The Labor full Fibre National Broadband Network fixes a whole slew of problems with Broadband that were either created or ignored by the Howard government. Ironically, Howard came to power in 1996, the year most people view as when "The Internet" broke out commercially.
In 2001, Telstra's core business, Telephony had peaked and was in decline - displaced by mobile phones and Internet. Telstra was heading to being a distressed asset when Sol Trujillo took over in 2005, and within weeks he was telling Howard and his senior ministers this and the fix: an NBN.
Trujillo was right, from the T2 high in 1999 at $7.40, the Telstra share price fell to $2.60-$2.80 in early 2011. Howard's deliberate inaction cost shareholders tens of billions. Since the NBN deal, they're back over $5 - a $30 billion increase in valuation so far. That alone makes the NBN worthwhile.
Turnbull has said he approached "Telstra", code for Howard et al, pre-2000 telling them that breaking Telstra into a Retailer and Wholesaler, structural separation, would unlock shareholder value and break the deadlock with the Regulator, the ACCC. This was obvious at the time and proven in 2011.
Turnbull's "reasonable assumptions" in modelling are wrong or ignore the most important factors.
Turnbull wrongly argues that telecommunications in Australia has never seen long-term strong growth:
"We said they’re not going to be able to increase their ARPU at nine per cent real every year for ten years because there’s absolutely no precedent for that in the history of telecommunications, at least in this country, ..."O.T.C., where I worked in the 1980's, increased revenues and profits a hundred-fold over 25 years by partly passing on "Moore's Law" speed/cost benefits and decreasing real charges for international phone calls every year. In the realm of the Internet, since 2000 the ABS has tracked Download Volumes. Award ("Test of Time") winning A/Prof Matthew Roughan of Adelaide Uni tracks this data: it's grown at 70%/year, doubling every 1.3 years. He forecasts Australian downloads to pass 1 Exabyte/mth by 2016. (1 ExaB = 1,000 PetaB = 1,000,000 TerraB = 1,000,000,000 GigaB)
The raw demand underlying Internet use in Australia is growing strongly, as it has for over a decade.
What OTC, and not Telstra management, understood is that people love to talk, this creates high Demand Price Elasticity: drop the price 5% and increase sales 10+%. For nothing, the seller makes 5% more profit. OTC also understood marketing, product innovation and the power of advertising.
On top of insatiable demand and Price Elasticity, there's also strong pent-up demand caused by effectively capped access speeds since 2004 (ADSL2). The national average monthly download is 30GB, while for NBN users, it's 45GB.
But it gets better: Internet users are exponentially distributed, not the usual "Normal" distribution.
Sandvine report for the USA that 1% of users consume 10% of Downloads (more for Uploads).
50% of users account for just 6.4% of total Downloads.
Turnbull, partly correctly, claims "most consumers don't need really high speed". True, but the highest-value consumers, worth 10-100 times more, do have an unmet need for speed.
The average Download of the top 1% is 300GB/mth, while the low 50% average 3.6GB.
70% of consumers download less than the average 30GB/mth.
The economics of the Internet is driven by the high-end consumers, this is why take-up of 100Mbps NBN Co services, 31%, is running well ahead of forecast, 18%. That number corresponds to half the download data. Those 1% who download 300GB/mth could do that with a 1Mbps, running 24/7.
Consumers, especially small Business and Professionals, value their time. 15GB/day takes around an hour at 100/40 Mbps. This is the driver for 1Gbps. As soon as it's released, expect a 10% uptake.
"Tiered Access Rates" are the biggest commercial innovation in the NBN Co plan - they haven't been available in Australia like this before [ADSL1's 256/512/1000/1500 kbps don't compare].
They allow the business to sell the exact same physical equipment for (wholesale) prices ranging from $24/mth (12/1Mbps) to $150/mth (1000/400). Not only does the business make more revenue and accelerating profits, but the customers are happy because they perceive they are getting great value for money. Customers value products differently to producers. A 100/40Mbps service doesn't cost the $150+/mth eight 12/1Mbps would cost, but $38. A 1000/400 service costs just $150/mth, not $380/mth.
NBN Co is both not "leaving money on the table" by reducing the Consumer Surplus, but also meeting real demand from the higher access rates by the majority consumers of data, not the 'average' or low-end consumers.
Conversely, the low-end consumers benefit from everything the high-end consumers pay, download and access charges: the NBN Co plan recognises the Price Elasticity in the market and built-in are 19%/year decreases in the cost of download and faster decreases in consumer access charges.
The profits of the NBN are generated almost entirely by high-end consumers.
It isn't a case of "pensioners and low-income earners subside the Rich", but exactly the opposite:
The NBN is the high-spending 30% subsidising the rest: high-income earners using high-speed services pay for everyone else.Access Rate also allows Retailers to identify Premium Customers, whom they can "upsell" or charge higher rates for Volume. None of this has been possible with the ADSL single-price services.
On top of this the "$110 APRU" is a windfall for ISP's/Retailers. With no extra effort they'll triple Revenues, and increase Profits by 5-10 times. Imagine how much better they'll do if they try.
The NBN is about Business, not domestic consumers and retail customers: that's small business and single-operator micro-businesses too.
With cheap, fast, guaranteed low-latency services more consumers will do more on-line business and consumer more on-line products. This is what's driven the spectacular collapse of "print media" and the "eTailers" threatening Bricks-and-Mortar retailers. Next we'll see entertainment change: in the USA, Netflix accounts for 30% of night-time Internet traffic. It's displacing TV, both Cable and Free to Air.
Could it get better? Yes...
NBN Co supports 4 "Traffic Classes" - packets that get priority over others. This allows services like Voice-over-IP (phone) and Video Streaming to operate flawlessly, without getting caught up in the usual nigh-time congestion. Retailers can charge a little more for better service.
But priority data isn't because NBN Co's network gets congeted: it's there to help the ISP's and Retailers. They can pay for a lot less capacity and still meet service targets for real-time services, like voice and video-streaming.
Then there's what could be the secret weapon, that no other country has: Multicast.
This is aimed directly at wide-scale broadcast of scheduled video. The ISP/Retailer sends just one stream of a channel, at say 5Mbps, down to the NBN Point of Interconnect. The NBN switching equipment then amplifies that channel, sending the same bits to potentially 100,000 services.
It costs just $5/mth extra in User Access Charges to start. The ISP/Retailer, for the standard fee, gets to send 200 channels down the wire, whether just one or 100,000 people are watching. This changes the rules of broadcasting.
Nowhere else in the world is national multicast being tried, it puts us in the box seat to develop new media, content and content-billing schemes.
The NBN Co plan, as already demonstrated by actual revenues and take-up rates, is conservative, it understates the real growth and revenue potential. The current ARPU of $38, while an aberration due to ramp-up and closer to $35, is years ahead of the Plan.
The NBN Co is already showing signs of being wildly successful, of becoming the new standard for "Rivers of Gold".
All this, the Coalition is hell bent on destroying. Dealing with the deliberate deceptions and obscuring of facts is another task.
The full Fibre NBN:
- Addresses the inaction of the Howard Government in not starting a National Broadband Network when it first became apparent in 2002 and was demand by Sol Trujillo in 2005.
- Corrects the deliberate market foul-up by Howard in not Structurally Separating Telstra.
- This policy resulted in the market failure where no commercial entity was prepared to invest in a new Broadband network. They'd already seen multiple infrastructure disasters: 1993 HFC Cable ($4 billion wiped out), 4 Mobile phone networks overbuilding one another and the ADSL debacle: every operator must install it's own DSLAMs in every exchange.
- Has already added over $30 billion to Telstra's valuation, probably well over $60 billion when done.
- Introduced "tiered pricing" that reduces Consumer Surplus, increases both wholesale and retail revenues and gives customers a great deal.
- Removing the "single-price" model of ADSL line charging allows retailers to identify the Premium Users, the top 30% who contribute most of the profit, and better market to them.
- The $110 ARPU will be a gold-mine for ISP's/Retailers: with no effort, they get to triple their Revenues and increase Profits considerably more.
- Leverage Price Elasticity by dropping both Access and Volume Charges ~20%/year, stimulating demand and increasing profits.
- The high-end consumers generate the profits and pay for the rest of us.
- Providing Traffic Priorities so ISP's/Retailers can decrease their costs further and still guarantee service levels where it matters.
- Provides multicast, that will allow new, higher definition or higher feature Video streaming or gaming, while allowing low-cost content providers to enter the field or sports associations (eg AFL) to live broadcast multi-view, high-quality game feeds for many games.
- The full Fibre NBN is a bonanza to almost every Business in the country. It will drive sales, the same way we've seen eTailers, News & Content, it will lower their costs and drive Profits.
- The NBN Co Plan is conservative, actual results are years ahead of forecasts.
- If even historical growth rates are sustained, the NBN will be a new standard in "Rivers of Gold".
- A National Broadband Network is solely about business and necessary for sustained Productivity Growth underpinning our National competitiveness. We can choose to be a mine and quarry with no value-add or use our world-beating skills in innovation to become and stay competitive in the Information Age.