Thursday, 29 November 2012

NBN: The Great Broadband Con II. Problems with Nodes

In Part 1 of this series, I made a case that the FTTN Coalition Broadband Aspirational Plan, CBAP, would not provide what NBN Co is rolling out:
a full-coverage Customer Access Network for Broadband (Internet) and Telephone.
The Coalition can only achieve its "cheaper, sooner, more affordable" promise by delivering only a fraction of the NBN Co plan. Voters need to read 'the Fine Print'.

In this piece, I want to layout why in the 10 years since TransACT rolled out an FTTN covering half of the ACT, it remains the only large-scale attempt at taking on Telstra (and TransACT was not able to proceed as planned onto the other half):
FTTN 'Nodes' (cabinets), especially the MSAN (Multi Service Access Node) favoured by Mr Turnbull, are remote/in-field telephone (POTS) and DSLAM terminations: exactly the RIM/CMUX "pair-gain" solution Telstra has deployed extensively.
In short, they are the last thing you'd do, if had you a choice:
  • it only makes economic sense for the 'incumbent' (Telstra),
  • it costs a lot more, in running fibre and the electronics in the node, than DSLAM's in the Exchange , and
  • the operational and maintenance costs of remote nodes is much, much higher.
If you're a customer, the Gungahlin Experiment says "stay away!" But Telstra, not you, decides on how you're connected.
Ownership and Access

In the Telco world, natural monopolies, like the copper Customer Access Network, is often referred to as "our birthright". Which makes sense of a lot of decisions and behaviour.

Telstra has had to be dragged kicking and screaming by the Independent Regulator, the ACCC, to share access to its infrastructure. It charges commercial rates for access, it doesn't give it away for free. But they hate doing it with a passion. The ULL, Unbundled Local Loop, agreements allow other Telcos to use the Telstra copper, but their margins are "thin" - they make very little money because Telstra sets both the Wholesale prices and the Retail prices they have to compete against.

We know from the multi-billion write-offs of the HFC Cable TV networks, that Telstra would rather destroy gobs of shareholder capital than share assets or co-operate.

Telstra happily moves customer circuits from direct exchange connection to its pair-gain systems, making other Telco DSLAM's inaccessible, without penalty: they own the lines, they can do what they like, when they like.

Other Telcos cannot do the same thing: go out into the field, install a node and move all the lines in the area on it. They don't own the lines.

Even if they did install a node and move a very small number of clients onto it, we know from the HFC rollout that Telstra would, within a matter of weeks, have installed a pair-gain system (a RIM/CMUX) in-front of the new node, rendering it useless.

The ACCC can do nothing about this... It had to stand by and let the HFC networks get rolled down both sides of the same streets while more than half the country was left uncovered.

Only Telstra can install remote nodes with internal DSLAMs and not be denied access.


Everything that you need in an Exchange, you need in a node:
  • intrusion-proof building, security, alarms, monitoring, test equipment, ...
  • primary and secondary power-supplies
  • cooling, ventilation and environment protection (floods, fire, termites, vermin, hail, vandals, ...)
  • up-links, distribution frames for customer lines, patch panels, line-filters to separate phone/DSL signals, line-cards for phone and ADSL and different line equalisations (for echo and noise cancellation)
All this, in something that will fit on the back of a ute, and can be knocked over and destroyed by that same ute!

These days, Telcos are not a law unto themselves as they once were: they have to lodge Development Proposals to Council, the same as everyone else, for each and every node. Approval is not automatic.

Getting permission to build a node is the first hurdle, then construction, seeking power connection (and paying for that), running fibre, laying foundations, joining into existing customers lines and finally transferring them. Surprisingly, the cost of constructing a node does vary much with size: the overheads are that big.

Remember that these nodes sitting on the side of a road or on a pole are expected to last 30 or more years with minimal maintenance.  The cabinets must be toughened to withstand misadventure, deliberate vandalism and normal environmental conditions: with "minimal" (read NO) maintenance.
That sort of over-engineering comes with a BIG price-tag.

Compare the cost of even 50 nodes against one exchange building: the nodes are likely 5-10 times more expensive and they still need to connect to that exchange. If my high-range estimates are right and we'll need 300+ nodes per subscriber exchange, the additional cost will be crippling.

They are also workplaces for the technicians that install and support them: all relevant OH&S and IR laws apply. If a worker is injured because of something outside the employers control, like a wandering dog or falling tree, the employer is still liable.

If you have any other choice, you don't put DSLAMs in nodes somewhere on the streets: exposed and prone to damage and failure.

OpEx and Maintenance

Does the power to run many nodes add up to much more than an exchange?

Yes, in three ways:

  • Each node has small, inefficient, versions of common equipment (power supplies, ...) at the Exchange. For reliable operation, I'd expect 2 or 3 "hot-swap" 240V power-supplies. They all operate at low output, ironically well away from their maximum efficiency.
  • There is a lot of replicated electronics that aren't there in an exchange.
  • All the links in a node, uplinks and customer, are active: they consume power and their electronics uses more again. The 'P' in GPON, the NBN Co technology is "Passive": there is no power used if they aren't provisioned. GPON also shares many connections on the one head-end: DSL technologies are not shared and use around 10-times more power per customer.

But the extra power consumed is really only a side-issue.

The engineering "gotcha" with all remotely installed equipment is not inquisitive cockatoos, floods, frost and spiders: they cannot be economically "climate controlled". We know from Accelerated Ageing Testing that failure rates of electronics radically increases with temperature: when ambient temperature is well above 20° Celsius, semiconductor, wiring and board reliability plummets. The usual heuristic is "lifetime halves with each 10°C rise in temperature". Outside in the sun on a hot day, the electronics cook: you can see your dollars melting away...

How do you get 20-30 years service life out of all electronics in a node? (one piece fails, the node fails and everyone on it loses service).

There are two parts to Climate Control: Temperature and Humidity.

Too dry or too wet, to the point of condensation forming, damages electronics. Too much water beading for too long, and you've got mildew and mold. Not just OH&S hazards, but toxic to electronics... Those nodes in a desert won't fare better: capacitors dry-out and static electricity builds up when the air is too dry. Static discharge, even something a technician doesn't notice is lethal to semiconductors.

Yeah, you really want to put expensive, sensitive electronics in a secure, climate controlled room if you can: let's call it "an exchange"! Nodes located in the field are a really bad idea on so many levels...

If there are 50-300 nodes within an exchange service area, how many kilometres must a technician drive to visit them all? They are at least 0.8-1.6km apart.

With 50 nodes, 2km apart, that's well over 100km driving around them.
300, 1km apart and that's enough driving in an urban area to take you all day.

This is the Operational problem with nodes: they are scattered all over the countryside, in places chosen for their network suitability, not road access. There is a considerable overhead (read 'waste of work time') in servicing anything located outside an exchange, let alone hundreds of little beige boxes dotted around the countryside.

Line faults and customer connections or line upgrades, arrive randomly: They cannot be grouped and scheduled to minimise technician driving time.

Instead of a Tech rolling up to an exchange and fixing half-a-dozen faults, in comfort and safety, in a morning, they will be out in all weathers, spending two- to three-times more time driving than what they are paid for: fixing things. That's really bad business.

There are two other times you'll send technicians around to every node:

  • software/firmware upgrades
  • hardware updates, such as installing faster fibre uplinks.

Doing that for every node in Australia will be a massive undertaking, on the same scale as the initial rollout, not something "quick and easy".

Did I say this equipment is expected to last 30 years with little maintenance?

If you don't house equipment in climate controlled conditions, you have to under-rate components and over-engineer systems to get anywhere close to your design life goal.

Performance and Upgrade

How much performance (bandwidth) can you expect over your average 40-yo copper phone cable?
It was designed for voice and 28kbps is pretty reliable on good phone services, though 2.4-9.6kbps may be all that's possible on rural and remote phone lines. [But they cannot get FTTN services: way beyond 1.6km. They've always been connected by Fixed Wireless or Satellite.]

That 2.88kbps has been pushed to 25Mbps at 800m, by a lot of cleverness and more luck.
For high-bandwidth transmission systems, not customer lines, there is for any type of cable, a constant that describes it: the "Distance-Bandwidth Product". You might have 100Mbps with repeaters every 10km. You can have 200Mbps with repeaters every 5km, and 1,000Mbps with repeaters every 1 km...

For carefully designed and specially manufactured cable, this is the best that is possible.

The simple unshielded conductors on the customer access loop aren't that well built: they look more like capacitors and their performance falls off very quickly with distance, leading to some counter-intuitive results: ADSL2 is faster than VDSL2 from 800m to 1600m.
At extreme distances, the lower frequency ADSL1 is faster than everything.
It'll get 512kbps - 1.5Mbps well past when ADSL2 has stopped completely.

The statements that "people have achieved 10Gbps in the laboratory" might be true, but are just noise. Right now you can buy a specially manufactured "Thunderbolt" cable that does 10Gbps: over for 2-5m!

There is a physical limit for the low-spec cable already in use, and as it gets older, it becomes noisier, less reliable and less able to support higher line speeds: it wears out. The other little wrinkle is that to overcome line noise thats increases with frequency, you have to boost transmit power. This increases mutual-interference (cross-talk) and reduces achievable speeds on all links. Not what you want.

One day we might a have DSL capable of 1Gbps: but it won't go as far as your gate!
What's the point of a 5-10m copper lead-in and a 2-port node that costs $25,000?
It can never make sense, technically or economically, to run 1Gbps DSL.
If you want 100Mbps services, ever, the message is clearcut: start with fibre.

As I've alluded to above, when the uplink gets congested, the service is unusable for everyone on the node, what can be done?

This isn't academic: exactly this problem has plagued those forced into the Gungahlin Experiment when Telstra finally provided a reasonable number of DSL ports per RIM/CMUX.

Lets consider a fully populated 150-port ADSL2 node, the sort of thing Telstra proposed in 2005 to provide a minimum of 12Mbps, maximum 20-24Mbps.

Because all services are priced on speed, most customers will initially use the cheapest, and slowest, connection rate, and over time they will upgrade.

150-ports at 6Mbps each is an aggregate of  under 1Gbps: providentially, SFP's (the ethernet optical transceivers) are cheap. The service is not "over-subscribed" and we'll have happy users, if the upstream links are also properly dimensioned.

What happens when people start to upgrade to 12Mbps services and exceed the capacity of the uplink?
Most of the time, nobody notices anything! Because not everyone is demanding full speed together.

It is only during "busy hour", say 6PM-9PM, that congestion will show up. In the way of these things, it starts gently with the odd "glitch", but worsens. Surprisingly quickly nobody will be getting usable speed: this is an artefact of the Internet TCP protocol: if at first you don't succeed, try again, relentlessly! It is a computer, after all.

There are two options at this point:

  • install another 1Gbps uplink, or
  • increase the speed of the uplink to 10Gbps, the next available.
    • Higher speed SFP's still are "premium priced". 10Gbps might be 15-20 times the cost of 1Gbps.
Only, it is never so easy...
  • How many extra fibres did you pull to the node for upgrade, remembering that bundle of fibres is being shared between quite a few nodes?
  • Does your node even allow you to add another 1Gbps interface?
    • It might support two interfaces, but not both sharing traffic, the second only as a 'fail-over standby'.
  • Whilst the 10Gbps SFP will plug-in and the electronics will operate, it won't move more than the board can handle...
    • Unless you originally bought the much more expensive electronics to support 10Gbps, unlikely because we are trying to do this on the cheap, installing a faster interface will buy you nothing...
    • Why would this situation arise? In 10 years time, the availability and prices will have fallen... Technicians won't expect it not to work.
But wait, it gets worse, much worse...
  • Our 150 customers won't just be limited to 12Mbps (2Gbps aggregate), ADSL2+ reliably delivers 20-24Mbps for those closer. Lets upgrade 33% of ports to 20Mbps and another 33% to 15Mbps... 
    • We can realistically have aggregate latent demand for 2.5Gbps...
    • We can saturate the link just with the fastest users.
    • Busy hour is going to be most of the day.
  • But we aren't just selling ADSL2 services, we're selling VDSL2 at a minimum of 25Mbps and a maximum of 80Mbps.
    • 12% of ports at 80Mbps will load the link to 150%. (1.6Gpbs)
    • 25% of users will get 25-30Mbps, adding another 1Gbps.
    • And the rest, 63%, will get 12-15Mbps, another 1Gbps.
    • We end up being four times over-subscribed on the Customer Access Network. That's really, really bad for Reliability and Performance.
  • Would you believe it can get worse?
    • Mr Turnbull proudly says "those that want it, say a business, can have Fibre Optic connections, if they can and will pay". Oops.
    • That's 100Mbps on a single link.
    • 10 of those on a single node, and it is saturated.
    • But even if there are only 2-3 business buying 100Mbps on that node,
      •  they won't be happy, because they get to share a congested link with everyone else, and
      • the ADSL/VDSL customers will be very unhappy when one of the businesses decides to move a few GB files around overnight: residential busy hour is briefly in the morning and evening. Exactly when businesses aren't working and SysAdmins like to do stuff that would upset workers during the day.
      • All these scenarios end in tears...
Wrap Up

Why did we want to install all those thousands of nodes around the countryside?

Because we didn't design the telephone network to handle broadband, and we're trying to cheat and get it cheaply with what we already have.

The quick summary of the above is: You want anything but nodes in the field for wide-scale, 30-year life equipment to provide Telco-grade reliability.

There is one last "gotcha": Death by Success.

I briefly mentioned the mutual-interference (far-end cross-talk) of DSL services and that it can limit speeds.

The original 4-wire 2Mbps PCM systems (Pulse Code Modulation, pre-full-digital) carried 30 voice calls, but were only specified as "use one per cable".

The designers of DSL systems have pushed the envelope somewhat, but this is a fundamental and unresolvable problem: if you have large numbers of DSL services all on the same large cable, they will all suffer interference.

This is exactly the Telstra problem (with 2,400- and 800-pair cables) described by Richard Chirgwin in June, and was misinterpreted by Malcolm Turnbull as "cable faults".

The problem arises because all the DSL modems and receivers operate on identical frequencies, using identical coding methods and hopping frequencies in the same way.
If there is one modem operating in a cabinet with 149 other identical modems blasting away at the same power level, that's a pretty cacophonous environment: the one guarantee you can make is, NO service will be able to achieve its full speed.

Just how bad is this problem? With our cheap, worn-out cabling, I think we'll start to plumb the depths of that answer.
The worst case may be: only 50% of ports on a node can be activated. Pretty cool technology, eh?!

There is an answer: dig some new trenches and run brand-new cables, away from the working ones.
While you're replacing the failed copper, just install fibre.

And in case you were wondering, Fibre Optic doesn't have this problem. It comes with immunity to crosstalk.
The Time Division Multiplexing Uplink of GPON, like GSM mobile phones, does have a failure mode. It can go wrong if a transmitter fails "on", but that's limited outage and quickly fixed (turn it off).

NBN: The Great Broadband Con

What did we learn from the GFC and its cause, the "sub-prime mortgage" scam?
If something seems too good to be true, it probably is.
It's not without good reason that Politicians are now regarded as less trustworthy than Used Car Salesmen. The majority of ordinary voters remember Meg Lees of the Democrats black-flipping and voting for the GST and they remember Graham Richardson's words: Politicians Lie.

If you're a consumer of any age, you will have experienced enough grief in small and large purchases to understand the consequences of "let the buyer beware", know that "the fine print" can be a killer and to be more than a little sceptical of bold, enticing claims.

I've personally lost $10,00's many ways: buying "lemons" (2nd-hand cars), paying Hire-Purchase agreements for years on something I can't use, cancelled contracts ('that was an ironclad agreement'), lost deposits and unpaid bills ('they've gone broke'), 'the fine print' on Insurance ('that wasn't covered'), bank loans/mortgages: fees, penalties and interest-rate 'surprises', not to mention the far too many minor scams, rip-offs, con jobs, shoddy work and tools, broken promises and the classic: If you don't like it, sue me (legal action is more expensive than the goods and outcome uncertain, delays incredible).

That's The Free Market in action.

Both the ALP with its NBN and the Coalition, with its "Coalition Broadband Aspirational Plan" (CBAP) have questions to answer.

As Malcolm Turnbull points out, the Government and NBN Co are less than forthcoming in being transparent and accountable:
  • What are the actual customer numbers for the NBN?
    • There needs to be a clear, unambiguous and transparent reporting of them.
    • We need to distinguish between:
      • Active connections (paying customers)
        • If possible, aggregates for services (voice, TV, ISP)
        • and connection line speed, connection download volume.
        • ARPU to NBN Co, to compare against Plan.
      • Near-active connections (internal work/test in progress)
      • Service requests (customers signing on, not yet active)
      • Premises connected (a working/tested fibre external to premises)
      • Premises passed (a service-drop fibre could be attached, on in progress)
      • Premises connections in construction or under contract to be built.
    • NBN Co accounts, like all Telco accounts I've seen, don't allow outsiders to compare inputs and outputs.
      • As a publicly owned company, there is an increased expectation of transparency and accountability. The 'shareholders' are electors, and they'd like to know:
        • Where is our money going?
      • If that question cannot be answered in any detail because of Commercial-In-Confidence, it'd be useful for the limits to be written up and the nature of the confidential data to be documented. [e.g. cost per premise installed, cost per metre of trenching, cost per metre of laying and supplying fibre, ...]
The Coalition has far more questions to answer about their apparently extravagant claims:
How can Mr Turnbull be so assured he can deliver "Cheaper, Sooner and more Affordably" on a solution that the 2009 Expert Panel deemed as unimplementable economically and when no formal tender (1,000 pages of detail each) had sufficient costing details to be really credible?

How can the Coalition be so confident it can quickly deliver broadband to everyone currently in a blackspot?
Can the Coalition, in 12-18 months, deliver on their promise to prioritise (eradicate?) broadband blackspots and to do it all for three to four times less than the NBN?
Absolutely! Without directly lying or misleading as well.
You have to understand the fine print of what they're selling.
It's "Buyer Beware!" writ large.
The CBAP, Coalition Broadband Aspirational Plan, is not a promise to deliver A Great Big Expensive Network to everyone, everywhere: it is for something far, far more limited.

The Coalition can allocate $2-5B to patching up and papering over problems, rollout a few thousand nodes and, like George W. Bush pronounced in 2003 "Mission Accomplished" ~1year into the decade long War in Iraq, declare "We are Done!". Anyone else who wants an upgraded ADSL/VDSL or even fibre optic connection can have it, as long as they pay for it themselves.

This is 'responsible government' and 'how the Free Market works', at least in the eyes of the Economic 'Drys' in the Coalition.

What's the right number of nodes needed to build a full-coverage FTTN for the CBA?
Is it 30,000, 70,000, 90,000, 180,000 or 350,000? [I have justifications for each.]

What is the minimum number that the Coalition can get away with politically, with right now?
2,000? 5,000? 10,000?
The Coalition are not promising a full-coverage FTTN, now, or anytime. Where in their Policy have they ever said that? Where in their Policy have they ever said they'll match the ALP and fund a full-coverage CBAP?

Mr Turnbull and others, assiduously use the term "economic", as in "we'll do things if they are economic", meaning: "make a profit right a way". If consumers want to pay for a service that is uneconomic, then they are most welcome to... That's "The Free Market in Operation".

Why will the CBAP FTTN be both cheaper to build and more affordable to use?

  • Because they will spend only 10-30% of the NBN budget and provide extremely limited coverage, and
  • the technology the are basing their CBAP on, is old and fully paid for.
    • Their investment will add no value, none, to the existing network: It is a throw-away, so as little as possible will be sunk into it.
    • Old and worn-out equipments, be it cars, planes or phone networks, are almost given away because they are so expensive to run and maintain and have passed their "economic life".
    • Building any new Telco network, copper or fibre, from scratch is hugely expensive, which is why prudent custodianship demands forward-thinking and continuous upgrades to avoid exactly this problem. For decades Telstra Management and previous Governments, Coalition or not, have known this and deliberately not invested. We are now reaping that harvest.

Under the Coalition, how will Australia ever get Universal, affordabe Fibre to the Home/Premises?
When it is profitable for Telcos to do that! That's how the Free Market operates.
As we've seen for the last 20 years, Telcos are some of the most rapacious and profit-driven businesses on the Planet. They will invest the absolute minimum, whilst extracting every cent they can from their hapless victims.

If the "Free Market" would've ever delivered Fibre to the Home/Premises in Australia, it would've happened already in the most profitable market niches. After being beaten-up comprehensively in the Cable TV wars of 1997, Optus won't ever take on Telstra again in new infrastructure in open competition. Telstra has no interest in competing against its own established network. As consumers, we're screwed: which is why the ALP had to invent NBN Co.

The failure of the HFC Cable TV rollout and business is exactly what "The Free Market" will deliver in Australia. If Telstra can't own it and dominate, then nobody else can.

This is why Mr Turnbull and his Coalition experts are so confident they can and will deliver on all their promises: What they are promising is not what most people are expecting. Read the Fine Print!

Monday, 26 November 2012

NBN: The Economics of FTTH vs FTTN

Do you know a Bargain when you see one??
Is either NBN Policy proposal offering a bargain or the opposite, a "lemon"?

First, what do we mean by "bargain"?

My "New Oxford American Dictionary" defines bargain as:
a thing bought or offered for sale more cheaply than is usual or expected : the secondhand table was a real bargain | [as adj. ] household and electrical goods at bargain prices.
an advantageous purchase, especially one acquired at less than the usual cost: The sale offered bargains galore.
Collins World English Dictionary, via
a. something bought or offered at a low price: a bargain at an auctionb. ( as modifier ): a bargain price
something acquired by or as if by bargaining; especially : an advantageous purchase <at that price the car is a bargain>
The dictionary examples seem to point to price: The cheapest things are bargains.

But look again, the wording is often "advantageous", not "lower than normal price". Bargains imply both "value for money" and "notably lower than normally expected price". Purchase price is only one of many factors influencing value.

If you've bought any second-hand cars, you know that what looks like "a great bargain" on the day might turn out to be "a real lemon"... Nasty problems, whether existing or latent ('broken' vs 'will break soon'), may cost several times the notional price of the car to repair. A $2,000 "classic" car that winds up needing extensive rust-repair or (hidden) accident damage fixed may turn into a $15,000 vehicle, still with a worn engine, suspension, steering and transmission!

Just because the sale price is low, doesn't make an item "a bargain", unless you can afford to discard it, for free, when it proves unserviceable.

The other type of value-decision is constant price, but different quality.

Which is a better deal for $15,000, a 2 year-old Hyundai (ie. 'cheap' car) or a 10 year-old BMW or Mercedes (ie. 'premium' car) with a higher build-quality and inclusions? It depends...

If you can work on the cars yourself, have access to specialist tools and test gear and can source parts at reasonable prices, then the older car may well suit your needs better.

If you're at the mercy of others, especially the official Dealers who aim to extract high premiums over the entire life of the product, the newer car may well suit you better.
If you're not going to drive the car far each year, have had it checked for problems by a good, local mechanic who specialises in that brand and who will maintain it for you, then you will, as far as these things are guaranteed, get a bargain by buying the older, 'premium quality' car.

What are we buying, as voters and taxpayers?

How, as consumers, do we "buy" at the next election an NBN that will be at least "good value" and at best "a bargain"?

Firstly, just what is being sold?
What is the up-front price, what's included and not included, what hidden costs might there be and what are the future costs that are reasonably predictable?

At the moment, this completely disregards: are the two options even roughly equivalent. Is one a beat-up old "paddock car" and the other shiny and new?

Update 28-Nov-2012: I've corrected the Fibre component to $26.8B (was $26.4B) and total project to $37.4B (was $43B).

The GPON FTTH solution, for 93% premises, starting to be rolled out is not $37.4B: the fixed-line fibre is $26.8B. The rest is for Fixed Wireless, Satellite and other system/project costs.

An FTTN solution, without copper-line leasing or purchase costs, for 98% of premises was estimated by Telstra to cost around $15B. Paul Fletcher, in Wired Brown Land, suggests a cost of $9-10B for ~90% of premises. The last 1.1M premises were estimated to cost $4-5B, more than four times each than the first 4M premises.

To be generous, let's compare a $10B FTTN with $26B FTTH, both to roughly 90% of premises.

The elephant in the room, the unknown cost, is: What will Telstra charge to use its copper?
Whilst the current agreement pays Telstra $11B in NPV, for access to ducts, pipes, pits and exchanges, it does not pay for access to copper: payments only accrue when copper lines are disconnected.

But here's a surprise: the biggest single component of replacement cost of Telstra's Customer Access Network is the "ducts and pipes". Together with copper cables, well over 50% of replacement costs. One estimate from the ACCC is over $40B (for a competitor) to build a replacement copper C.A.N.

Update 28-Nov-12: With my limited knowledge, I hadn't understood just how deep the Telstra pipe-and-duct network went. It extends 100mm conduit well into the local neighbourhood, with 25mm conduit on "service drops" to premises for the lead-in. A large part of the $11B NPV given to Telstra is for access to that network. NBN Co will be upgrading parts of the network and installing its own pits and probably many new service drops (old, congested, collapsed and to wrong location on-site). Because paying to reuse the Telstra pipe-duct network resulted in a saving, I'm guessing a net cost of $10B, with $2-3B in upgrades. It must be noted that the current SSU contract doesn't buy anything from Telstra: it allows access and allows Telstra to decommission and remove its copper after a declared date in each region (I didn't read who owns the pipes-ducts after then). There is a deadline that NBN Co must meet to declare a service, or Telstra gets to keep its copper in service. IANAL, but that sure looks to me like the Coalition can't rely on the existing SSU and automatically acquiring the pipe-duct network. To be an "apples-and-apples" comparison, they still need to provide an irrevocable right-to-use the $10B pipe-duct network and to upgrade it to the minimum usable standard, as NBN Co will.

The GPON FTTH project is two projects in one:
  • For around $12B in construction costs $10B in Telstra payments and their own upgrade costs , lay build and upgrade 100,000km of pipe (conduit) and associated connection cabinets.
  • For $14B $14-16B, lay a GPON FTTH inside the new pipe/conduit network.
If Telstra has known since the early 1990's that it would've been needing to move residential premises to fibre in the mid-term, why did it not start to lay the conduit then or since. As a 20-year project, or 5,000km/year, it would've allowed a refresh of copper cabling where needed (lowering maintenance costs), been well within their technical and capital means (under $500M/year), and given them a $10+B asset to lease or sell now. They were able to garner the majority of their $11B NPC from this source.

Which prices should we compare for FTTH and FTTN?
  • $40B for a copper CAN to $26.8B for GPON FTTH?
  • $10B FTTN to $14B for the GPON component of the FTTN + $2-3B for upgrades?
Neither of these support the Coalition assertion, "FTTN will be 3-4 times cheaper to build than an FTTH".

The first bargain NBN Co is delivering is the $12B $10B conduit-to-the-premises, included in the price. If ever new cables need to be run (upgrades or maintenance), the majority of the construction costs are already covered.

The FTTN does not include this new and very important feature. If this was a car, the salesman would be now saying: "Oh, did you want tyres and rims on your new car?" This new "Structured Cabling" approach became standard in computer network nearly 20 years ago. It's not a new idea, nor outrageous to expect.

For a proper comparison, an FTTN has to include the same options: conduits and cabinets to 75% of premises served.

The apples and apples comparison for FTTH to FTTN is: $26.8B vs $20B ($10B+$10B)
Not that much of a difference.

What do each solution cost in running costs, repairs and maintenance?

All the FTTN proponents acknowledge the ageing copper network has rising maintenance costs, and these are higher than for a) fibre optic in general and b) a brand new fibre network.

By how much?  Nobody has been willing to put a figure on that.

We can get a hint from Telstra itself, from their ASX released Briefing Paper, Aug-2005, "The Digital Compact and National Broadband Plan". Page 18 cites: "14.3M fault calls, 14+% of all lines have fault".

This is without considering the running and maintenance of those 70-350,000 little grey boxes spread across the countryside for vandals to smash, weather to impact and heat to break the electronics in... The cost isn't in electronics, though they were estimated at over 50% of the node costs in 2009, it's the millions of kilometres that technicians will have to drive, reducing their productive hours to below 50% of their hours.

That's the second bargain NBN Co will deliver: much lower operational and maintenance costs.
This is a "gift that keeps on giving": maintenance and electronics upgrades are always going to many-fold cheaper than an FTTN. It designed to be efficient.

What are the major project costs?

In the ACCC Report to the NBN Expert Panel in 2009, the cost modelling says that for ULLS (Unbundled Local Links), the cost of capital was 75% of Telstra's costs. The Cost of Capital is the overwhelming cost in every NBN Solution.

The Federal Government, with its AAA credit-rating and "risk-free" status, borrows money much cheaper than anyone. The ACCC analysis added a 6-7% "risk margin", on top of the "risk-free" rate, to the modelling of a privately built FTTN.

Funding NBN Co with "risk-free" debt effectively halves the dominating cost in the project.
A 50% discount: sounds like a great bargain to me!

What the ACCC didn't discuss was IRR (Internal Rate of Return) and Profit Margin.
As a wholly-owned Government Business, NBN Co is expected to return 350 basis points (3.5%) above the reference rate: this is barely above household mortgage rates and much, much lower than any business loan for this project.

The Internal Rate of Return and Profit Margins demanded of NBN Co by the Government are extraordinarily low. They are many times (4?) lower than Telstra or a private consortium would charge.
A 75% discount on the profit margin:  sounds like an outstanding bargain to me!

How do we know what Margins Telstra likes to charge (apart from the headline Profit Margin of 42+% of turnover)? From the Aug-2005 ASX Release. Page 13 gives EBITDA Margins for various services.
They range from 88% for Domestic Long Distance (STD calls) to 55% for Local Calls and Basic Access and 40-42% for Mobiles and Data Services.

Because of the very modest financial target set by the Government, we know that NBN Co does not have to charge the extraordinarily high margins Telstra has been used to. As consumers, we get to enjoy lower charges and better services.

Lifetime and Upgrade: Do I get a 15,000km or 150,000km warranty?

The new equipment installed for both FTTN and FTTH solutions will have a 30-year economic design life. Whichever we choose, we are locked into the decision for a very long time. Most people think of a 25-30 year mortgage as "a lifetime"... This is the same sort of commitment.

FTTN proponents acknowledge the capability gap between ADSL/VDSL and GPON Fibre.

Their usual response is "nobody will ever want or need more than DSL can deliver" or "Fibre is sooo expensive, who'd want to buy it?"

The speed difference, out of the box, is 80:1000Mbps at best, but for guaranteed rates 12-25:1000Mbps. That's the difference between walking and a 320kph Ferrari.

For twice the upfront price, one-tenth the running costs, 40 (forty) times the speed and better quality?
Is that the bargain of the century or what??
A Ferrari that uses less fuel than a moped, for just twice as much.

As I've noted above, the monthly rental for subscribers is based on many more factors than he headline/up-front cost of the project. Twice as much up-front does not translate to "Twice the rental".

While the new nodes and electronics installed for an FTTN will have a 30-year economic life, does the ageing fault-ridden copper network come with a warranty of any sort?

That's the weakness of the FTTN: the copper is old and reaching the end of its service life in the majority of premises, it doesn't come with a warranty. [no references found]

You get what you pay for: new GPON Fibre will have a 30-year service life, will support 100-times speed improvement as it is,  (just add new electronics either end) and, if you need to replace or augment it, being in conduits - that's really quick, cheap and easy.

Just 15 years ago most Australians on the Internet used 14.4k-28.8bps over the same phone lines they are now getting 4Mbps on. Those same phone lines will be upgraded to 12-25 Mbps by an FTTN.

Is that a 1,000-fold or 6-fold improvement? Which ever way you count it, that's really impressive improvement.  How much more improvement can we expect from copper DSL services?

There's the rub... FTTN advocates will say "People have 1Gbps or 10Gbps over copper in the laboratory"... Kinda, sorta, but not really.

You can get 100Mbps over new Cat-5 ethernet cable: for 100m, sometimes 500m.
You can get 1Gbps over new Cat-6 ethernet cables: for 10-30m.
You can get 10Gbps over purpose built cables, either Thunderbolt (active parts) or SFP+: for 2-3m.

Because as frequencies increase, the signals travel in a smaller band just on the surface of a conductor, they are unduly affected by imperfections, corrosion and the breakdown of joints. In the real-world with old cables designed for 3Khz voice, not Mhz DSL, you will never see 1Gbps on copper. The speed that GPON Fibre starts at.

At best, over the next 10 years we'll see a 2-4 fold increase in DSL speed, and then that will probably be it.

Pay 50% more and get a lifetime warranty on a new product: sounds like a really good deal to me. That's the difference with fibre.

In another 10 years will you be wanting 12Mbps or 40Mbps, 100Mbps or more?
Chances are you'll want a lot more bandwidth than 12Mbps and a DSL FTTN just won't take you there then, or for the following 20 years.

In 10-15 years, will the Coalition bow to public pressure for Better Broadband and adopt a GPON FTTH? That replacement will cost only marginally less than the current implementation: the DSL FTTN will cost additional money to remove. It isn't just "building one to throw away", it's also "paying almost the say to remove it as put it in".

Building a DSL FTTN to throw-away: that's not a bargain and disposing of 10,000's of nodes won't be cheap, quick or easy.


GPON Fibre is a bargain compared to an DSL FTTN solution, even a hybrid FTTN solution.

The construction/install cost does not reflect what you'll pay per-month.
The basic price, for 12Mbps, will be higher than current DSL services, but if you're getting 2-4 times the speed as the majority of DSL subscribers will, that's still good value.

  • GPON FTTH is delivering is a $12B conduit-to-the-premises, included in the price, allowing cheap, fast, easy upgrades, repairs and additions.
    • FTTN does not provide the conduit, leaving us in the nineteenth Century.
  • GPON FTTH will deliver: much lower operational and maintenance costs, probably 2-5 times lower.
  • Using government "risk-free" funding and a comparatively low Return (3.5%), more than halves the financing costs, which normally account for 75% of internal costs.
    • Any FTTN that is built via a Public/Private partnership or solely by Private, will have much higher financing costs and many-fold higher Gross Margins to provide shareholder returns.
  • The guaranteed bandwidth of GPON FTTH starts at forty times faster than DSL and will only improve. 100Gbps ethernet fibre-optic is currently commercial available, not a laboratory pipedream.
    • The problem isn't that DSL FTTN can or cannot match speed now, but that it will never scale to meet future demand. It is at the end of its lifecycle.
  • The copper network is old and near the end of its service life: it's warranty period has expired, while GPON Fibre, which has lower maintenance costs, will be new and easily last the next 30 years: Fibre comes with a "lifetime warranty".
  • An FTTN built now, will cost us twice: Once to install and again, nearly as much, to remove.
    • What's the sense in building something intending to throw it away. It doesn't make sense.
DSL FTTN might seem cheaper up-front, but is like a clapped out old car on its last legs: it will cost you dearly to run and maintain, let you down when you need it most and will one day die on the side of some lonely road.

But there's a "gotcha" nobody in the Coalition will address: "What will Telstra charge?"
The SSU is about an FTTH not FTTN, Telstra will be obliged to pursue its shareholder interests and charge $8-$12B for its copper network, or lease it for (much) more. Trying to finesse this charge by partnering with Telstra shifts costs to the financing side: much more expensive.

Bargains represent good value, not just "cheapest to buy".
The GPON FTTN is a great bargain, a DSL FTTN is a lemon that for the next 30 years you'll regret buying.

Sunday, 25 November 2012

NBN: Framing the Questions - What's Good Policy?

There's a simple methodology to assess any Public Policy:
Roll forward in time 25-50 years, then look back and ask "Is this what we wanted for ourselves?".
We don't have Time Machines, but we do have our imaginations, and can answer some, or most, aspects the question about the competing NBN Policies.

I believe there are four areas to consider:
  • Competition
  • Regulatory Environment
  • Technical Solutions
  • Commercial Arrangements


The "last mile" of any utility network, the Customer Access Network, is a "natural monopoly". The right number is of networks is one, if your objective is to minimise cost and maximise Public Utility. Allowing competition leads to poor, expensive services, where no player gets good returns discouraging investment and upgrade. We saw the Optus/Telstra HFC Cable TV debacle that destroyed billions in shareholder funds and failed to create a viable Cable TV industry.

The problem is "how do you keep them honest and motivated?" not "Fat, Dumb and Happy" or complacent, inefficient and possibly corrupt.
How does a society grant any body, public or private, a monopoly on anything, let alone essential infrastructure, and expect them to operate efficiently, selflessly and altruistically for decades on end?

It's an impossible task when real people with their many failings and drivers, like greed and ambition, are involved.
Certainly some degree of regulation and oversight/governance will stop, or eventually detect, most excesses.

I suggest two things are desirable in a natural monopoly:

  • Private ownership, under the close control of a Regulator, to allow incentives for management and prevent business being "captured" by Trade Unions. Making a profit, while preserving a fixed asset in good order, is a discipline missing within Public bodies.
  • Micro-competition: New entrants should be allowed to enter niche markets where new technologies or business/funding/ownership approaches can offer users a substantial benefit. The Regulator needs to prevent "cherry-picking", where an operator runs the same technology past the same premises, but only in the cheapest deployment areas. Providing a Universal Service at a consistent, affordable price is a Social Benefit that implies some degree of cross-subsidy.
The on-going challenge is encouraging the Operator to both maintain their assets and invest in upgrades, but not to "game" the Regulatory system with over-investment or other strategies, such as we've seen with New South Wales retail electricity pricing in the last 5-10 years.

We know from the past in Australia with the PMG/Telecom/Telstra that a self-regulated monopoly does not put the National Interest first, that some form of external discipline is needed to replace that normally provided by Free Market competition.

From the USA and the break-up of AT&T into a number of local "Operating Companies", a number of which recombined, we know that geographical monopolies are not "competitive".

Regulatory Environment

Whilst a natural monopoly exists for the Customer Access Network and no, or tightly controlled competition, is in the best National Interest there, strong competition should be enabled and encouraged for the provision of full retail services. To maximise both the Public Utility from the C.A.N. and the economic viability of the Operator, necessary for efficient operations and minimising customer pricing, there cannot be wide-scale alternatives, they will undermine the Network, destroy the economies of scale and inevitably lead to higher prices, limited availability and poorer service: none of which are in the National Interest.

The problem the Regulator has is preventing near-monoply players, like Telstra, from manipulating the market and driving out competitors, or using predatory pricing in high-demand/low-unit-cost markets to use other services to undermine the profitability of the C.A.N. operator. Telstra can over-dimension a 4G mobile network in dense urban networks and, via "special bundles", price it to undercut the C.A.N. in just those areas.

Technical Solutions

NBN Co has currently defined a single network topology, layer 2 Ethernet VLAN-in-VLAN, and is currently rolling-out three C.A.N. technologies:
  • direct-fibre, GPON, to 93% of premises. Up to 25% will be strung on poles, i.e. "aerial".
  • Fixed Wireless, or 3G/4G mobile to fixed base stations in premises for marginal areas.
  • Satellite delivery to remote areas outside the economic areas of GPON and Fixed Wireless.
In 30 years, the end of the current NBN plan, still having a copper C.A.N. analogue phone service, ADSL, VDSL and limited Fibre-from-the-Node in addition to GPON/Fixed-Wireless will produce an catastrophic environment, very similar to the National Railways until the 1960's: fractured, expensive, inefficient, unattractive to new operators and new investment only limited to the already well-served, advantaged "low-cost" areas.

Deliberately fracturing the market and undermining the economics of a full-fibre GPON roll-out now, will inevitably lead to being trapped in a digital ghetto: prices will be high, speeds low and coverage poor, with no commercial operator willing to invest because competing providers will always destroy their business model.

From the first century of Australian Railways, we know that "good" short-term decisions can, in the long-term, be not just a "drag" on the economy, but a positive millstone, actively preventing wide-spread economic development.

From the Optus/Telstra Cable TV rollout, we know that once it is clear a business model is destroyed, no further investment will be made.

Like it or not, the only "technically correct" and viable Customer Access Network in 15 years is one technology per service area. After the sunk costs are recovered, the most profitable, least expensive to run and most upgradeable/extensible is a full-fibre GPON for the majority of premises.

The 2009 Expert Panel observation, from Prof. Reg Coutts, that an FTTN was a wasted investment because it did not provide a bridge to even current technology still stands.

Commercial Arrangements

Transferring ownership of NBN Co from Pubic to Private hands only after it has established a reliable positive cash-flow, so that it can be reasonably priced by the Stock Market, is essential.

Preventing Telstra, or any other Retail Telco Service Provider from controlling a privatised NBN Co is also essential. This suggests wide-ownership and a preponderance of small shareholders is in the National Interest.

The core objection the Coalition has to the current NBN plan is centred around costs and funding: it is unclear from their many statements just what they object to...
Is it solely Government funding, is it that $30B is too large for their tastes, do they want to limit ownership to a select few large investors, do they want Telstra to once again control the Access Network or is it a solely Partisan Political stance: not what they said?

What may be more useful to explore is non-centralied funding and ownership models:
  • NBN Co, if it offered good, guaranteed returns, could access some of the large pool of "DIY" superannuation funds, either as fixed-rate bonds, equity (shares) or pre-paid instalment costs - a lease/buy-back scheme offered to small- and mid-size investors, not the large end of town.
  • Promotion of local Co-Op building and ownership of small regional Access Networks to NBN Co specifications. Operation of the Co-Op Networks would be by NBN Co. Maintenance could be contracted out or undertaken by locally employed staff.
Digital Network Infrastructure in 2050

  • A single, national solution offering Ubiquitous, Universal Digital Network access with simple pricing regimes, internationally competitive pricing for basic and high-end bandwidth, latency and volume.
  • A privately owned and viable major Access Network Operators with possibly other small niche Access Network Operators.
  • A highly competitive, multi-player Retail Network Services sector.
  • Per service area, an economically sustainable choice of connection types.
  • A Competition, Regulatory and Commercial regime that encourages efficiency, investment, good asset stewardship  and non-predatory competitive behaviour.

  • Telstra still as the dominant, controlling player across all sectors.
  • A fractured, inefficient, divided and undercapitalised/under-maintained Access Network and Retail Services.
  • Highly variable and complex local charges, unavailability of basic or premium services enforced by geographical boundaries.
  • Highly variable services and "preferred areas": an entrenched Social and Digital Divide.
  • Disincentives or Perverse Incentives for investment, upgrade and asset maintenance.

Both major Political Party policies do not adequately address all issues and ensure the most desirable National Outcomes will ensue. The Political Debate needs to start from a basis of National Interest, Social, Economic, Environmental and Human-Capital, rather than short-term political gaming.

Friday, 23 November 2012

NBN: Click Frenzy's "Click Fail" and Lessons for the Coalition

Just past midnight, as the day turned into 1st of June, 2000, my boss and I packed up and headed home. It had not just been a long day, but a long six months for me: we had just successfully managed the first major Government On-line Transaction, GST Registrations, "over the hump" and through its busiest day, without failing and without making the headlines. We were pleased, our managers relieved.

The lessons from that day apply to Internet Adoption generally and the NBN in particular. Something that the Coalition might take on-board with their NBN policy.

The system specified by the ATO and implemented by Wizard, since liquidated, had failed three iron-clad rules of performance analysis :
  • On-line Projects and Critical Systems require Performance Plans as much, or more, than Functional Specifications and Security Plans. This implies you have a trained, experienced Performance Analyst involved. I filled that role when I arrived late onto the project notionally to do Systems Admin.
  • What you don't know will kill you: Integral to the System Planning and Design phase is collection demand data, developing a load model and forecasting peak traffic over the Design Period. The Performance Plan, when exposed to open-ended demand, must include Overload Protection: mine was "Busy Tone". Within six weeks of arriving, I'd created a demand model and predicted a peak-load of twenty times their Design Goal: correct to 5% on that busiest day. When the ATO and Wizard did not respond to this forecast or to an early overload event, I designed/specified "Busy Tone" which our managers backed and Wizard grudgingly implemented, delivering untested at the last possible minute. Wizard disregarded a specific design requirement (NO database access for Busy Tone test) and post-event analysis showed the hasty implementation and this disregard almost caused a catastrophic system collapse.
  • Your system needs to collect and report critical performance metrics in real-time for adequate Systems Administration, Operations and Troubleshooting/Diagnosis. You cannot manage what you don't measure. I designed and implemented an adequate tool in early January 2000. Whilst it didn't provide automatic alerts and alarms, it was instrumental in detecting and explaining an overload event in February and selling management that morning on a $100,000 system upgrade.
    •  It also became Management's Best Friend: during the final three weeks, when demand regularly exceeded our capacity, "Busy Tone" activated when needed, and the managers could see for themselves if the systems they were accountable for, were performing or not. They slept evenings and kept out of my hair, knowing they'd done everything they could and it had worked.
From what I saw reported and screen images, "Click Frenzy" had quite sophisticated Overload Protection, it was active and doing its job perfectly: allowing the systems to usefully work at Maximum Capacity preventing them degrading into "Thrashing" - running at 100% but not completing any useful work. This behaviour was first documented in the 1960's with Virtual Memory and a definitive theoretical description and solution provided by Peter J Denning for his PhD.

What went wrong at "Click Frenzy" was the same as what we saw with the GST Registrations in 2000:
The traffic/demand forecasts were off by an order-of-magnitude (10 times) or more.
This is quite common on the Internet for systems with open-ended demand...
It's part of what it means to be a disruptive technology: you cannot forecast demand.

Think about the Industries that the Internet, as a disruption, has redefined, removed or invented in just the last 10 years:
  • Newspapers are closing at an alarming rate. Locally, Fairfax has seen its "Rivers of Gold" go.
  • On-line Advertising has taken off, pushing Google into one of the most valuable stocks around.
  • Print publishing has radically changed: magazines, news, books, academic publishing, even Encyclopaedia Britannica, have had to change what they do and their business models. 
  • Music, Video, Movies and even TV/radio have all been seriously affected by either pirating, free publishing (Youtube etc) or by on-line merchants: iTunes and Amazon.
  • Online Retailing is starting to become a major competitor to "Bricks and Mortar" operations.
    • "Click Frenzy" demonstrated just how fast adoption of "etailing" is progressing.
  • Skype and Tablets have become the default "videophone" - where all calls are free.
    • Fixed-line phones and national/international toll-call traffic is down, everywhere.
  • Online Banking, Insurance, Markets/Trading and Finance is coming to dominate those sectors, not just changing the businesses cost base, but increasing the speed of transactions and customer control and services.
  • Mobile Devices, with 3G/4G/WiFi connectivity, have burgeoned in just the last 5 years, creating Application Stores, displacing Desktop/laptop computers and spawning whole new business models. This trend has years and years to run.
  • Education, one of the early adopters of All Things Internet, is now suffering its own Disruption: MOOC's - Massive Online Open Courses.
Since 1996, there has only been one constant with the Growth of the Internet: It's been faster than anyone has predicted. This was the driver behind the "Dot Boom" - and the inability of businesses to "capture the lightening in a bottle", the cause of the "Dot Bust".

NBN Lessons for the Coalition

The On-line GST Registrations, commissioned by the Howard Government, had no Cost/Benefit Analysis. They were a natural extension of a Policy: go on-line.

If they'd run a Cost/Benefit Analysis on the initial forecasts (1,000/day, 20,000 on-line, 1M total), then the $2-3M project would've been shuttered before it began. Instead we saw 20,000/day, 600,000 on-line from a total of 3.3M registrations. At $5/registration, the project was brilliantly cost-effiective.

The replacement system produced within 6 months for $100,000 total, and handling 50-60% of on-going registrations (30,000/mth, IIRC), was even better cost-justified.

Cost/Benefit Analyses (CBA's) are a good, necessary, business tool when properly applied.
If you don't have demand/traffic forecasts that you know to be accurate, then "Garbage In, Garbage Out" applies: the analyses aren't just useless and a waste of time and resources, they are actively counter-productive because they provide an illusion of competency and preparedness: a fools paradise of certainty.

Cost/Benefit Analyses are profoundly useful when evaluating low-growth, high-volume Industries, like Mining. But even there, they have limits. Recently we've seen Twiggy Forrest's "FMG" forced to recapitalise and restructure its finances because of the sudden, but not unexpected peak of the mining boom, whilst Nathan Tinkler's paper empire, based on high Coal prices, is crashing down around his ears. No CBA's would've prevented either of these changes of fortune when externalities intervened. A more potent example is the massive failures in all sectors, especially the CBA-driven finance and investment sector, in the 2008 Global Financial Crisis.
CBA's didn't protect any investors who lost money, in fact the reverse: based on false assumptions and ignoring inherent risk and volatility, they actively duped investors.

This is amply demonstrated by one of Mr Turnbull's own anecdotes: not only did an (entrepreneurial) investment he made fail, the operation went bust within 180 days. If Cost/Benefit Analyses are universally applicable, how could such an astute and seasoned investor as Mr Turnbull get it so wrong? Because the forecasts of revenues and expenses were completely wrong.

The current Coalition, especially Mr Turnbull and Fletcher, should take note of the Howard Government: not everything can, or should, be subject to Cost/Benefit Analyses.

This is the first reason demanding predictive Cost/Benefit Analyses for the NBN is both spurious and fallacious: all we know about future broadband connection demand, market penetration and traffic use is: We Don't Know.

So I disagree with Paul Fletcher's observation that if anyone came to him with a business proposal, like the NBN, without a Cost/Benefit Analyses, he'd fire them on the spot. Exactly because the Internet is still in an unpredictable, explosive growth phase and "disruptive technologies" are emerging all too frequently, the fixed straight-jacket of a Cost/Benefit Analysis is not just wrong, it's the worst justification to bring to the table.
A Business Plan, that's a good idea, and that, not CBA's, is what the best Venture Capital firms in Silicon Valley demand.

By the Turnbull/Fletcher logic, they would not have funded iPods, iPhones, iPads, Google, Android, Skype, Facebook, Ebay, Amazon or the plethora of other hugely successful Internet businesses that are only 5-10 years old.
How did Apple under Steve Jobs become the biggest company on the planet? By understanding Innovation and Entrepreneurship, not through the "respected and well-understood methodology" of Cost/Benefit Analyses demanded as a Fix-Everything by the Coalition.

For National Infrastructure Projects, whilst the input costs are well-know, restrictive definitions of "Benefits" are inappropriate. As the Coalition frequently reminds everyone, the job of Government is not to run Businesses, so Projects, especially basic Infrastructure, cannot be justified or analysed on narrowly defined criteria: only the receipts, as if it were a business.

A Government can justify spending Public Monies on Public/Common Goods, like Infrastructure Projects, even where there is NO direct revenue resulting, but where Social or Economic Benefits do accrue broadly. Otherwise we'd have no Education, Health, Roads or Defence spending.

The ALP, quite correctly, in their 2007 pre-election NBN Policy document, laid out the best evidence for the Economic and Social Benefits that the Australian Economy would gain from Universal Broadband access to the Internet. That justification was both necessary and sufficient for proceeding with an NBN: the gains in the National Interest, the benefit to the Australian Economy, would dwarf any costs incurred by the Government.

Mr Turnbull himself now opines that "very fast broadband [is] a bedrock requirement for a successful digital economy. And a successful economy, full stop." Whilst glib and "self-evident", Mr Turnbull has failed to provide any reasonable evidence for this assertion. Perhaps his reliance on intuition or "business acumen" and the exactly wrong financial justifications, like CBA's, is why he complains of at least one spectacular entrepreneurial investment failure.

The Coalition, in Abbott/Turnbull/Fletcher, don't just not understand the difference in nature between, and tools needed to properly analyse, Business Projects and Government Infrastructure, they seem to not understand the wide set of tools needed to examine and justify unpredictable, high-growth sectors like the Internet and its supporting access infrastructure, an NBN.

Lastly, Paul Budde has recently raised an essential role that neither the ALP nor Coalition has discussed about the NBN:
Multi-Factorial Realised Cost/Benefits Studies
The whole point of investing in, and building, any National Core Infrastructure is not "because", but that there are tangible National Benefits to be realised.
If those projected Benefits are not actively tracked, isn't that a failure of Public Governance and Accountability?

If nobody is watching and Accounting for the Benefits:

  • How can we, the taxpaying public funding it all, know if XYZ Project (Roads, Health, NBN, ...) was a good idea at all?
  • If the Benefits, Economic, Social, Environmental and Human-Capital, are not measured, they cannot be managed.
    • How do we, the taxpayers, or the Government know if too little has been invested? If the project is under-capitalised?
    • How can we know if too much is being spent and returns are low or Nil or additional services or markets?
    • How can we know if niche markets are under/over served, or if valuable markets have emerged that are being ignored?
    • How can we know if services are priced too high, preventing adoption, critical-mass and full available benefits flowing to the Economy? Governments have always had a "pump priming" role of temporary subsides to invigorate new markets.
    • How can we know if any of our original assumptions and project goals were Not Quite Right and need to be redefined, or "tweaked"?
    • How can we know if something better has come along and we need to scale-back our plans or new, disruptive technologies/services/products (like the iPhone/iPad), have completely changed the Rules of the Game, and we need to scale-up our investment and bring-forward goals to realise available economic and social benefits?
Both the Coalition have neglected the most essential part of any Project: tracking and review.

Because the National Benefits accruing from any NBN are multi-faceted, not just economic, they are far broader than merely the receipts for services collected by NBN Co. Any Realised Cost/Benefit Study of an NBN must look much more widely than the revenues of NBN Co and its RSP's.

To adequately address this on-going role, a permanent authority, like the Audit Office, needs to exist to independently and objectively evaluate the benefits flowing from Government Expenditure. It needs to combine the hard-headed accounting of the Audit Office with the Economic Research, Modelling and Evaluation of the Productivity Commission and the objective data gathering of the Bureau of Statistics.

If the Coalition supported Realised Cost/Benefit Analyses, for all Government Infrastructure, they would both understand the nature of the problem and the necessary tools needed for objective evaluation. This would be a transformation of Australian Government processes far greater and long-lasting than even the NBN.

It answers the central Taxpayer Question: What did we just get for our tax-dollar?
It's a question that can only be asked in hindsight, not with false forecasts of Costs and Benefits.

Thursday, 22 November 2012

NBN: National Interest vs Political Interest: Lessons from the Railways

What National Broadband Network Australia has from 2020 forward will be a Political Decision: whom the electorate returns to Canberra in the 2013 election.

If Abbott/Turnbull get to implement their NBN, they will become the most reviled figures in Australian History in 25 years time. To serve their very minor Partisan Political Interests, the National Interest will be sacrificed and we'll be left with a technical and regulatory situation that will make the current mess positively benign, even superlative. Telstra, now described by Turnbull's fellow MP, Paul Fletcher, as "a monster", will be even more powerful and incapable of being restrained.

What Abbot/Turnbull are promising for fixed line services for the next 100 years:
  • (current) Telstra copper-analogue Plain Old Telephone Service (POTS)
    • and direct Telstra ADSL services.
  • (current) ULL copper-analogue POTS from Optus and other ISP's
    • and their direct ADSL services.
  • (current) Optus/Telstra HFC-DOCISS cable Internet
  • 3G and 4G mobile wireless data networks for the disenfranchised.
  • NBN-ADSL @ 12Mbps for 75%
  • NBN-VDSL @ 25Mbps for 25%
  • NBN-direct Fibre
All this alongside the current NBN Co (v 1.0) rollout:
  • GPON Fibre @ 1Gbps
  • Fixed Wireless @ 12Mbps
  • Satellite @ 12Mbps
It won't just be a Digital Divide based on geography, it will be much, much worse: the haves, have nots and cannot-get-anything-decent everywhere.

We know from the Optus/Telstra HFC overbuild that if the Coalition ADSL/VDSL NBN is rolled out beside the current GPON network that they both will do much worse. The 

Now, I’m just going to say something on the NBN. You’ve all heard me speak about this a thousand times. It’s almost becoming tedious repetition but firstly, we the Coalition see ubiquitous, affordable, very fast broadband as a bedrock requirement for a successful digital economy. And a successful economy, full stop. [emphasis added]
Australian Railroads provide a perfect example. Once set, technical standards do not get changed by Politicians: it is always "too hard, too expensive":
  • Queensland, South Australia and Western Australia have narrow gauge: 3' 6" 
  • New South Wales, standard gauge: 4' 8½"
  • Victoria, broad gauge: 5' 3"
  • Until 1962, trains between Sydney and Melbourne had to unload and transfer all passengers and freight at Albury.
  • Until 1970, there was no standard-guage railway from the East Coast to Perth: all freight had to be unloaded and transferred multiple times. To get anything, passengers, freight or animals, from outside Brisbane to the other Capitals:
    • Narrow gauge to Roma Street, Brisbane (QLD Central Station).
    • Transfer to Standard gauge terminal in South Brisbane, across the river with no direct rail-link.
    • Standard gauge inland to Sydney, then Albury.
    • Transfer to broad gauge to Melbourne, then South Australian border.
    • Transfer to narrow gauge for Adelaide, Perth and Alice Springs.
    • For Darwin, transfer to truck in Alice Springs.
  • The "Ghan" stayed narrow gauge on its original track until upgraded for the Adelaide-Darwin rail-link in 2000, despite being promised by Politicians for over a century.
  • New South Wales is held hostage by its century old 1500V DC electric train network, part of the reason its been slow to electrify its network outside the Sydney-basin conurbation, and contributes to making its rail services expensive.
    • Queensland went directly to high-voltage AC. More power, cheaper, further reach, more controllable, lighter and faster rolling stock...
As voters, we get just one chance to get the NBN "right" - which is simply defined: What would everyone want as an NBN in 2050?

A: One fixed-line infrastructure that's cheaply upgradeable to new technologies as they become available.

By even floating a competing plan for the NBN technology, the Abbott/Turnbull Coalition is signalling very strongly that they are more than willing to commit Australia to a Digital Nightmare Future in the pursuit of their Political Interests.

We have already seen both the Coalition and ALP demonstrate their penchant for favouring short-term Political Interests over the National Interest by allowing Telstra to be privatised without being Structurally Separated. Both parties are at fault here, but for my money, the Coalition as the people to actually do the deed (full privatisation) are the most culpable, with the most to explain.

In 2050, will anyone thank Mr Turnbull for saving $10B in construction costs of an NBN and imposing a gargantuan millstone on the Australian economy?? I think not.

There's a lot riding on this: One fixed-line network technology is the right number for the future of Australia's Digital-driven Economy.

If the Coalition don't want a GPON-Fibre NBN now, they should put the National Interest ahead of their own Partisan Political Interest and do nothing, not compound the situation and lock us into an ungodly mess for the next 50-100 years. The decisions of the Howard Government suggest they will put short-term Political gain ahead of everything else.

Wednesday, 21 November 2012

NBN: How to fiddle the numbers on FTTN to get "quicker, cheaper, more affordable"

Mr Turnbull keeps pushing his line: the Coalition NBN, presumably an FTTN modelled on the UK, will be "Better Broadband, Cheaper, Sooner, More Affordable". Most recently in a speech to an Innovation Bay dinner.

I will try to deconstruct what the phrase/promise could mean, how that could be achieved and what that would mean to individuals and the Nation over the project lifetime of 30 years.

The Promise
  • Better Broadband
    • Without setting judging criteria, this is meaningless and vacuous: For whom? Where? For how long?
    • By what yardstick will it be "better": bandwidth, install cost, total cost, link quality, availability, upgradability, premium services, ... Or does it come in a variety of colours?
  • Cheaper
    • The intended implication is "lower Capital Expenditure". For whom? For what? When? In total, per-year? For the Government or NBN Co?
    • Allowing external investment by, say, Optus and Telstra and British Telecom would lessen the intensity of Government expenditure, and may be called "Cheaper".
    • It's also very easy to deliver a 'cheaper' project by reducing the deliverable to say 50-66% of Urban premises and no businesses.
    • Does it include the foreshadowed upgrade of services to fibre links to active Nodes (MDSA cabinets)?
    • Mr Turnbull frequently uses the term "economic", in the sense of "cost-effective", when discussing his unspecified NBN Policy.
      • But just what does that mean?
      • The IRR, ROI, Cost-of-Capital and Duration of service radically affect the definition of "break-even" and "cost-effective".
  • Sooner
    • This implies the project finish date will be earlier than a full-fibre rollout.
    • By one day: that's meaningless and insignificant.
    • A total project time of 3-4 years for fixed-line connection of 93% of premises, now that's a promise!
    • Or does it just mean, "we'll shuffle priorities so those whom we deem more worthy/needy will get their 12-25Mbps early so we can declare "Mission Accomplished!" early while we continue to dribble out services for another 10, 15 or even 20 years". 
  • More Affordably
    • Is another way of saying "Cheaper", if the interest on the CapEx, not OpEx & Maintenance, is the major factor in wholesale pricing.
    • Will there be, for the privileged few, a direct Government subsidy, rebate or tax-deduction for their yearly NBN-based charges? That artificially lowers charges and creates notional "Affordability", yet is complete B/S.
      • The nastiest way to provide this "benefit" would be as an Introductory Offer of 12-36 months. Get people on-board, claim the Political Points, then abandon them with no way back.
    • Does it include the premises connection and activation fee?
    • What costs be shifted from the network builder to the subscriber?
    • Of course, without a full GPON FTTP, where costs are fully spread across all subscribers, as a reference or base-line, we've NO way to know what it would have cost.
      • It will be trivial to fudge the numbers to show that GPON services are more expensive, therefore our FTTN services are more affordable. Promise Delivered!
      • The comparisons won't be for equal services, but highly selected.
    • Cross-subsidies (FTTP to FTTN) will be hidden in the accounts by the newly appointed CEO/CFO, sympathetic to the Coalition.
The Delivery
  • The UK's BT/Openreach "Infinity" project has been suggested by Mr Turnbull as his model, but never confirmed. There is plenty of wiggle-room and opportunity for weasel words like, "You made the assumption, I never said that"... With that in mind, I'll proceed.
  • The UK project is for:
    • The company building the FTTN, Openreach, is the wholesaler who already owns the Copper Customer Access Network. It's free for them to connect nodes and take-over customer lines.
      • In Australia, Telstra owns the copper lines to the premises.
      • While NBN Co has a right to use Telstra ducts, pits and premises, it hasn't bought the copper, not the right to use it.
      • Telstra is not a charity or Not-For-Profit Enterprise. Nothing is on record to say they'd agree to sell the copper or lease it under an ULL agreement cheaply.
      • Telstra commented in Feb or May 2012, with the agreement of the SSU and NBN Co SAU they were "spectacularly agnostic" about each Political sides' NBN plans.
    • 16M of 20M premises, only 66%, not 93% of premises. As the NBN Implementation Plan showed in spades, there is around a 10:1 cost differential between the easiest/cheapest premises to pass or connect and the most expensive, before wireless or satellite is used.
      • They are passing 4M premises/year, or 80,000 premises/week, or 320 nodes/week.
      • An additional £600-1200MM is being provided by the Government for out-of-area connections.
    • The nodes notionally cater for 250 premises at 25Mbps, VDSL2, 800m.
      • Australia has a much lower population and premises density than the UK:
        • Only a very few medium-to-high density inner-urban areas will achieve 250 premises/node.
        • Most nodes will only get 32-64 premises per node.
        • Where will the "economic" line be drawn, 4-16 premises per node? higher?
      • For the same rules, now explicitly confirmed as a minimum target by Mr Turnbull, we'll need:
        • 75-90% of the road-distance of fibre laid, compared to the current GPON FTTP.
          • Running fibre along the (guesstimate) 50km of existing ducts and pipes of ~1,250 major exchanges gives 60,000km of Fibre.
          • If 25%
        • and 300-350,000 nodes, with full construction, planning permission and 240V power-supply (and metering) as well as service connection.
          • The TLS-2005 FTTN to 4M premises, 1600m, 12Mbps ADSL2, estimated 20,000 nodes.
          • Others estimate 70,000 nodes, but that's only a scale up from 4M to 12M premises at 1600m.
          • Halving distance to 800m to double data-rate will quadruple or worse the number of nodes.
        • A project time of 5 years will see 60,000 nodes/year or 1,200 nodes/week, four times the construction rate of the UK project!
    • They are only "passing" premises in the first-fix.
      • "Passing" is "Do Nothing" at the premises. It's build a node and connect the wires from the pillar, presumably without destroying current ADSL services.
      • "Connecting" a premise involves line-conditioning (a major expense in the Telstra 2005 plan), cutting the existing copper link and getting a working VDSL circuit, at the guaranteed minimum speed, for the premises and installing a Network Termination Device in the premises, complete with 240V power and battery backup.
        • This is the level that the current NBN Co Plan is rolling out to.
        • It's unclear what the constructors will do if, at connection time, the subscriber line is unable to support the guaranteed minimum speed:
          • refuse the service
          • run new "Cat-5" lead-in and retest.
          • run new copper cable end-to-end, charging full or partial costs.
          • run fibre from the node to the premise, charging full costs. 
      • "Activating" a service is making the connection "live", testing it, install/connect/configure the Customer Premises Equipment, provision the services bought with the various Service Providers and test each service at the Customer Premise.
    • The NBN Co plan is currently for ~120,000 road kms of network to be installed.
      • 75% will be underground, all of which will be in 100mm or 50mm buried conduit,
      • with 50mm lead-in to the premises from connection 'pillar'.
      • 25% will be strung "aerially" on power poles, requiring agreement with Power Distribution companies and payments, including pole replacement/upgrade ($20,000/time). The NSW negotiations have been reported to have broken down.
    • Someone familiar with the TransACT rollout in Canberra, circa 2002 said:
      • The VDSL electronics were very expensive then, and would now be considerably cheaper. Prof. Reg Coutts, a member of the Expert Panel that in Feb 2009 reviewed the Rudd/Conroy FTTN tender, commented that "over half the cost of an FTTN is in the electronics in the Nodes".
      • The cost of installing a node is dominated by the fixed costs of planning and site survey/selection, approvals/documentation, power-, fibre- and copper-connections, and multiple "truck-rolls" for construction, install and test.
        • The cabinet/backplane and electronics installed are the only variable cost.
      • TransACT passed 40-60 premises per VDSL node (a 300m rule), yet they only installed 32 port nodes, possibly only partially 'populated' to further reduce costs.
        • With an FTTN, because of the low initial connections, the nodes can be radically under-dimensioned.
        • Additional nodes can be installed alongside the original node to cater for higher connection rates.
          • Construction costs will be lower because of already established services,
          • but the essential "on-demand" nature of upgrades makes the pre-unit construction costs 2-4 times higher than a "mass manufacture" rollout.
      • In "Phase 1", TransACT budgeted $40MM to pass 55,000 premises (Avg. $800/premise). As they used the power poles of one of their partners, lets assume a zero cost. Cost proportions were possibly, a guesstimate only:
        • Local Fibre loop: 5%
        • Copper Customer Access Network (aerial): 15%
        • VDSL Nodes (50 premises/node: 1,250 nodes): 20%
        • Phone "maxi-nodes" (500 premises/node: 100 nodes): 10%
        • Transit fibre to Central Office:10%
        • Central Office equipment: 10%
        • Backhaul from Canberra to Sydney/Melbourne: 10%
        • Customer Premises lead-in, connection, Network Termination: 20%
    • Any xDSL service with one or very few active modems on shared copper bundles will perform reasonably.
      • As activations increase, not even near 100%, mutual interference and "cross-talk" seriously degrades performance of all services on a node.
      • There is no simple fix for this: it is inescapable physics.
      • xDSL only works because not everyone is using it.
      • If there is 50% take-up, the service will collapse.
    • The sleeper issue is node-upstream capacity leading to congestion and 
      • Initially, quite cheap upstream ethernet interfaces (100Mbps) can be used.
      • Visiting each node to upgrade upstream links is very, very expensive.
      • This is well documented with Telstra's RIM/CMUX deployment (FTTK) in the Gungahlin Experiment.
        • The service provider is not obliged to provide adequate throughput or latency at any time, especially during "busy-hour", only to provide the agreed access line speed.
    • Maintenance costs can be hidden and ignored: they become the result of inefficient practices, incompetence and poor management/execution at NBN Co - nothing to do with Our Fine Plan.
    The Fiddles

    The Coalition can achieve their NBN Policy Objective by:

    • Defining "Better" to mean "lower Government expenditure".
    • Defining "Cheaper" to mean "lower Government expenditure" and moving NBN Co to a Public Private Partnership with Telstra, Optus and possibly other players, in return for access to Customer Access Networks and Capital Investment.
    • Offering NO Business services, only residential.
      • "Business" services may be provided by Telstra or Optus as "premium services" over Point-to-Point Fibre.
    • Covering only 6-8M premises FTTN (50-66% vs 93%)
    • Still using a 1600m rule and Multi Service Access Nodes (MSAN) with 3 services available:
      • 12Mbps ADSL2+ for 75% of subscribers
      • 25Mbps VDSL2 for 25%
      • Fibre, at "full cost recovery" for connections
    • Deploying 50-60,000 nodes, not the 350,000 needed for full 25Mbps coverage.
      • Measuring "premises passed" not "premises connected" or "active".
    • Setting a roll-out schedule of 4 years.
      • With "continuous network upgrades", adding nodes at 800m where there was demand and costs low.
    • Declaring $1250/premise to be the "uneconomic" connection level.
      • Fixed Wireless, Satellite or existing ADSL services will be the alternatives.
        • Exactly as "2400 baud modems" were considered acceptable minimum connectivity for Rural and Remote users when ADSL was common in the Cities.
    • Transferring as many costs as possible to the customer at connection time.
    • Claiming, "if people want Fibre Connectivity, they can all have it, if they are willing to pay for it. That is the Free Market in operation. We are not here to subsidise household expenditures, but to provide the infrastructure necessary for our National Economy, which we have done much better and more efficiently than the other mob."
    When the Network becomes popular, causing degraded VDSL speeds, uplink congestion and outrageous latency, NBN Co becomes the whipping boy "due to their incompetence" and they'll be privatised "because that will remove all the fat and make them more efficient".

    Monday, 12 November 2012

    NBN: Coalition non-Policy will lose it a third election

    Mr Turnbull's CommsDay conference address is pure political rhetoric and says more about the Coalition in what it leaves out. It isn't just the absence of a Policy, coverage and pricing, or Costs to Build.

    It's not a bold, confident statement about the future and how the Coalition will take the country there.

    It's about spreading Fear-Uncertainty-and-Doubt (FUD), demonstrating the Coalitions' lack of Vision, Insight and Understanding of voters, the economy and especially Technology. This paucity of Vision will lead to a third Federal Electoral defeat, especially if Gillard choses a late March election to bring in the new Senators in July.

    This piece is not intended as a political attack: the Government is as worthy of condemnation as the Opposition. In the current hung parliament, both sides continually fighting in the gutter have brought the institution into disrepute.

    The reason the ALP is now reinventing Telecommunications is the Coalition under Howard failed to do it or invest in essential infrastructure and capitalise on the mining boom: preferring instead to sell assets as fast as it could to pay-down debt - Commonwealth Bank, QANTAS and Telstra after selling buildings and outsourcing as much I.T. as it could.
    Surpluses were in large part due to increasing tax revenues from the boom, nothing to do with the Coalition efforts or policies.

    For a government to set Budget Surpluses as a major policy goal is both ridiculous and ignorant.:
    Governments are not business, a Surplus is not a Profit, it is over-taxing or under-investing. Governments and their Agencies need to be run efficiently and effectively, not "turn a profit".
    Democratic governments are generally considered to be "of the People, for the People, by the People". That is: run for the collective benefit of citizens, not businesses, privileged individuals nor special interest groups like specific shareholders.

    Cost/Benefit analyses for a Public Good, like shared infrastructure Utilities, need to broadly assess the Benefits - to count the impact on the whole economy, not the narrowly defined receipts to the business enterprise accruing the costs. The ALP's pre-election 2007 NBN Policy cites numerous economic analyses that amply justified the economic benefits of an NBN.

    For Mr Turnbull to have raised the question in the first place showed an lack of understanding on the role and economics of Public Utilities - whilst underlining that the ALP had ample economic evidence for its NBN plans. To continue this theme now, I find bizarre to the point of wilful ignorance.

    The Coalition under Howard did the worst thing possible for Telecommunications, not once but twice:
    • it sold a majority stake in Telstra, losing control of a vertically integrated monopoly to a hostile, aggressive board and management team focussed on short-term profits, and
    • ignored its own 2003 "Broadband Advisory Group" report and didn't start work towards an open-access NBN.
    The 2008 FTTN tender by Rudd/Conroy for an NBN, with the Government offering $4.7B subsidy was only a co-funded version of the Telstra 2005 ADSL plan, albeit rolled-out nationally not for just the 5 major cities.

    The outcome of the official tender process was the 2009 Expert Panel Report, saying:
    • proposals lacked committed private sector funding;
    • none of the national proposals was sufficiently well developed to present a value for money outcome; 
    • no proposal submitted a business case that supported the roll out in five years of a NBN to 98 per cent of Australian homes and businesses with a Government contribution of $4.7 billion;
    • FTTN is unlikely to provide an efficient upgrade path to FTTP;
    • there was a risk of liability to pay compensation to Telstra for exclusive or near exclusive access to Telstra's customer access network; and
    • proponents sought excessive regulatory restrictions on competitors building and operating their own fibre based networks in competition with the NBN (that is, overbuild protections).
    • Telstra had been excluded from consideration because its tender response was non-compliant: they had failed to submit a detailed plan on how they'd engage SME's in the NBN project and didn't seek to address the lack when approached about it.
    Not only is Mr Turnbull seemingly, because he won't release a Policy, saying that he wants again to "Go Back to the Future" of 2005. He wants us to believe that what wasn't economic, affordable or commercial in 2009 will result in "Better Broadband, Cheaper, Sooner" in 2013.

    University of Adelaide Professor Emeritus of Communications, Reg Coutts, a member of the Expert Panel, told Computerworld Australia:
    “The point is the NBN is not just about higher speeds, it is about ubiquity. Many of the problems with the current broadband rollout is it is patchwork quilt,” Coutts said. “Then you have to remember Australia is the fast technology follower market. We are still seeing the early days of the sorts of applications that require higher bandwidth.”

    With Telstra’s copper network approaching the end of its life and few, if any telcos willing to fill in the blackspot patches in the country’s network quilt, Coutts maintained it is up to the Government to forge ahead with the plan as “the train has left the station”.

    “Nobody can be definitive about when you hit the wall, but the wall is approaching and you can see it. Every developed country is going through this and because of the commercial context, the incumbent telco, with probably the exception of Verizon in the US, hasn’t got a business case for rolling out broadly fibre to the premise other than in restricted coverage to particular market segments in particular cities.”

    “We are not building this so everyone can have an iPad,” he added “We are doing this so that we can restructure the deliver of health services, education, and science.”

    “Essentially to go down the FTTN road would mean something in the order of, greater than 50 per cent of the capital being put into digital cabinets in the suburbs," he said. "They then become an obstacle to the final solution… fibre-to-the-premise. Fibre-to-the-node was not a stepping stone to fibre-to-the-premise. In fact, if anything it would put it backwards. The second reason, of course, is in no other market have people proceeded with fibre-to-the-node other than an incumbent. It is a solution that is the right solution for an incumbent that has a copper infrastructure.” [emphasis added]
    These observations were borne out in the detailed NBN Implementation Study. Does Mr Turnbull seriously suggest he and his staff knows better than multiple groups of experts in both Telecommunications and Economics??

    The only way I can see Mr Turnbull able to make his (apparent) plan work is to offer something much, much less. That won't fly well with the Digital Natives, now well into their twenties, nor with their increasingly Technophile parents and grand-parents.

    Mr Turnbull correctly suggests that the costs of electronics are declining and this will decrease the cost of an FTTN. Where he is conveniently silent is that the costs related to Fibre Optic solutions is decreasing faster than for copper: Fibre roll-outs are getting cheaper much faster than VDSL.

    Economist John de Ridder has researched and written extensively on Broadband, examining its role as a Utility, not a Profit-Centre Business. Ubiquitous Broadband is the 21st Century's core-enabling technology just as Reticulated Electricity enabled the last 100 years of economic transformation in the Developed World.

    His conclusion: Broadband needs to be sold and provided as a Public Utility, not a high-profit commercial venture, to release its full value in the rest of the economy.
    This is exactly the role of Governments: create Common-wealth by providing shared infrastructure that no individual or small group could afford.

    Roads are a perfect example: could you imagine is all roads were privately owned and you paid tolls meter driven? Such a nonsensical approach blindly applying "the Free Market" is not even tried in the home of capitalism, the USA. Citizens pay taxes to unlock the benefits of Shared Utilities and Infrastructure and other Public Goods. Especially for those services or facilities where a single supplier is economically efficient. Imagine there were three toll roads from Sydney to Melbourne: none could be economically efficient with only a fraction of the traffic, quickly driving them all into a cost-cutting war that bankrupts everyone.

    Piped broadband will deliver all the promises: Selling high-speed network access like electricity, gas or water is the way to go.
    But we could be on the cusp of achieving True Broadband which will remove all these restrictions. True Broadband has three features:
    • it will support any application from any provider. 
    • It will be delivered over an unrestricted pipe like water.
    • it should be affordable with a high level of adoption.
    What drives broadband take-up? OECD paper. 2008
    • Price
    • Income
    • Education
    • Weather (Time outdoors, not competing for screen-time)
    • Addressable Market
    • Urbanisation
    • Unbundling
    • Competition
    de Ridder's research shows there is consumer price-sensitivity, but  implies enormous demand elasticity in the market: as the price of services and devices has declined, sales and profits have burgeoned, probably beyond the wildest dreams of Telco executives stuck in the "Traditional Telco Pricing Model" of "what the market will bear" versus the "Cost-plus" small margins of NBN Co.

    This driver, the non-direct cost benefit of new telecommunications services and devices, is the economic amplifier of "broadband", as we now call fully converged Digital Services.

    We have a number of very good examples of Technology adoption in Australia. As a nation we are widely cited as been enthusiastic adopters of new technology.

    Importantly, none of these trends were the subject of "Cost/Benefit" analyses. They were started as an uncertain journey into the unknown, probably supported by Overseas evidence, then expanded as demand surged:
    • Networked PC's since 1991.
      • Universal now in business.
      • 50+% penetration into domestic market.
    • AARNET.
      • Founded in 1988, sold to Telstra after 2003. [Noted in 2003 B.A.G. report as a model 'aggregator', having just 12 staff]
      • Fundamentally transformed Research and Tertiary Education in Australia, both in methods and cost structures.
      • Led to later higher speed "research networks".
    • Mobile Phones:
      • Currently ~100% adoption rate, measured by services: 20M.
        • 1997: 4% penetration,  635,000 services. Only 15 years ago. CAGR of 20% pa.
        • $5.8B turnvover in 2006
        • $6.4B contribution to GDP
      • G1 Introduced 1987. 'AMPS', shutdown in 2000.
        • G2 (GSM), introduced 1993.
        • Introduced SMS ('texting')
        • 642M texts sent in 2000-1
        • 10.2B texts sent in 2011-2.
      • G2 (CDMA), introduced 1999. Shutdown 2008.
      • G3 (WCDMA/UMTS), introduced 2005-6.
      • G4 (LTE) introduced 2011.
    • The smartphone revolution is not yet 6 years old (iPhone in 2007), whilst tablet computing is not yet 3 years (iPad in 2010).
      • Mobile devices, "Internet Readers", are redefining the Internet and Applications Markets, disrupting the established PC/Desktop market.
        • Reliable, Robust Fixed-line services are more important in this new world.
        • In the same way that Reticulated Electricity is even more important for those reliant on rechargeable devices.
      • Mr Turnbull extolls the virtues of his iPad and is constantly seen carrying and using it.
        • Did he do a Cost/Benefit before buying his iPad, or like all normal consumers said "I gotta have me one of those!", intuiting the benefits and satisfying his price-sensitivity.
        • To be consistent, not hypocritical, Mr Turnbull needs to show the electorate his personal Cost/Benefit study leading to his iPad purchase.
    • Apple since the iPod in 2000 has been disrupting one market after another, roughly on a 3-year cycle: all predicated on "broadband" services.
      • Will 2013 be the year that they bring "a new way of watching TV" over the Internet?
      • Will our ISP's drown in demand without an NBN following such a disruption?
    We are left with many questions about Mr Turnbull's Policy and his vision for our Nations' Internet, one of the important economic bases and enablers of the 21st Century. We know from statistical data from 1960 onwards that we're in the midst of a massive structural change in the economy: every worker in every industry is being affected by new Technologies, none more pervasive or of more impact than Information Technology and its associated Digital Communications: I&CT.

    The most important question, I think, is simple:
    • If someone invents a must-have Internet-delivered Application or Service that requires increasingly high-speeds, how will the Coalition-NBN meet that demand?
      • An FTTN solution simply can't take us there.
      • Field-upgradeable MSAN's will allow Fibre services, but a poor-sort done expensively.
    Arguing that "the market will fill the need" is fatuous and wrong: we have a single, strong incumbent who has shown themselves to be recalcitrant to the point of being actively obstructive (overbuilding the Optus Cable TV network and destroying that nascent market, extortionate ADSL wholesale pricing, or refusing to enable ADSL-2 where available are a few).

    The examples that Mr Turnbull refers to from around the world underline the facts:
    • Only in countries where the Government, or their fully-owned Telco, chose to provide Fibre as a Public Utility, does it exist for the general public.
    • Everywhere else there has been a comprehensive market failure with FTTP: traditional Telcos want their usual premium prices for a now basic and commodity Utility service.
    Lastly, it's incredible that the Coalition, champions of Business and Free Enterprise as they are, have failed to recognise both sides of the NBN roll-out:
    • the NBN is about good broadband services to business as much as anything.
    • The economic benefits of cheap, affordable high-speed bits-for-business has been documented for over a decade. More bandwidth, more profits, what's not to like??
    If Mr Turnbull wants to slam-dunk the Governments' NBN, he needs to appeal to the Australian voters notion of "Fair Go" and our sentimentality for "The Bush" and its economic problems:
    • Roll-out Fibre everywhere in the country there is reticulated electricity, using the same poles.
      • There are a number of innovative solutions posited that leverage the already extensive, though 'thin', fibre Telstra has deployed for fixed telephones.
      • Imaginatively reusing existing assets is key to producing a reliable country network and reducing roll-out cost and schedule.
    • Prioritise country areas, train and hire local tradesmen and businesses by preference, leaving behind a skilled workforce for maintenance.
    This might not be the cheapest version of an NBN, but it would fly incredibly well in the electorate.

    Making the cities wait for new technology for once is not an entirely bad thing: waiting 5-6 years to deploy Fibre in the suburbs allows the roll-out to ride the technology cost-curve down.

    Some stop gap, temporary solutions, like point-to-point WiFi, MDS or WiMax, might be needed to address demands for high-speed suburban services. But then, why do we have the CSIRO and the many fine research units in Universities is not to solve "interesting" problems?