Voter backlash over "NBN Lite" as they realise they've been 'had'?

On the weekend, 300-400,000 voters went with the Coalition over the ALP, based on many factors, one of which was Turnbull's "NBN Lite" was good enough. Just how enraged will they be to know they have been duped.

We know from Nick Paine's petition to the Liberal Party [real-time count] that getting a good NBN is still a hot-button issue for many voters, even post election.

Australian voters don't like candidates whom they feel have let them down or taken them for granted: witness push-back against Liberals James Diaz and Sophie Mirabella and the collapse of Bob Katter's personal vote.

Long term, Australian voters remember. The demise of the Australian Democrats was started with the defection of Cheryl Kernot, who lost her seat, and finalised by Meg Lees "flipping" on the GST.

Here's what Turnbull didn't tell, in fact hid from the electorate, what's NOT been said in "Cheaper, Sooner, more Affordable" - the reality is a very far cry from his claims and slogan:

• Cheaper, by 10% or $4 billion, but not if you take everything into account. In fact the opposite: fully costed, an FTTN then FTTP is more expensive.

• Sooner, by one year, after creating the problem by doing nothing for more than a decade.

• more Affordable, isn't possible when the Government don't set the retail prices. Even if they knock 33% off the wholesale price ($16 vs $24), why would any ISP pass-on the whole saving, not just follow the banks' example and pocket it?

What Turnbull didn't say:

• What will the NBN cost the taxpayer? It isn't any number you've been told.
• $12.5 billion in interest payments to 2033, mainly from 2018, until the loan is paid off.
• Then, over the next 7 years to 2040, the NBN returns $40-$45 billion. The taxpayer is better off by $30 billion at least.
• NBN Co is already 12-18 months ahead of financial forecasts. Keep up these early wins and it's like a house mortgage, small payments early on result in massive gains later. Because paying off the loans are NBN Co's highest cost, just like a house.

• How much PROFIT will "NBN Lite" generate? NONE, it makes a $10 billion loss over 20 years.
• Turnbull acknowledges it costs more to operate and maintain the Copper/VDSL network, but artfully hides just how this destroys the business.
• If NBN Lite charges $16 wholesale per line, they can just cover interest and maintenance and be "cashflow positive", but they can't pay-off the loans or cover depreciation.
• In 20 years "NBN Lite" will not only cost the taxpayer $40 billion in interest,  they will still have to payback the $30 billion in loans.
• Turnbull's "NBN Lite" plan will cost the taxpayer $70 billion by 2040, not leave them $30 billion better off. There is a $100 billion difference, but not the way Turnbull calls it.

Who's figures do you Trust?

One of the central criticisms of the current NBN by Turnbull is the "cost". It's NOT the cost to taxpayers he discusses, but the Budget of NBN Co, they're very different to begin with. Taxpayers don't have to meet ANY of the NBN expenses, only pay the interest on the loans to fund the business.

It's the difference between paying for a house in cash or taking out a mortgage and paying off the loan over 25 years. That's a massive difference, as every home-owner can tell you, but reality doesn't fit with the Coalition confabulated narrative.

The ALP did not create the NBN Co Corporate Plan. NBN Co is a business staffed with subject-area experts. They will be held accountable to their management and ultimately the NBN Co Board, for meeting their forecasts. These are industry professionals, experts in their field, doing their best work. They don't just make up numbers or parrot what their ALP overlords dictate to them. The Labor government set their maximum equity contribution, gave the design rules and stood back.

Turnbull would like people to think he knows more than the highly-experienced, expert professionals in every field of NBN Co, and that magically and mysteriously, they've overlooked risk factors that will blow out their project costs by a shattering 2-3 times.

That just doesn't happen with professionally run big civil projects. If unforeseen events occur, the project halts and is rebudgeted, redesigned or, if necessary, scaled-back or cancelled. No Professional is stupid enough to overspend a well run Engineering projects by 200%, it's a "strawman" argument at very best.

NBN Co has anticipated real risks to the project. They are well documented and included in the current Corporate Plan. They even have a 10% contingency set aside, as is good industry practice.

Who are you going to trust for accurate figures: a small bunch of faceless, self-serving, politically motivated non-experts surrounding Turnbull, or the multitude of highly experienced, professional experts within NBN Co?

Despite his claims of being unchallenged, Turnbull's wildly exaggerated "Stress tests" (my term) have been questioned and refuted in the media many times over and were never taken seriously by any Telecommunications Engineers, Accountants, Financiers or Economists. They don't make sense and never have made sense.


Cheaper

The on-budget, direct cost to the taxpayer is solely the interest on the loans taken by the Government to contribute equity to NBN Co.

The NBN Co Budget is something entirely different and includes loans it arranges for itself. Both the Coalition and Labor have never separated the two. The NBN Co Budget, be it $20.5 billion, $44.1 billion or something else is NOT what comes out of the taxpayer's pocket.

"NBN Lite" is identical to the current plan except for ONE change: 75% of Fibre services, 8.968M lines, will be replaced by FTTN (Fibre to the Node) using VDSL2.

That part of the NBN Budget is just $12 billion and Turnbull estimates $8.1 billion to build his FTTN at $900/line. This can be at most a $4 billion saving, 10% of the whole budget. A far cry from the oft-repeated claim "VDSL only costs one quarter of Fibre". (It does, if you ignore the majority of costs!)

Somehow, Turnbull saves $17 billion out of a $12 billion budget. That is a trick he has never explained.

But there are two BIG ticket items that Turnbull has craftily hidden away in his "NBN Lite" plan:

• For FTTN, he isn't going to provide the CPE (Customer Premises Equipment) which NBN call an NTD (Network Termination Device). For the other three networks, Fibre, Wireless and Satellite, NTD's are included. It's like making the inside of a car "optional".
• In Dec 2008, Telstra at their NBN Demonstration said "VDSL is much harder than you think" and specifically included a VDSL NTD with an integrated Central Splitter in their design, warning that without it, services would NOT be of an acceptable standard. [Full Telstra doc]
• No NTD option is offered for FTTN/VDSL in "NBN Lite".
• "NBN Lite" transfers all CPE capital and maintenance costs onto the subscribers. Over 20 years, this is upwards of $1,000 per customer, or $5-10 billion extra that's just ignored.

• "NBN Lite" makes allowance for wastage, not all the money spent on FTTN will be useful for a final Fibre to the Premises network.
• This deliberate wastage was the reason why the Expert Panel rejected all FTTN proposals in 2008 and recommended jumping straight to full Fibre.
• Turnbull puts this figure at half the cost of his FTTN build ("50% CapEx Reuse"), but doesn't include this charge against his project:
• "NBN Lite" costs an additional $4 billion in wasted investment on FTTN.

The "NBN Lite" plan is touted by Turnbull and the Coalition as saving $17 billion, off the Budget, not from taxpayer funds, yet it cannot.

Instead, at most it can save $4 billion, while adding $5+ billion in costs only borne by VDSL customers AND ignoring $4 billion in deliberate wastage.

"NBN Lite" costs the same, or 10% more, than the current plan. Why would anyone think an inferior service, that is designed to be thrown away, for the same price would be a good idea?


Sooner

In 2002, Telstra was under financial pressure as it's main source of revenue, the PSTN (telephone network) was in 2005 described by Sol Trujillo as being "in meltdown".

Leading up to then, the explosive growth in both Internet use and mobile phones was well known inside Telstra and broadly within the Industry. From 1997 onwards, it was a matter of when, not if, Telstra would get into serious financial trouble and a new digital-from-scratch broadband network was necessary.

Yet the Howard Government did nothing about creating a strong, viable 21st Century network for Australia for a decade. There were many studies, recommendations and even the odd billion dollars dropped on the problem, but by 2007, we were still in a digital backwater.

In 2005, the new Telstra CEO created a table-thumping presentation about the need to reform the business and build  Broadband. The Liberals ignored it then and in 2007, contributing to their electoral loss. They backed up to the 2010 election with an inadequate NBN plan and again, failed to carry the day.

From 1997 onwards when the Coalition was in control, Telstra could have been structurally separated easily AND a good broadband network could have have been built with no Government funding, if they'd been allowed.

For more than a decade the Liberal/Nationals did not act when they needed to and could have, and then they continued this policy for another 5 years! This antipathy to Broadband runs deep.

So finally in 2013, after deliberately and consciously creating the current situation, they now want to claim that speed is of the essence.

Why the urgency for "NBN Lite"? Turnbull has never offered a good explanation.

The actual "NBN Lite" end date is 2020, or 2019. A one year improvement over the current 2021 end-date. So why is a one year speed-up so important after 15 years of inaction and resistance?


More Affordable

As said above, NBN Co can set wholesale prices, but the ISP's can set any retail price they like.
But the real story is "if you charge one third less and it costs you four times as much to deliver the service, how can you still make a profit?".

The Government does NOT and cannot control retail NBN pricing. Why would the ISP's, especially Telstra, pass on, even in part, any savings?

It's not sophistry, there's a serious marketing point here. Customers are very tired of battling with incredibly complex and difficult "rate cards" from Telcos, especially with mobiles and smartphones.

ISP's, especially Telstra, are likely to offer simple NBN pricing, with a single price for each service speed. The entry level, 12/1Mbps services are likely to be the same just like now, with NO difference depending on Network: Fibre, Wireless or Satellite.

If the ISP's supply and maintain the missing VDSL NTD and Central Splitter for FTTN customers, they will be justified in charging both a service connection fee and not passing on any savings.

Customers on VDSL will not see any savings compared to Fibre, rather they will face higher "out of pocket" and connection charges and on-going maintenance, over and above what other NBN customers pay for in home connections.


Media Coverage, Costings and the PBO (Parliamentary Budget Office)

The greatest coup of the Turnbull disinformation campaign was having Alan Kohler, doyen of the Business Media, come out the day after the Policy launch (10 April) and declare "NBN Lite" was good enough.

Without costings, without financial forecasts, without charges or costs, without on going debt & equity figures, without a payback period or Rate of Return, in fact without ANY financial data necessary for a $30 thousand, let alone $30 billion investment.

Rather than attempt to analyse the Coalition Policy, question them and dig out the numbers, the Media quietly walked away from it, choosing to quote, as fact, the unverified project cost figures given by the Coalition

The PBO did not review the Coalition NBN Policy costings, nor was anything offered them.

They don't seem to understand the basic rules of accounting either: if it's not under your control, then it's NOT on your balance sheet and it does not affect you.

The PBO would've taken less than an hour to check both the ALP and Liberal Party on-budget costs, interest payments, if they'd been given the forecast Equity figures. It's that simple.

So why haven't any of the media reported on this or asked the Coalition for that information?
Especially after the election, does the public have a right to know what it is now committed to paying from its taxes?


Other Myths

The proponents of slower, inferior Broadband ask "Who needs higher speeds?"

That's easy: anyone who puts a monetary value on their time.

48%-49% of ISP connections are current "Business/Government", according to the ABS.
They value their time, currently around $120/hr to keep an average employee, and can work out what it's worth to save download time.

This is why NBN Co has sold 31% of services at 100/40 Mbps, the highest current speed, not the 18% forecast. This increases their AVC (access charges) by an easy 10% over the forecast.

Later this year, they're scheduled to turn on 3 higher speeds (250, 500 and 1000), and increase their income from access charges by another 10%-20%. This extra service speed doesn't cost NBN Co anything.

What's going on here? It's why NBN Co is going to be immensely profitable and what Turnbull has tried desperately to hide from the electorate: NBN Co can sell exactly the same physical Fibre connection for anything from $24 to $150, AND have all customers very happy with what they pay.

In Economics, it's called "removing consumer surplus". Current ISP ADSL pricing plans, which Turnbull hasn't said he will or won't continue with, are "One size, one price Fits All". This makes most customers unhappy, either because they get charged more or they can't get a fast enough service.

We know from a report in 2009 that includes a detailed economic model of the NBN done by the current NBN Chief of Pricing, that a "one price fits all" regime would charge the majority entry-level plans more than 3 times the current $50/mth of iiNet, or 2.5 to 8 times if uniform charging is also abandoned.

... for the most likely estimate of $170 per month, unit costs in metropolitan areas are of $133 per month, while those in non-metropolitan areas are just under $380.

For "NBN Lite" to not include their charges or clarify their pricing model can only mean bad news for consumers. Politicians always proclaim good news from the highest points.

The reality of a "one speed, one price" VDSL model for "NBN Lite" is entry-level charges need to increase by 50%-100%, while high-end charges reduce, those users would rather pay more to swap their money for time and make massive savings in wage costs. It's incredibly strange that the party that's "open again for business" doesn't understand how businesses look to reduce their total expenditures.

The world isn't well ordered, all the people wanting fast access rates aren't clustered together, around what will be decided as a "Node". Nor are all businesses located in business parks etc. The whole point of running out the ONE system, everywhere, is that anybody who needs faster access can do so without delay, cost or impediment. This is lost with FTTN/VDSL.

This leads to the next point: Who pays for the NBN? The low-volume users or speed hogs?

The entire profits of the Fibre NBN come from the top 25% of users, the rest of us either get NBN services at cost or below.

This is because the use of the internet is very uneven, it's an exponential, in fact.

The top 1% of users consume half-as-much data again as the low 50% of users: the top 1% account for 10% of downloads and the bottom half 6.24%.

The Fibre NBN is the best deal any of us are ever likely to be offered in our lifetimes. If we want speed, we can have it, if we don't then others pay for us.

If you remember the claim of "tripling of charges" by the Coalition, it's another upside-down argument. Yes, NBN Co are forecasting an Average Revenue Per User (ARPU) of $110 in 2040, but that's because customers who value the service will want to pay for it AND download large volumes, mostly for their businesses.

Neither has the media reported that NBN Co revenues are 12-18 months in advance of forecasts on all fronts. This is really important, it proves the Corporate Plan is conservative and that the reality will be far, far better than people expect. It's not unreasonable for a Fibre NBN Co to cost under $30 billion and return over 15%, simply because there is such large "pent-up demand" from a decade of inaction by the Coalition.

The NBN is about Business, Productivity Growth, Efficiency and reducing drags on our Economy. That it will be used, in very small part, for Entertainment, even Adult content, is an irrelevance. It's like banning ALL glossy magazines because there's a very small number with X-rated content. Adult content is a fact of life, it's still commerce and it's largely an irrelevance.

The Internet grew up in the 15 years the Coalition weren't watching, it's now about Business and the Economy.


Summary

"NBN Lite" is the OPPOSITE of how it's been portrayed in the media: giving us better Broadband but for less.

• It's an inferior service that will cost the same, or more, to build and operate.

• It will cost taxpayers $70 billion or more by 2040, NOT make them $30 billion or more by then.

• Fibre NBN doesn't just make money, it matches need and service, making everyone happy.

• Tiered pricing reduces costs to the majority, while allowing those who put a high monetary value on their time, to swap money for time. That's real consumer choice.

• The Fibre NBN profits all come from the top 25% of users, the rest of us get a free-ride.