Tuesday, 4 December 2012

NBN: Coalition vs Expert Panel, the other issues.

Previously, the 10 Observations by the 2009 Expert Panel and their Specialist Advisor firms, whom assessed the FTTN NBN Tenders and the core Observation: an FTTN won't be not cost effective.

How do the other 9 Panel Observations apply today?
  • The GFC is still washing through globally, but major projects are now being funded in Australia ($260B is currently committed to major resource projects). The Government acted early and funded the NBN itself via NBN Co, destined to be privatised.
  • Still, nobody had come up with detailed project plans showing "value-for-money" outcomes of an FTTN, nor how to do it in 5 years. There are no good figures on what an NBN FTTN would cost and it wouldn't be quick.
  • The Government solved the regulatory and competition issues with Telstra by leaving them untouched in with Mobile/Wireless and getting a voluntary Structural Separation Undertaking very specifically targeted at an FTTP NBN, rolled out by NBN Co.
  • New versions of Fixed Wireless and Satellite were included by NBN Co, due for deployment mid-2013.
  • A competitive, open wholesale market is being setup via NBN Co. No special protections were provided for the other Telcos.
    • Special consideration was necessary to buy assets from Telstra and to compensate Optus for overbuilding its HFC network.
    • Smaller ISP's whose DSLAM investment will be rendered valueless aren't, to my knowledge, being compensated. Probably because of the 2021 completion date.
  • It seems the Panel was right: there was a way to build a viable NBN.
The 10 Observations, preceded with notes:

Australian resources companies have raised $300B in the last few years. Things aren't back to pre-2008, but are good.
  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.
No business would've gained debt or equity funding to build an NBN, but the Australian Government could still borrow with its AAA-rating, still very cheaply. It viewed NBN Co and other major infrastructure as "Phase 3" (long-term stimulus) of is stimulus package.

As the Federal Government has wound back its stimulus programs, the continued weakness in the Australian Economy has shown up in "the two speed economy". The economies of the Eastern States under Liberal governments committed to Austerity measures, are shrinking: they are experiencing local recession, highlighting that Government stimulus spending would still be economically useful.
  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.
Nothing on the public record has changed. The 2008 submissions, though confidential, are still the best attempts at costing an FTTN NBN - and they aren't good enough for investors.
  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.
The NBN Implementation Study looks at the Marginal Costs and set a limit of 93% premises connected with fixed-line, the rest Fixed Wireless and Satellite.
  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 Government took on-board the regulatory issues and devised a proposal acceptable to both Telstra and the ACCC. Since the Telstra SSU and NBN Co SAU (Special Access Undertaking), the Telstra share price has recovered from its lowest ever share price (under $3) to a five year high. It seems the shareholders, the ultimate representatives of The Free Market, believe the NBN is good for Telstra, as well as Australia.
  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.
We got a new Network, didn't cobble together a patchwork solution from all the old parts.
  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.
NBN Co went for "next generation" Fixed Wireless and Satellite for the last 7% of premises.
  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: This advise was followed.
  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)
 The NBN Co network is designed to promote strong competition whilst removing Telstra's control and the need for protections to other Telcos. The "open-access" wholesale Customer Access Network seems necessary and sufficient to "continue to promote the long-term interests of end-users". Backhaul options in regional areas were the first thing addressed by NBN Co.
  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.
We'll not know if the FTTP NBN was the confidential solution.
  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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