earlier, $24 less/month against $3-5,000 if you ever want fibre.

Messers Turnbull and Abbott will release their Grand NBN Plan at 11AM. Yesterday they launched a very credible FUD and disinformation campaign to make their proposal look vaguely acceptable.

This is their pitch:
  • earlier: 2019 rollout to 71% DSL (8M) and 22% fibre (3.5M) premises
  • more affordable: Average $66/month vs $90/month.
  • cheaper: $29.9 billion vs $37.4 billion
  • Downside: those 8M subscribers "sold the dump" with 25Mbps DSL will pay $3-5,000 to get Fibre. [From Turnbull on ABC's AM today]
  • And the $400+ to actually connect to DSL?
    • Unlike the NBN Fibre rollout, you get to pay that.
    • And that's not optional. On the day they cutover your service to the DSL node, you lose your current ADSL service. With fibre, it keeps working until you chose to move.
That's a long, long way from "FTTN is 25% the cost of Fibre" that Turnbull has been trumpeting for so long. This is a now pretty thin argument now, much less convincing, hence the bogeyman of "the Labor plan will cost a squillion, bazillion dollars".

But is all as it seems?

Can Abbott, Turnbull and Fletcher keep these promises or will they be caught in a vice of their own making?

The current NBN Co budget of $37.4 billion is NOT set in stone. The final price and delivery date may well change, up or down, but likely as not, up no matter what Conroy says.
As might the NBN Co revenue forecasts: I think they are low and NBN Co could become "Rivers of Gold" for the Government, but that's NOT something the Coalition and its supporters can countenance.

The first disappointment is that despite their best efforts and assumptions, that they offering so little. Just 2 years earlier? Just $7.5 billion less? That's a long, long way from the expectations they set over the last year or two.

Are the Coalition being deliberately "mean & tricky" by avoiding any mention of the the $4-500 install fee? You'll need an NBN compatible DSL NTD on the day they cut your wires. Your current ADSL router/modem won't work because of the new 'bitstream' service supplied via 802.1QinQ (VLAn's).
The Fibre NTD gives you 2 Phone sockets and 4 ethernet service sockets and is fully remotely managed. The DSL NTD has to meet these same specs.

Because the NTD sets the Telco boundary, it can only be installed by a certified cabler, not DIY. That's $150 for the NTD and $250 for the installer: he has to reroute all the household phone cabling to the new boundary.  Plus we aren't told how "MDU's", Multiple Dwelling Units, still an unresolved area for the Fibre NBN will be handled by the DSL service.

Can the Coalition keep any of the promises they seem to be making today?
Remember, these are Pure Fantasy at the moment. They have no contracts, no signed agreements to back anything they would like us to believe.
  • Cost:
    • If they are forced to add the $3.2 billion (8M * $400) install fee, their plan is now not $7.5 billion cheaper, but only $4.3 billion.
    • How safe is that margin when it is entirely up to others what they'll charge?
      • Telstra has signed a contract with NBN Co for $845 per copper-line disconnected.
      • They have no agreement for buying the copper or using their RIM/CMUX facilities and infrastructure and have gone on record saying just that.
      • If Telstra don't want a DSL NBN, they only have to charge an extra $500/line, which is not unreasonable, the difference between compensation and outright purchase.
      • Have the Coalition sought guidance from the Telstra Board on this or got a signed in-principle agreement? If they haven't, they are in a very precarious position.
  • Earlier:
    • Turnbull et al have never done a project of this size and complexity before, their schedule should be rated "Very High Risk": A 99% chance of significant over-run.
    • Why do they think "we can say it and it'll just happen"?
    • Look to the history of the current NBN Co build:
      • Telstra delayed the contract by around 9 months.
      • Negotiating head-agreements for construction took much longer than anticipated.
      • Getting Regulatory approval from the ACCC is not simple or quick. It is still not finalised for the current plan.
  • More Affordable:
    • Is this a flat-out con?
      • And what is that $66 vs $90/month? Is it NBN Co revenue or retail cost?
        • Will they be offering a 6Mbps entry point?
        • Will DSL connections have cheaper wholesale pricing as Quigley has suggested?
      • Those monthly prices sound more like wholesale pricing to me, not retail.
        • Which means ISP's/RSP's can add whatever mark-up they like and the Government can only hold its breath and turn blue. Just like Petrol prices, bank fees and Mortgage interest rates are outside their control.
    • The NBN Co "ARPU" revenue projections comprise two parts: fixed and variable costs.
      • AVC: the $24/mth Access charge to 12Mbps. A fixed charge.
      • CVC: $48/10Mbps Customer Virtual Circuit. A variable charge that increases with Data Volume (GB/mth) that customers sign-on for.
    • The NBN Co ARPU projections rise because consumer demand is expected to rise at 30-50% per annum. (CAGR: Compound Annual Growth Rate)
      • Consumers will simply buy slower, cheaper services and 
      • NOT download nearly as much data:
        • If 6-8Mbps HD TV doesn't run well on your service, you won't subscribe to FOXTEL or any other service.
      • A lower ARPU will result from lower fixed and variable costs.
        • That's NOT a saving, that's avoided purchases.
At the very best, the Coalition are asking for 75% of potential Fibre subs to trade a saving $20/month saving for a slower service for a $3-5,000 upgrade fee to fibre.

If you calculate the NPV for doing the upgrade in in the future, for a fixed $5,000 upgrade, it's NOT a good deal, even after 20 years. The $5,000 has to reduce by a lot for the direct costs to ever be worthwhile

[NPV: -ve is a loss. $288/year savings with $5,000 cost in end-year]
10% Discount Rate: 10yr -$3,235.77 15yr -$2,778.85 20yr -$2,509.05
 8% Discount Rate:  10yr -$3,099.78 15yr -$2,520.29 20yr -$2,138.37

Even at the lowest prediction of average traffic growth, 30% CAGR, in a decade, average download demand is 15 times current downloads, assuming there no new products. In the last 10 years we've seen twitter, facebook, iPhone/iPad and all social media arrive, not to mention an explosion in video & TV streaming services. These new services have driven demand significantly ahead of projections.

Are the Coalition really saying "nothing new on the Internet will be invented"?  Surely not...

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