Tuesday, 4 December 2012

NBN: The 2009 Expert Panel "Observations"

The 7-member Expert Panel and the firms of specialist Advisors who were appointed to review/assess the Tender Proposals for an FTTN NBN made 10 "Observations", since published, at the beginning of their report in early 2009.

I've commented on the core Technical/Regulatory Observation, an FTTN is a throw-away and only Telstra could build a viable solution, which led the Rudd/Conroy to their FTTP NBN solution.

What else did the Expert Panel observe?
  • The GFC had changed the game and no business enterprise would be able to raise the money. The implication was: the Government has to do this itself if it wanted it done now, or wait an extended time and hope the financial markets recovered.
  • Nobody had come up with detailed project plans showing "value-for-money" outcomes, nor could they do it in 5 years. There are no good figures on what an NBN FTTN would cost and it wouldn't be quick.
  • The regulatory issues of dealing with Telstra and its competitors fairly were complex and difficult, though there seemed to be solutions.
  • An FTTN by itself could not economically reach the last 10%, let alone 2% of premises. New versions of Fixed Wireless and Satellite would be needed in an NBN.
  • Unless Telstra was tamed and a truly competitive, open wholesale market setup, no viable NBN was possible. Other Telcos were still extremely nervous after Telstra's response to the failed 1998 attempt by Optus to build a national Cable TV network and demanded protection.
  • After all this, the Panel still thought there was a way to build a viable NBN.
The 10 Observations, preceded with a summary:

Goldman Sachs had collapsed and the "sub-prime mortgage" debacle had turned into the biggest banking and liquidity crisis ever in history.
  1. Since the Panel was appointed in March 2008, and the RFP issued in April 2008, the environment surrounding the process to select a Proponent to roll out and operate a NBN for Australia has changed dramatically.
The resulting Global Financial Crisis/Great Recession had dried up investment funds. No business would get debt or equity funding to build an NBN.
  1. There has been a once-in-75-year deterioration in capital markets that has severely restricted access to debt and equity funding. As a result all national proponents have either found it very difficult to raise the capital necessary to fund an NBN roll-out without recourse to substantial support from the Commonwealth or have withheld going to the market until they have certainty that their Proposal is acceptable to the Commonwealth.
Despite 1,000 page submissions resulting from 9 months of work, nobody presented costed, credible plans.
  1. All Proposals were to some extent underdeveloped. No Proposal, for example, provided a fully developed project plan. None of the national Proposals was sufficiently well developed to present a value-for-money outcome.
No one proposal suggested it could roll-out an FTTN in 5 years, not to 98% of premises.
  1. While no Proposal submitted a business case that supports the roll-out in five years of an NBN to 98 per cent of Australian homes and businesses with a Government contribution of $4.7b, each Proposal contained attractive elements that, taken together, could form the basis from which a desirable outcome might be achieved.
The proposals, and the ACCC report, between them raised significant and useful regulatory input. Presumably on mechanisms and problems in fairly dealing with Telstra.
  1. The Proposals received through the RFP process, the public submissions received on regulatory issues and the report of the Australian Competition and Consumer Commission (ACCC) have been highly instructive. They provide a good evidence base for the Government as it moves forward.
An NBN might be built patched together from parts of all proposals.
  1. The Proposals confirm there are multiple approaches to delivering high-speed broadband and that, with the right technology mix and incentives to create sound business cases being developed, the goal of providing high-speed broadband services to 98 per cent of homes and businesses can be reached.
For the most hard to reach, the last 10% of premises, "next generation" Fixed Wireless and Satellite would be necessary.
  1. In particular, the Proposals have demonstrated that the most appropriate, cost effective and efficient way to provide high-speed broadband services to the most remote 10 per cent of Australian homes and businesses is likely to be a combination of next generation wireless technology (supported by appropriate spectrum) and third generation satellites.
Building an FTTN would be a waste of money and impossible without Telstra.
  1. The Proposals have also demonstrated that rolling out a single fibre-to-the-node (FTTN) network is: ... (not an efficient upgrade path, and not without paying Telstra)
 To "continue to promote the long-term interests of end-users", strong competition (versus the status quo of Telstra blocking/controlling every play) is necessary underpinned by "open-access" wholesale arrangements. Backhaul options, particularly, needed to be opened up in regional areas.

Many of the proposals sought protection from Telstra repeating their 1998 HFC Cable TV "overbuild" of Optus, destroying both businesses and the prospect of a viable Australian Cable TV industry.
  1. The Panel’s analysis of the Proposals has highlighted the importance of competition and not just technology to drive improvements in services; the need to improve competition in backhaul supply, particularly in regional areas; the desirability for a wholesale-only provider of any bottleneck infrastructure; and the desirability of improved regulation of the telecommunications industry to provide investor certainty and speed of outcomes. The Panel was not attracted to what it saw in some cases as proposals for excessive overbuild protections. Focusing on using next-generation technology solutions may reduce the need for such protection.
There was a solution, but it was confidential due to commercial constraints.
  1. The Panel can see a way forward to achieve the outcomes sought by the Government and has provided that advice in confidence to the Government because of the commercial sensitivities arising.

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