Wednesday, 14 August 2013

NBN: Answers to Emma Alberici.

Lateline interview, Mr Albanese vs Mr Turnbull on NBN, Mon 12-Aug-2013.
Rating: 12/10 on presenter performance, 3/10 for interviewee conduct.

Here are my answers to some of Emma Alberici's questions. My recollection was she'd presented multiple business shows in the past. I was impressed at her ability to repeatedly bring the interview back to them answering her questions.

EMMA ALBERICI, PRESENTER: Here is our NBN debate with the Deputy PM and Communications Minister Anthony Albanese, and the Opposition's Communications spokesman, Malcolm Turnbull.

EMMA ALBERICI: I'd like us to cover three broad areas tonight.
* The various costs of your NBN - respective NBN - policies,
* the time frame which you expect to be able to deliver those in, and
* the technologies which will be afforded by your various incarnations of the NBN.

I'm more interested in the balance of Income and Expenses called "Profit", she stated her interest and stuck to it, getting reasonable answers.

EMMA ALBERICI: Let me start with you, Mr Albanese, and specifically with one of the key issues, that is: you want to take fibre directly to people's homes.

Mr Turnbull on the other hand thinks it's best to take it to the street corner, the so called nodes.
Tell us first of all, why is it important to take fibre all the way to people's homes?

There are three layers to this:

  • Firstly, the Government sold the public utility that owned all the access and transmission assets.
    • To not just use, but upgrade those same assets now, is like someone selling their old, run-down house, then paying for a complete renovation and renting it back afterwards at full market price. No sane person would contemplate this!
  • When, like the current government, you don't own the network, access and transmission assets, the economics are different. NBN Co is not like all those overseas Telcos:  they have to count the full cost of building, buying or renting every single thing that goes into a national, wholesale Telco.
    • If the copper and associated access cost you nothing, then of course fibre looks expensive.
    • Working hard to preserve the value of third party assets is bizarre and commercially unsound. If you don't own the asset, your business can't pretend its theirs to use at will and that can somehow translate to commercially sound.
    • If you have to pay for the copper and access, as the Coalition Plan shows, it's only marginally cheaper, 10%, when all the other costs of building a full Telco are added in.
      • It's not even that much of a saving.
      • The Coalition themselves only expect that half the investment in FTTN network will be reused in a FTTP network.
      • All this shouting is over $2 billion. Over 30 years, that's very, very little.
  • Lastly, if you look at more than CapEx and the Project's Total Funding, then Optical Fibre is markedly cheaper to own and run over 25-30 years. This is why the Coalition limit their published figures to just the first 5 years of operation ["Summary Financials"]. There are more reasons, technical, marketing and financial:
    • Optical Fibre, unlike 1925-spec 4kHZ phone cable, was born digital. This is where all the truly high-speed and long-distance development is happening, not in the Wireless or radio-over-copper called xDSL.
    • The Optical Fibre network is infinitely upgradeable just by changing transceivers. As faster/better/cheaper silicon for transceivers appear, they can be rolled out to just those customers that have the need and means.
    • Fibre is a Marketers dream: exactly the same physical product can be resold at many different prices, with all consumers feeling they're getting a bargain, either very cheap bill price or very cheap price-per-Mbps. This is a very profitable and equitable business model.
    • VDSL2/FTTN products will only be charged at a single rate, foregoing all this extra revenue.
      • All the NBN Co profits come from the high demand users, the top 25%. Everyone else either gets the service at cost, or subsidised.
In summary, an Optical Fibre network not only has spectacular technical advantages over the 1925-spec copper network, when you have to pay for everything from scratch and can't get the last 800m of copper for free, it's marginally more expensive upfront and massively cheaper to run, plus it will make a reasonable ROI, something that copper cannot do because of its "one price fits all" and "any speed you like as long as it's what you get".

EMMA ALBERICI: Are you saying it (fibre to the node) can deliver the same thing?

What Fibre can deliver that Copper cannot is a profit.
Bits are bits are bits, but unless a product can pay for itself, the business must fail. That's why marketing & product segmentation and profitability, not just upfront costs, are important.

EMMA ALBERICI: Let's talk about how much the various policies are going to cost.
Anthony Albanese, is the government still confident that it can connect fibre to 8.5 million premises by 2021 for the sum total of $37.4 billion?

The NBN Co is an independent business, staffed by experienced experts. Their best forecasting, including contingencies and downside risks, is published. Nobody independent and credible has ever seriously challenged their work.

That said, every large project is a one-off, including the Coalitions FTTN. The unexpected will occur, schedules will slip and change. That's why there are professional Project Managers, to herd the cats and attempt to deliver on-time, on-budget and on-spec.

When the mass rollout phase, which has only just started, is more complete we'll know much better how close to Plan they'll come. I've no reason to believe these are not competent, credible professionals and their Plan, not the ALP's, can be executed.

EMMA ALBERICI: No, I want to talk about yours.
Will you commit to be able to deliver by 2021 8.5 million premises

EMMA ALBERICI: ... with fibre for $37.4 billion sum total?

Politicians have to be seen to be "decisive" and "certain".
The truth is much more complex & nuanced than the "absolutely" that Albanese gave.
There are at least 3 relevant "Cost" figures:

  • $30 billion, the limit of Government contributions under the ALP plan
  • $37.4 billion, the planned Capital Expenditure
  • $44.3 billion, the planned Peak Funding.
    • The extra needed to cover the losses incurred while building the full network, and paying interest on it, but only having revenue from a few customers.

EMMA ALBERICI: Ok so you're sticking by those figures.
Now, Malcolm Turnbull, you say Labor's project will in fact cost $94 billion to complete and that yours will be $29.5 billion on the other hand.
Now, where do those figures come from, considering you've had no access to the NBN Co accounts or to its commercial agreements?

I've found Turnbull's figures to be fantastical and unsound for three reasons:

  • The Coalition figures have never been verified by anyone independent or credible.
  • Despite Turnbull saying "nobody has challenged our figures in four months", when I approached them for relevant detail, I was aggressively rebuffed. There was also the attempt by "The Register" to raise money for exactly this independent analysis.
    • There's also the small matter of 25-years of a 30-year Business Plan missing in action.
  • Turnbull is selling an inferior product, both technically and commercially. He must cast the opposing product in as a poor light as possible. So of course, he'll magic up fantastical and exaggerated numbers to make himself look good and the other look bad.

Deleted a string of questions on the $94 billion figure of the Coalition and that Albanese rejects the figures.

EMMA ALBERICI: You're talking about revenue and my question was about the cost of construction.
We need to be comparing apples with apples if we're going to have coherent debate.
Let me continue.
Mr Turnbull, how can the coalition claim to be able to deliver an NBN faster and cheaper without the cost benefit analysis that you claim the government didn't do itself in the first place?

No comment, only to say I am in awe of Emma's abilites as an interviewer.

EMMA ALBERICI: Mr Albanese, let me put something to you.
Because you recently said that connection to Labor's NBN was free.
But households will be charged to access it, won't they?

I've written about this issue elsewhere: While Turnbull can say "some ISP's do charge a setup fee", even under his tortured logic & definition, it is false for him to assert "That is a lie" because one of his referenced ISP's charge NO connection fee.

EMMA ALBERICI: Will you be releasing it before the election?

This was in relation to a discussion between Albanese and Turnbull over the release of the 2012/2013 NBN Co Annual Report. Due to Caretaker provisions, it's held up by the Cabinet process.

EMMA ALBERICI: When you say final business plan, how is that different to the final business plan that was presented in December 2010.
Plans are normally done beforehand, aren't they, not during a project?

This is all getting very confused. They are using terms interchangeably that aren't.

  • There's the Corporate Plan, that includes extracts from a detailed Project Plan and some other, Marketing, Pricing and Segmentation, data from a detailed internal, highly confidential Business Plan.
  • There's the Annual Report, which speaks to actual Financial performance and material issues surrounding the business, and
  • there's the Business Plan which is what the Coalition "Plan" document is derived from, but is woefully incomplete.
    • Would any serious investor stump up $30 let alone $30 billion on the strength of Turnbull's published documents? NO, not nearly.
    • So why haven't such documents been published for the FTTN investors, the Australian taxpayers?

EMMA ALBERICI: Let me make a point, Mr Turnbull, because I think I understand where the discrepancy lies here, and that is that under your plan, fibre won't be going all the way to the home.

A FTTN network uses 86,000 km of Fibre against the 148,000 km (road distance) of a FTTP.
As NBN Co doesn't own the last 800m of Copper, or any of the assets supporting that, then there's a substantial cost, completely ignored in the Coalition plan, to acquire the copper or the right to use it.

There's a finality, and legal consequences, in cutting the Telstra copper at every NBN Node. Not only must Telstra be fairly compensated, all those others who suffer financial loss, all the ISP's with large ADSL2 DSLAM networks installed in exchanges around the country, will have those assets orphaned.

These ISPs could sue for compensation. Sure, they'll be able to switch their customers to similar Node-based NBN services, but they've lost all the depreciated value and forecast revenue streams, of those assets.

EMMA ALBERICI: How much will it cost if a household does want to upgrade at some point in the future to be able to access fibre directly to their home?

I've written about "Fibre on Demand" previously. Some of the same arguments about apply.

  • If you're within 100-200m of a VDSL2 node, you're unlikely to want the upgrade.
  • If you're in the 400m-800m poor service zone, the majority of users, you want the upgrade, but probable cost will be $50/m, plus an equipment fee and fixed contract period of 2-5 years. In the UK, they also pay an additional A$77/mth for the upgrade they've already paid for.
  • Even if you buy a Fibre upgrade, there is NO guarantee your Node won't be congested and you get lousy throughput and high latencies. Access rate is just the start of the story.

EMMA ALBERICI: Sorry, who's going to be paying $20,000 a month?

Short answer, "nobody".
Turnbull interjected with a ridiculous claim on the meaning of "guaranteed", confusing it with "dedicated". I rated his accuracy at 1/30.

EMMA ALBERICI: For the average household? (on the $20,000 for 1Gbps)

This is another of Turnbull's magic tricks to distract you from the real action.
What hasn't been widely advertised is that there is no average household.

Internet download is highly skewed, it's an exponential distribution. The top 1% consume 10% of downloads and the low 50% consume 6.4% (six point four). The ratio between the top 1% and the bottom 1% of users is over 500:1. Just the ratio of mean use for the bottom 50% and top 1% is 75-times.

Citing exaggerated, fantastical figures is a delay and distract tactit. It's designed to move the discussion off topic and lead to dead-ends.

The relevant fact is: The 25% of high-demand consumers contribute all NBN Co profits, the rest of us get it at Cost or are subsidised.

EMMA ALBERICI: Mr Albanese, do you actually know much a household would have to spend to access 1,000 megabits, one gigabit?

I believe the current pricing, set to fall by 20%-25% by 2021 and 51%-89% by 2040 is [2012 Plan, April Update]

  • Entry level: 12/1Mbps $24/mth wholesale AVC
  • Current high level: 100/40Mbps $38/mth wholesale AVC
  • Next high level: 1000/400Mbps ~$150/mth wholesale AVC

Whilst NBN Co use the same physical units to deliver all speeds and it costs NBN Co almost the same to provide 12/1Mbps as 1000/400Mbps, consumers rate the service on Cost/Mbps. Subscribers with the needs and means to pay for higher access-rates see 100Mbps not as 50% more than 12Mbps, but as six-times cheaper per Mbps. While 1Gbps is regarding by consumers as one-third the price per Mbps as 100Mbps.

This feature/price differentiation is lost with VDSL/FTTN's "one price fits all" and "random bandwidth lottery". Matching consumer demand to product supply is a fundamental of good business practice.

EMMA ALBERICI: Let me put it this way:
 is it fair to say that the fundamental difference between the two parties' policies is that Labor wants to socialise the infrastructure and the Coalition prefers a user pays system?

I think that the fully costed, "no surprises" Fibre to the Premises plan is about both social equity, cheap, reliable broadband everywhere, whilst also making not just slight profits, but a reasonable, not super-high 'traditional' Telco, commercial return on investment.

There's no evidence to suggest that a FTTN NBN won't be a massive financial disaster, making losses of $10 billion over 20 years and going bankrupt at some point. That's what I think is buried in those missing 25 years of Turnbull's full Business Plan.

EMMA ALBERICI: A final comment, Mr Albanese.
Tell us why do Australian households actually need one gigabit?

I can't say it better than a comment on a Technology Spectator piece today:
FTTP can deliver modest services cheaply, but can also garner large revenues from high demand users, ...
Price is the mediator between Supply and Demand.
Optional broadband Access Rate allows consumers to place a dollar value on their time.

Those with the needs and means to pay for 1Gbps, whether they download 0.1GB/day or 30GB/day, are expressing their preference and assigning what the time they save waiting for downloads is worth. Fast, guaranteed upload speeds and savings in time are convincing reasons for other customers.

This is not about some mythical "average user", but meeting individuals needs and allowing them to express the "utility" of the service in dollars and cents.

The optional speeds and differential pricing constitutes real consumer choice, which is why a FTTP NBN can be so profitable.

Interestingly, we are still at the point where even the highest volume users are unlikely to exceed what a 1Mbps (megabit, not gigabit) service can provide, if used 100% of the time, day and night: 385GB/mth.

Turnbull, with his "$20,000 for 1Gbps guaranteed", would have us believe that's a reasonable proposition.  It isn't. For the last decade the whole broadband debate has been about how consumers value their time.

Fast broadband isn't defined in Megabits/second, but by time: Do I notice the time I wait for things to happen?

EMMA ALBERICI: You talk a lot about other countries, Mr Turnbull, but I would point out that the Nordic countries are pioneers and in fact just in the last few months, Sweden, the Swedish Government announced that its aim was to have 90 per cent of households by 2020 with fibre to the premises.

What makes Australia unique is not Turnbull's assertion "What do we know that other countries don't?", but that our NBN is being built from scratch, not by an incumbent Telco who already owns all the network and infrastructure assets.

Turnbull doesn't just ignore that fundamental difference when comparing NBN Co to a multitude of overseas Telcos, they own the copper & holes, we don't, but that he was also personally involved. He was in the Ministry that created this situation!

Paul Fletcher, Liberal MP for Bradfield, called Telstra "a monster" in his book on Australian Telecommunications. An uncontrollable monster deliberately created entirely by the Coalition.

Which brings up a final point: The Telstra share price crashed to an all-time low of $2.55 at the end of 2010. It's shareprice has now doubled. ($5.11)

For just one Telco, the NBN has already added close to $32 billion of value. The total value to Australian Telecommunications will be 50%-100% more than that.

Why is the Coalition so hell bent on saving a paltry $2 billion on the most commercially important and spectacularly successful business venture in Telecomms here in the last 50 years?

If it were truly about the cost, they'd more than recoup that difference by charging a $250 connection fee. After all, why are they encouraging the Nanny State myth with Free Handouts?


  1. Can you get this posted on the ABC Drum website? In fact, can you get it posted EVERYWHERE!!
    As usual, a cogent, factual, well researched and accurate expose of the fortcoming train-wreck that will be FTTN in Australia.

  2. Mike (or anybody),

    If someone can tell me how to get pieces published in "The Drum", I'd appreciate the advice.

    Yes, I'd like to put the odd piece there...

    One trouble I have is I'm too close to my work. The things I mostly think are outstanding get a yawn, while some things I written then dashed off a tweet for have "gone off".

    Someone else needs to pick for me :-)

    Thanks again.


    1. @Steve Jenkin
      Mike (or anybody),

      If someone can tell me how to get pieces published in "The Drum", I'd appreciate the advice.

    2. Scoot,

      Thanks very much. I didn't think to look for a guide :(


  3. Finally something actually written in English that is understandable about this mess. This can't be spread far and wide enough in the next 25 days, super job!

    1. Red,

      Thanks for you kind remark.
      Feel free to send the link to friends...

      BTW, you can find my email address easily, are there specific questions or issues you'd like me to address. See if I can break things down to Dollars and Sense.


  4. I second this piece to be sent to The Drum, or Delimiter.

    You can see guidelines to submit here:



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