Friday, 23 August 2013

NBN: The slam-dunk economic reasons for Fibre.

The current NBN Co design of Fibre to the Premise, FTTP, isn't just technically superior. When you do the Maths properly, it is also economically and financially superior, by a very large margin.

Since the 19-Apr-2013 NBN Co results for 50,000 active premises, we know that the current NBN Co Corporate Plan is conservative, that it is far ahead of all financial projections.

Turnbull wants us to believe the current 9.2% revenue growth by NBN Co is impossible and unprecedented. That's why he published his Copper/Node Plan 10 days before he knew absolute refutation of his propositions would be published.

Fibre services aren't "gold-plating" or "superfast", they are merely "adequate", providing the speeds needed by anyone with the needs and means. Turnbull, as a good used car salesman, knows he's selling an inferior product, so has to pitch his product as "normal" and his competition as "gold-plated".

Not only is NBN Co exceeding the assumptions underpinning the 9% growth Turnbull disputes, we have a perfect model, in Australia, for sustained long-term Telecommunications growth at least this fast: the 'other Telco', Overseas Telecommunications Commission, from 1970's until merged into Telstra in 1992, dropped the price of international calls every year while increasing profits. NBN Co won't grow at 9%, it will grow faster.

The whole economic base of the NBN Co plan is simple and sound:
  • focus on providing services customers want to where you make money, the top 30% of high-demand users, and
  • provide "model options" for customers, just like every other commercial product, not the Stalinist "one model, one price for everyone" approach of Turnbull.
Already, at $29.62/mth, NBN Co is achieving 85% more revenue for Fibre access than Turnbull can with his $16/mth single-price for Copper/Node Plan. By Christmas with the introduction of three new faster access rates, this will increase to at least 145% more revenue. Tiered Pricing allows consumers to express the "utility" they find in the product, not have Big Brother Turnbull and his mates decide for you what you'll want.

No surprise that by allowing people to choose for themselves, they'll pay more than any politician dreams up. Even one like Turnbull who says he knows more than any academic, consultant or ex-Telecomms person. If he believed he really was that good at Telecomms, what's he doing in Politics, not a multi-billionaire?

This leads directly to the most powerful commercial fact about Fibre and FTTP:
All NBN Co's profits are generated from the top 25% high-demand users, the rest of us, the 'other 75%', get a free-ride: we get NBN Co services at cost or heavily subsidised, most clearly seen with the 7% of services using Wireless or Satellite who'll be hung out to dry under the Turnbull NBN proposal.
Rather than the "speed fiends" being subsidised by battlers and pensioners, it is exactly the opposite. This is one of the fairest and most equitable commercial schemes ever in Australia.

So good, that the NBN Co plans include reducing those access charges, in real terms, by 19%-26% by 2021 and by 51%-89% by 2040. Pensioners and Battlers will pay $11.75, in real terms, for a 100/40Mbps service then, and NBN Co will still achieve it's 7% Return on Investment to all taxpayers to benefit from.

Turnbull won't release the access charges used in his model, and only demands a 10% reduction in them "in 10 years", presumably by 2024. A much, much poorer result economically. My modelling shows that even if Turnbull pays Telstra nothing, at the of the 20-year life of his Copper/Node Plan, it won't have paid the taxpayer back a cent, but will have made at least $10 billion in losses.

The single most important social and economic change that real universal Broadband delivered by Fibre brings is "Telehealth".

For $500-$750/year, the Department of Health and Ageing can put a reliable "adequate" connection in every house of the chronically-ill or the frail aged, with nothing for them to pay.

Because Fibre includes a 4-port Network Termination Device (NTD), that allows new services to be reliably connected by unskilled people, like Community nurses, without needing an existing Internet services, without creating a horrifying security mess and allowing a "walled-garden" where the Department supplies and supports all the equipment, remotely as is normal commercial practice since 1998, and only allows its devices to connect to its network and only its applications to run.

From their home, for nothing, this small but increasing group of people whom consume 70% of Australian Health Budget, can be fully monitored without leaving their home. They can use HD-videoconferencing to talk to Nurses, Medicos, Specialists and the many other services they need and be able to talk amongst themselves, allowing them access to social interactions without undertaking dangerous, stressful and expensive trips outside the home.

We're talking hundreds of billions in savings. Telehealth will become the most important Public Health tool since universal clean water and sanitation. Already the Australian Health Budget is over 9% (up from 3% in 1960) of GDP (cf. 18% for USA) and has passed $120 billion per year, growing faster than inflation. This is besides the $8 billion paid for Aged Care places.

With the Baby Boomers moving into retirement and increasing demands on Healthcare and Elder care and also reducing the pool of Medical professionals, we're facing a triple-crunch: more people, higher per-person costs and fewer people to look after them.

A strong, simple, robust and cheap universal Broadband service, the sort that can only be provided by full Fibre, isn't a luxury, but an economic necessity for Australia by 2025.

The Turnbull question of "what does the average person/household need 1gigabit for?" is misleading and economically disastrous. Consumers with the needs and means have shown they're more than happy to swap time (that's real money in wages) for money and the Federal Budget will, like the USA, drown in Healthcare costs unless we get serious about preventing small, correctable problems escalating into $150,000 life-threatening "incidents".

And just in case you didn't think it could get worse: When whole project costs are included, Copper is more expensive than Fibre, even if Telstra is paid nothing for its 215-250,000 kilometres of "10-pair".

The real cost of rolling Fibre past houses is $1100-$1400, not $3,600 that Turnbull likes to fling around. Turnbull estimates his Copper/Node solution will cost $900/line for 8.968M lines, or $8.1 billion.

That's at best a savings of just $4 billion, or 10%. For a spectacularly inferior service and one that's designed to be thrown away.

To this $8.1 billion, we have to add the additional in-home costs a DSL subscriber must pay compared to an FTTP subscriber. A VDSL2 modem, plus a central-splitter to ensure good performance, come in at $500-$750, direct out-of-pocket expenses for subscribers. Lets assume only 6 million houses use the DSL and then only 50% upgrade to VDSL2. That's $750 * 3 million, or around $2.5 billion more.

Then there's the quaint "50% CapEx Reuse" figure of Turnbull: he intends to waste half the Copper/Node investment on his "designed to throw-away" network. That's another $4 billion...

Turnbull can only save $4 billion constructing a temporary Copper/Node network, if he keeps his promises and completes everything else, but he then wastes $4 billion and forces another $2.5 billion onto subscribers. They have to pay for 20 years of modem replacements, upgrades and maintenance as well.

The Turnbull Copper/Node Plan will cost at least $2.5 billion more than Fibre, when the total costs are counted.
But because NTD's aren't rolled out, simple, cost-effective mass Telehealth programmes cannot happen. Those massive Health & Aged Care savings cannot be realised. The real cost is to our health and well-being.

Then there's Revenue and Expenses, leading to Profits.

Because Copper, even by Turnbull's estimates, is much more expensive to maintain, the already razor thin margins caused by his $16/mth "one model, one price fits all" regime, compare as well to the145% higher revenues & lower costs of Fibre, are further pared back to just covering interest on debt allowing breaking even on "cash flow" only, not making a profit.

On top of this, there's two major expenses that Copper/Node Plan cannot meet:

  • Depreciation (over 20 years, there's $8 billion to come up with) and
  • Repaying the $30 billion invested by the taxpayer.
So Turnbull's Copper/Node Plan costs more than Fibre, even when you leave out payments to Telstra for its assets, cannot make a profit and will leave the taxpayer holding $30 billion, or more, in debt.

Turnbull knows all this. It's why he only published 5 years (2014-2019) of his financial forecasts, not the full 30 years to 2040 in his spreadsheet model.


  1. 1 thing you need to consider steve, if you take anything turnbull says as credible you could be spending upwards of $7,500, it's going to cost $5,000+ just to bring the lead-in up to vdsl2 spec, if you had a pisspoor connection prior to vdsl2 installation chances are a node solution will cost minimum 1.5-2.1 million per node and be no better in speed and you could well be using more pairs to get aggregated top speed, where 1-4 fibres could exceed current and future speed support copper can provide up to 100 meters..

    1. Jason,

      Thanks for the comment.
      I agree, costs aren't tabled, they could be *anything*.

      Turnbull is all "smoke and mirrors", nothing is as it seems.


  2. Bring on the NBN. Australians will all praise it when it is up and running.To have a wonderful service that will increase so many opportunities for the whole nation is exactly what is needed.I am almost 70 and need what the NBN can provide.Time doesn't stand still!

    1. Sandy,

      Thanks for the comment. I'm glad you're one of the horde of older people embracing the Net.

      Fibre NBN is both technically and financially superior.

      As you say, time doesn't stand still. The Coalition trying to take us back 10 years to what they should've done when in power is laughable.



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