Monday 24 June 2013

NBN Financials: Hidden costs of a VDSL Fibre to the Node network

A long piece addressing specific differences between Copper and Fibre that have raised with me and highlighting additional costs, problems and deficiencies with a DSL/FTTN network.

Copper 
  • Subscribers become responsible for supplying, maintaining and replacing their own Customer Premises Equipment, unlike the other 3 networks. There will be significant additional out-of-pocket expenses for DSL/FTTN subscribers.
  • DSL/FTTN transfers extra costs to subscribers, these aren't included in the Coalition NBN Plan.
    • The whole project cost, including additional costs forced on DSL subscribers that Fibre, Wireless and Satellite subscribers do not pay, is not included by the Coalition.
  • No "identical service" option. under DSL/FTTN service: No standard Network Termination Device, NTD, option.
    • No pure-digital service is offered like the other 3 networks
    • No 4 data-port option is offered, like Fibre and Wireless.
    • At retail pricing, these would cost $500-$1,000.
    • Modern data networks are designed to be centrally monitored, managed and provisioned.
      • All network devices are under administrative control of network owner, and only them.
      • Firmware updates are remotely controlled.
      • Local users have no administrative control of their local device.
      • The Network Operations Centre, NOC, can remotely test, manage, monitor and control every device in the chain up from the User Premises.
      • This includes remote tests of customer "local loop" for troubleshooting and diagnosis.
      • This is not possible in a "Bring Your Own Device" network.
  • modem costs over 10 years are high, around $500.
    • $150+ to buy a modem retail, not $50 as repeatedly claimed by Coalition.
    • These are domestic grade electronics, built down to a price.
    • Subscribers will replace their modem every 4 years:
      • over 10 years, need 3 new modems.
    • some subscribers will suffer much more frequent modem failures.
  • central splitter install is direct out-of-pocket expense to subscriber, around $300.
    • Filters are required for all DSL services.
      • All non-DSL equipment needs to have a filter fitted or else it will short out the high-frequency DSL signal.
      • DIY in-line filters on every device/phone-point are usual today, but may not be considered by NBN Co as desirable.
      • Central Splitters are the most desirable solution for a large-scale network provider. They can't be accidentally removed or bypassed and just one device makes the network safe for DSL.
    • Each DSL standard operates at different frequencies. For best performance, a specific filter is required. While your ADSL1 or ADSL2 filters may allow a signal, they aren't designed for VDSL2 and cannot be optimal.
      • ADSL1 worked on 1.1 Mhz
      • ADSL2 on 2.2 MHz
      • VDSL2 works on 17Mhz or 30Mhz.
    • based on Telstra technician charges, will cost $300-$400 to install a Central Splitter on the Telco line before your first phone point, the network boundary.
  • fibre can be automatically tested remotely (see standard NTD above)
    • The NTD's for the Fibre/Wireless/Satellite are fully remotely managed and integrated into the NBN Co Network Operations and Provisioning systems.
    • DIY VDSL2 modems will not be.
  • Fibre more reliable than copper.
    • newer technology
      • not yet near theoretical or practical limits.
      • Current production volume speeds of 100Gbps times 32 with DWDM (multi-colour)
    • "born digital" not a hack.
    • newer network, fewer age related faults
    • no corrosion and insulation break-down problems.
      • Fibre does have own problems. Glass is fragile and must be properly installed.
  • no lightning and current surge problems from line. Electricity supply needs suppressors on all networks.
  • copper faults can be intermittent because of high resistance joints and "copper oxide diodes" that persist without "whetting current" from 50V DC phone.
  • the maintenance cost saving would pay for the NBN after floods rain.
    •  lost sales due to more cash needed to maintain the copper.
  • Nodes batteries power supply: regular replacement & disposal of lead.
    • With 68,000 nodes, replacing & recycling their 8*6V batteries will be a large job with a lot of toxic (lead) and corrosive (sulphuric acid) waste to deal with.
    • OH&S issues, not unlike Fibro-Asbestos pits.
Services & Features
  • 4 data services per NTD:
    • Work network, boarder, flatmates or adult kids pay own way.
    • Households can receive multicast and On-demand TV over a specific connection.
      • Higher speeds at lower cost for multicast.
      • Much more secure network, isolated and controlled network for TV's & PVR's means better services, less hacking.
      • Detailed data on household and per-device watching patterns available to 
  • get exactly what you pay for, speed wise
    • User can choose a speed that suits them.
    • If the Fibre works at all, every connection is guaranteed to have full range of advertised speeds.
  • high end subscribers subsidise low-end subscribers, massively.
    • Physically, all Fibre NBN services are identical, but unlike VDSL/FTTN, the line access rate can be selected by the user.
      • People who choose a lower line 'speed' pay less, even though it costs NBN Co exactly the same to run the service.
      • Higher access rates directly subsidise entry-level users.
    • Subsidies are more than just line speed, data volume as well.
    • Download charges will halve every 3 years under the current Plan. More likely much faster.

Economics and Productivity Growth
  • The 5-tier charging scheme for customer services, based on speed, when all services are physically identical and cost NBN Co identically to install, service and manage.
    • This multiple charges for same service, reduces "Consumer Surplus" and increases the profits of the producer, NBN Co. This single capability massively improves profitability and economic sustainability.
    • This is a massive financial effect that is not available with VDSL/FTTN solution.
  • The Coalition admits their DSL/FTTN network is temporary, they are building it to throw away.
    • What's the Network lifetime? 10 and 15 years have been alluded to.
    • How much will be saved by deferring the build? very little: at most $150 in today's terms.
      • 90-95% of Fibre network build costs are related to Labour, Parts and Equipment.
      • Only 5-10% of Fibre network build costs, can reduce in price.
      • Fibre cable in bulk is already cheap: $2/m or $25/premise.
    • Who will pay for the upgrade in 10-15 years?
      • Unknown and unspecified.
    • How will it be funded?
      • Unknown and unspecified.
    • Will the DSL/FTTN network have paid for itself in 10-15 years?
      • The Copper network and in-field active electronics have much higher maintenance and replacement/upgrade costs than Fibre.
      • As an inferior service, DSL/FTTN can only be charged at a single, low-rate.
      • Their is no growth path for DSL/FTTN after installation. Every user will be locked-in no matter how their needs change.
      • With low revenues and high costs and no upgrades possible, the DSL/FTTN network is much less profitable than Fibre.
        • To even pay for itself, let alone make a return on investment over 10-15 years is unlikely.
  • Fibre will guarantee the same link speeds anywhere there is a connection.
    • VDSL2 can't make any link speed guarantees.
  • Fibre has 80-times upload speed compared to VDSL2. [1000/400 vs 25/5]
  • Fibre has an 80-fold download speed range offered now(12Mbps to 1000Mbps], and able to be increased many-fold with current, production hardware.
    • VDSL2 may reach 100Mbps with vectoring to a small proportion of subscribers. Nobody is talking of going to higher speeds.
  • country people are being subsidised by those in the city.
    • The biggest winners for full direct Fibre are country people.
      • They get access to a cheap, affordable technology that eliminates geographical barriers for many applications. 
    • Equality of access and Universal availability are cornerstones of the economic and social benefits of the NBN.
  • the NBN project is NOT funded from Taxes in the budget.
    • NBN Co is an investment that will pay for itself, given time.
    • The government is borrowing money at 3%.
      • The real cost to taxpayers is the interest payments, up until NBN Co starts to make a profit.
  • Massive opportunity cost of not deploying Fibre now, when we can afford it.
    • Australia will eventually need a full direct Fibre Telecomms infrastructure.
    • Right now, we can go there and start to accrue all the economic benefits.
    • The economic benefits of Fast Broadband build over time, due to the nature of Metcalfe's Law and the Network Effect.
      • Start earlier, see results compound faster.
  • lead the world now.
    • As the Coalition is very quick to point out, "Nobody else in the world is doing this!".
    • Which is exactly why Australia should be rolling out dependable, upgradeable, guaranteed fast broadband everywhere.
    • Countries have just two economic factors to make them competitive:
      • exchange-rate: this is beyond our control with a floating dollar. We don't have the market clout to fix our rate artificially low like China.
      • Productivity: Computers plus Broadband are the single most powerful tool to increase Labour and Multi-Factor Productivity.

Voice, VoIP and costs
  • VoIP allows ordinary residential users lowest charges possible and all the features business PABX users have had available.
    • video calling finally becomes cheap and ubiquitous, even if not via the same phone number.
      • HiDef video calls enable 
    • high-fidelity voice calls, in stereo or more channels, are possible right now over RTSP (real time streaming protocol).
      • This creates whole new, useful applications. Not just for hearing impaired.
  • no line rental, $31.95 per month saving
    • Access charges still apply, not called "line rental"
    • Telcos will not make less money:
      • lower DSL/FTTN revenues from multiple line speed & download volumes will require significantly higher charges to customers.
  • no STD charges and no flagfall
    • VoIP call costs are based in data volume: incredibly small compared to video, images and normal web traffic
  • conference calls, transfers, voice mail, call-hold, etc, etc
  • all calls between subscribers on VoIP plans, same provider, are FREE
  • overseas calls 1.9 cents no flagfall to 80 countries
  • every family member or ,flatmate can have own "phone number/account
  • educational benefit -  learn to budget - kids paying their own accounts [joke]

Costs
  • 1 $billion maintenance of Telstra Copper network: saving $6.94/month. Not a confirmed figure.
  • "Fibre is 1/3 maintenance cost of Copper" [no source]
    • 2/3 saving = $4.625/month for fibre
  • Australians spend much more $1,000 per household per year on Telecommunications now.
    • At under $350 per household extra for full direct Fibre, the capital investment difference is inconsequential.

Environment/Climate Change
  • "power saving 2 power stations." [I don't think that this line of argument is winnable, but its been raised].
    • Green Effect of FTTH/FTTB Networks, 2010. [PDF] Update 7-Jul-13
      • FTTH (GPON) consumes 13% less energy compared to FTTN/VDSL scenario.
      • For 1 million subscribers, operators could save ~35.5 GWh of electricity and about $3.66 million in energy cost per year with a GPON-based network vs. a FTTN/VDSL2 network.
      • 35.5 GWh/yr is 4MW continuous.
      • For Australia ~10M subs, 40MW.  Not "a power station".
      • Good detailed analysis. Recommended.
      • See also http://www.ftthcouncilap.org/
    • Too complex to go there, an unwinnable argument.
    • Accurately measuring the additional power needed by the DSL/FTTN network is difficult.
    • Pricing that power, on top of other maintenance and install costs is hard.
    • The consequential effects of additional in-home high-bandwidth devices by Fibre subscribers will drown out DSL effects.
    • This is the nub of the question:
      • Will the additional economic activity from sales of super-high-def TV's and content for them, enabled by direct Fibre but not DSL/FTTN, be significant?

Uncategorised.
  • difference in labour, fibre versus cabinets (nodes):
    • All line maintenance requires a "truck-roll" to a node, rather than "all here in the exchange building".
      • The amount of additional travel time alone will double  or treble DSL/FTTN maintenance costs.
    • Technicians have much worse working conditions with nodes.
    • There are many more OH&S issues, working outdoors without shelter with live equipment.
    • The electrical equipment in the nodes will have a much reduced life from the environmental stresses.
      • For every 5-degree temperature rise, the service life of transistors is halved.
  • 100,000s businesses, schools, govt departments, universities using and paying for the NBN as well.
    • Residential customers are not the primary beneficiaries of the NBN speed advantages and lower volume charges.
    • Other customers, just like in the current Telco networks, will contribute as much or more revenue to NBN Co.
      • All these other users reduce charges for residential users by providing additional income to defray expenses.


1 comment:

  1. Steve, this might be one of the key posts for consumers. You touch most of the relevant points. But it needs clarifying at places, as I was confused even reading carefully.

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