NBN: Irony in the debate, Turnbull encourages "When all else fails, tell the truth".

"When all else fails, tell the truth", tweeted from Malcolm Turnbull around 06:30 today. crowing about a piece by Peter Martin on Labor having to fess up to budget problems. This had me gob-smacked...

Graham "Richo" Richardson famously said in the early 90's "All Politicians lie".
Delimiter recently published an NBN piece centred around a definition of lying:

There is intelligent awareness of an intent to deceive.

Turnbull isn't just a Politician, he's been a very successful Barrister, another profession where Truth is irrelevant and not sought, but where the whole game is manipulating and redefining "Truth" for the purposes of an argument.

Delimiter yesterday reported on Turnbull's new set of Dorothy Dixers, commenting:

The documentation which the Coalition has produced so far with respect to its policy — ... — far exceeds the extent of policy documentation produced by any political party with respect to a telecommunications policy before an election; including ... in each prior case only brief policy documents, accompanied by a policy launch press conference, were provided, leaving substantial analysis and background briefing information out.

It always seemed to me that releasing a detailed policy, very early was a fraught strategy, since John Hewson's "Fight Back" (400pp, IIRC). It famously became "The worlds longest political suicide note", leading to the Coalition loss then and both political parties since being very circumspect about releasing policies that may be criticised.

I also suspect Turnbull and his team have a comprehensive campaign strategy worked out, and this is part of it.

• Most of the commentators are individuals with a limited work-rate.
• The Coalition team can easily overload individuals with "frequent enough" info drops.
• "throw the dogs a bone" occasionally:
• Distracts them and allows them to growl, furiously gnaw at the bones and feel very self-important.
• You can either slam-dunk them later with "you got it wrong" or mea-culpa and walk away.
• The Coalition get to control the agenda by asking Dorothy Dixers.
• Most casual readers/observers will be deceived and confuse the new documents with content when they are actually content-free.

Turnbull and team also use a bunch of Barrister tricks to give the appearance of substance without actually saying anything or committing to anything:

• Don't deal with facts that don't support your case:
• Deflection, misdirection, denial, ignoring.
• Tell outrageous lies:
• "The Big Lie" principle of Nazi Propaganda.
• Attack is the best form of defence.
• Personal attack works when you've got nothing else to say.
• He who strikes first, wins. He who blinks first, loses.
• Very careful wording of statements to mislead, misinform or invert the real sense.
• Never quote sources when you don't have to...

For an example, deconstructing one "answer":

Recent plans for FTTN networks in Australia indicated that around 50,000 nodes would be needed...

• Note no commitment is made on a central cost item. The statement seems like a fact or commitment, but is only a feint. They haven't said "we will built this many".
• Previously, the Coalition has said "60,000 nodes", does that still hold?
• My estimates based on sources quoted by CommsDay's Grahame Lynch, are for between 68,000 and 154,000 nodes.
• Because Turnbull is deliberately withholding critical, central information on the "distance rule", 400m, 800m or in-between, we can't "sanity check" their claims nor contradict those claims.
• Nor does he qualify what the all-important target access rate will be.
• The min guaranteed speed and what % of premises will get it.
• They have committed in 2021 to 90% of FTTN premises, though it could included FTTP, getting 50Mbps.
• Said by whom, when?
• No sources are quoted, making it a vacuous and irrelevant statement.
• How much per node?
• What costs are included and excluded?
• What about the Transit network and copper work of reconfiguration & remediation?
• Realistic & credible "node" estimates varying from $175,000 to $30,000.
• If words aren't defined, they can mean whatever the authors subsequently wishes... Political weaselling 101.
• Is it within their budget?
• Which they haven't specified, only implied is $8.1 billion for some unspecified thing.
• Nowhere in their plan is the cost of the FTTN roll-out exposed.
• As above, we must infer from separate facts something is expected to cost around $8 billion.
• The $20.5 billion CapEx seems to leave out $6 billion in necessary expenditure.
• But we cannot check that because different costs, while known by the Coalition, are simply not released.
• The principle of "you can't gainsay us because we haven't said".
• Equally, they could've referred to the Trujillo Plan with 20,000 nodes.

This was the source of my surprise and amazement. Turnbull is, in Richo's words, doing what all Politicians do, lying.

And from what he says and writes, he's very skilled at not saying anything while giving the appearance of being complete and voluble.

We're not going to ever see Turnbull get forced into a position where he needs to follow Peter Martin's advice: "When all else fails, tell the truth". Turnbull is just too good a player to allow that to happen.

Has he here, like his attempt at Coalition Leader, overestimated his own ability to control the situation and the usefulness of his Bag of Tricks?

If you've ever been conned, manipulated or been subjected to a Big Lie, you'll know the intense emotions that flow in the moment of realisation. If this were "Yes, Minister", we might be hearing Turnbull's advisors saying "That's a Very Brave Decision, shadow minister" about this current strategy.

[Sir Humphrey had a code, "brave" decisions lost votes, "courageous" ones lost elections.]

NBN: Questions for Conroy and Turnbull.

Josh Taylor of ZDnet is moderating a live debate co-ordinated with OurSay.
The current Top Three have been published with two or so days to run.

My questions, mostly for Mr Turnbull, below.

Here is my "Question Zero":

There are real commercial promises to both sides proposals:
can be they taken, under the ACL, as making commercial representations, not merely exempt, and worthless, political promises. I'd love to hear the ACCC on this.

Will either side give a money-back guarantee if their plan fails? No, that's not going to happen.

The next best thing is: a) quit politics or b) have clear 'early-exit checkpoints' to abandon the work. Will either make an on-the-record commitment on being held accountabile for their promises?

Q1. Mr Turnbull claims $20.5 billion in CapEx. Could he give us the breakdown into the the 4 Networks, Other/Infrastructure and Contingency.

Q2: Could Mr Turnbull gives us a breakdown of his OpEx budget over 35 years, now that he's swapping one-off PSAA payments for on-going line rental. Does that include the maintenance and the technicians to do the job?

Q3: Mr Turnbull is increasing OpEx by swapping PSAA to rental and decreasing Revenue by restricting ARPU growth to 1% above inflation. What effect does that have on Profitability, Break-Even, ROI and time to repay Govt Equity and Debt?

Q4: Mr Conroy, where's you detailed analysis and response to the Coalition Plan?

Q5: Mr Turnbull, you've run multiple Risk-based scenarios on the Labor 3-networks plan to come up with a Perfect Storm, yet you've not run any scenarios on your plan, the simplest being the CapEx to OpEx swap not happening.

You have several extremely high-risk factors that are also maximum impact ("drop-dead"), such as Telstra shareholders not agreeing to changing their arrangement.

Are you going to release a set of Identified Risks, Risk Mitigation strategies and scenario impact models for your plan as you've already done for the Labor plan?

NBN: Turnbull's "All Questions Answered" document: Don't bother.

Delimiter posted an excellent piece today, "Coalition to answer all NBN questions" pointing to a new post by Turnbull, "Coalition Broadband Policy-  Frequently Asked Questions".

Both pieces, but mainly Renai's at Delimiter, are worth a read, but don't spend more than 90 seconds of your life on the Coalition FAQ, not if you have any self-respect.

While I intend to respond in detail to the "FAQ", or rather what's not there, here's a first response:

Why would anyone give any credence to Dorothy Dixer questions self-selected and answered by a Barrister-turned-Politician? To say they'd be misleading and self-serving would be a gross understatement.

Turnbull et al have concocted these "Questions" for very particular reasons, none of which are to do with enlightening the public or explaining his plan. Here's the real question Turnbull needs to answer:

If he had communicated his plan well in the first place 2 weeks ago, why does he now need to "answer" twenty-two questions, expending 3500 words?

This FAQ is actually a demonstration of a seriously failed communication. But then, his policy launch, writing and interviews haven't been about informing or debating, rather muddying the waters and disinformation.

NBN: Estimating Node costs and numbers

This topic is too hard to research in fine detail, so this is all I'll do on it.

The presumed node cost of $8.1 billion, 9M lines at $900 each, is in the same range of the 2009 Telstra proposal. The cost of electronics in the nodes is only a small fraction of whole FTTN cost. While the electronics have followed Moore's Law and improved greatly in Price/Performance, the other costs are dominated by labour and haven't.

• the proportion of the brownfields network where it needs replacement with direct Fibre, and
• the number of nodes required, as the overheads are high.

There's a calculation at the end of this piece where 154,000, not 68,000 nodes would be required.
At $30,000/node, that's $2.5 billion extra. At $55,000, just the nodes cost $8.5 billion with up to another $8 billion is network costs.

These numbers aren't reliable, they are "sanity checks" only. Without seeing the supporting figures, I think $8.1 billion for an FTTN is optimistic, but not impossible.

This ACCC FOI document  via Grahame Lynch, contains a good summary of various proposals.
A spreadsheet of various cost estimates over time, see the 'nodes' tab.

Grahame asserts a node will cost $30,000, complete but without line cards, the 2006 Allen Consulting figure is $50,000 for infrastructure and $43,000 for the node, or $93,000, three times his estimate.

68,000 nodes = $2 billion
9M line cards = $750M

There's an estimate that from Analysis/Mason that 81,000 km of fibre will be needed for nodes. This will cost $20-$25,000/km to rollout:
Node loop fibre = $1.6-$2 billion

NBN Co noted that the transit network, upstream from the local Exchanges, will cost $4 billion all up. So 70% of it would cost $2.5 billion or more.

Reconfiguring the copper network: $500M (guess without source)
Rehabilitation/Remediation of copper network. In 2005 this was estimated at $4.7 billion for only 4M services. I don't find that estimate reliable. Later Telstra does come up with $12 billion for 90% of premises. This work entails a whole lot of work removing RIMs/CMUXs, loading coils, bridge taps (whatever they are) and improving the copper & joints.
I'd allow a modest $3 billion for 72% coverage, because poor copper will be replaced by Fibre.

So this back-of-envelope ballpark figure is:
$2.75 billion for nodes + $2 billion local fibre loop + $2.5 billion transit + $3.5 billion for work on the copper:
 $10.75 billion, which is close enough to $8.1 billion. (within 20%)

An extract from a previous piece:

• Full Node Costs, both number and Cost-per-node are unstated in the plan. Nor is the critical determining factor, the distance rule stated: Is it 400m, 800m or somewhere in-between?
• "60,000" nodes have been spoken about,
• maybe at $30,000/node + $75/line-card + my guess $3,000 for 10Gbps GBIC's (4/node: dual uplinks and 2-per-end). 
• $1800M + $650M + $180M
• ~= $2.5 billion
• There's also 81,000 km of fibre to be laid and jointed at $25,000/km
• $2 billion
• And a share of the $1.7 billion transit network and PoI's
• Plus extra for Exchange switches and other equipment.
• 1,000 exchanges with $250,000 of switches and ancillary equip.
• $250M, minimum
• Scaling up from 1500m to 800m and onto 400m is not simple:
• whilst the area per cell is notionally "radius squared", four times as many cells are needed when reducing the distance by half, in practice other effects come into play:
• For 1500m to 800m, I'll assume a 3.5 ratio allowing unserviced areas.
• For 800m to 400m, I'll assume 2.1 ratio to allow for majority "same run".
• The best data we have are the 2006 Analysis Mason estimates  of 38,457 nodes (20723 for "Big 5 cities" + 17734 for a full FTTN)
• This was for 12Mbps ADSL2+ at 1500m with 33% services direct from exchanges, costing only 40% of lines off Nodes.
• Without a 40% improvement from network reconfiguration
• Nor with the 28% FTTP coverage in the Coalition Plan
• or 62% of FTTN coverage via Nodes.
• Fewer services can be directly connected to cheap exchange lines as distance reduces by geometric area:
• 1500M: 33.3% = 66.66% node-equivalents in the field
• 800m: 8.3% = 91.7% in field
• 400m: 2% = 98% in field
• Using the 2006 Analysis figures, 57,685 node-equivalents were needed.
• For 800m:
• 57,685 * 3.5  (scale factor) * 0.6 (reconfig) * .917 (field) * 0.62 (fibre)
• = 68,872 nodes or $2.9 billion with previous cost estimates
• For 400m:
• 57,685 * (3.5 * 2.1) * * 0.6 (reconfig) * .98 (field) * 0.62 (fibre)
• = 154, 567 nodes or $5.7 billion with previous cost estimates
• Tesltra commented on the FANOC proposal, cutting the copper and adding new nodes would cost $1 billion extra at least, plus massive disruptions. That was for only "the Big 5 cities", add 50% national.
• The Coalition does promise that in the second upgrade, to 50Mbps in 2017-2019:
• only 90% of FTTN premises will be guaranteed 50Mbps.
• Is that an 800m rule with vectoring, a software upgrade, or
• through a 400-50m rule?
• Transmission lines reduce 'exponentially' with distance.
• If 25Mbps is available at 400m, only 20Mbps at best is available at 500m and 6Mbps at 800m. Distance losses are much higher with VDSL than ADSL2 and 1, so attainable rates will be lower.
• A $3.5 billion difference in 800 vs 400m.

NBN: Why FTTN rental must rise in a dual FTTP/FTTN world

The NBN deal the Coalition is offering to the general public is:

We're going to build a network past 12.2 million premises, saving $250 out of $3,000. In exchange, it's going to cost all of the unlucky 9 million homes, $5,000 each to ever get full Fibre. 

And they make an implied guarantee about Affordability: we'll keep the price of DSL cheaper than Fibre, forever, which is really 15-20 years.

Only that's not nearly true.


If on your street of 50 houses, 14 of them have Fibre and 36, including you, are on DSL, then all the costs of maintaining the whole of each network must be shared between those using a network. This is much more than the last 350m that runs down your street.

Whether you have 1 or 50 people connected to a network in a street, the costs of running the whole network, to connect, manage, bill and maintain for those houses, stays the same. The variable costs of providing any network connection to a house is almost, but not quite, nil, its the small amount of electricity used. The fixed costs, those that don't change with the number of services connected, are more than 99% of the network costs, operational and capital.

This is the economics of all Telecommunications networks, including wireless, and what made two Cable TV networks serving the same addresses pure madness: the additional cost of another user is too small to measure or bill. Telcos must spread their costs across a large number of users, or go under, as Cable TV did here within 5 years of being built.

Those 14 people on Fibre get to share the whole costs of their network while the 36 on DSL get to share the whole costs of their network. Funnily enough, those costs are not all that different, 10-25% different at most.

In the beginning, the share of costs of the "lucky few" on Fibre is two and a half times more than their  DSL-connected neighbours. The company that owns the DSL network can charge less and make more profit! That's "a beautiful set of numbers".

But what happens in 10 years when the situation has reversed because 11 of the 50 houses have converted to Fibre?

The situation is reversed: the "lucky majority" now get to share the whole network costs and their costs are much, much less, making the operator now able to charge much less for Fibre.

What's happens for the DSL houses is their share of maintaining the network increases by 250%.
The operator has two choices: absorb the costs of pass them on...
Any rational business must pass on the costs, raising DSL prices considerably, for a less capable service.

Of the 14 of 50 houses now left using DSL, many will start to wonder if its a good deal anymore: slower and more expensive! The service will also be much less reliable for technical & commercial reasons. Operators will direct their maintenance dollar towards the more profitable service, Fibre by then. DSL performance and reliability will decline because of falling revenues and margins.

If just one more house "defects" to Fibre, that increases the costs to those left by 7%. Not that much, but 275% of the original share of costs and 285% of the share of the other group.

The next house to go, "and now there were 12",  adds 8% to the latest cost, or up 300% on the original cost and 315%  the share the other group pays.

For 10 houses, they're paying 360% more than when they started and 400% more than the other group.
For the last 5 houses,  they're paying 720% more than originally and 900% more than the others.

Rational customers will flee the old network as charges start sky-rocketing, compounding the problem.

The only questions for the network operator are:

• When do we give those stuck on their old service a "special deal" to step-up to the new service?
• When do we declare the old service "no longer economic" and shut it down?

This is a cascade change or "tipping point" problem. As the more desirable service becomes cheaper, the barrier to entry reduces so it becomes more desirable and cheaper etc etc.

At some point, the more desirable service is also the cheapest, then everyone jumps on-board, or is forced to jump when the operator kills it. A good operator will maximise their profits and abandon a failing service well before it starts making a loss. The decision point is when the Gross Margin (%) on the new service is more than the Gross Margin on the old service.

Normally a tipping point is 40-50% of a population. Fibre starts at 28%::72%, if only 12% of premises switch to Fibre, the ratio is now 40%::60%, well within the tipping-point range.

The Maths is simple and relentless, the business decision is unavoidable.

The only question for Telstra and NBN Co is:

How long before the DSL/Fibre tipping-point is reached?

The time to market collapse is very important to both businesses: it sets the maximum time they'll agree to rent the copper, which determines the yearly rental price.
Telstra has to get $3 billion in rent (NPV, PostTax) to make the new Coalition deal as good as its present deal, NBN Co needs to pay the least rent it can to make a profit.

Even at $5,000/premise to "Got Fibre?", one in eight houses can reasonably be expected to switch in the next 10 years for both its utility and for the effect on house value.

The accounting depreciation life of DSL nodes and lines may be 20 years, but it's extremely doubtful the service will get to run 10 years, especially if it turns out there really are services that only work over Fibre.

If I was a Telstra shareholder, would I accept any deal to rent the copper & not stick with the current deal?
Absolutely not, it is way, way too uncertain for me.

What if a Coalition tried to force their hand with regulation or legislation? It'd be challenged in the Hight Court. The additional time would scuttle their plans: they can't afford either losing or winning such a case.

The Coalition has to strike a deal with Telstra, and it has to be to be "rent not buy".
Telstra doesn't have to change, it already has a great deal.

I don't play poker, these types of plays are too much for me. How this will play out is outside my experience and knowledge.

NBN: Why Telstra shareholders would be silly to accept a "rent not buy" deal

This is a more technical treatment of why I think Telstra shareholders would be unwise to accept any deal to rent the last-mile copper, not accept a variation of the same one-off payment deal they have now.

The Coalition NBN plan is based on significantly lower CapEx, they need to rent the copper, not buy it.

The minimum commercially viable service period for a DSL-node network is far too uncertain.

Because the GPON Fibre Networks starts with a 28% share of the market, is a more desirable product and its inherent Operational and Maintenance costs are lower, it is far too easy for the 12% change in market share needed to hit a "tipping point" of 40%of the market will be met, and met quickly.

The network assets, nodes and copper, have around a 20-year depreciation schedule. A reasonable line-rental agreement would be expected to be around that.

Think back to 1997, around 20 years ago, and compare the Internet then and now. By the time the Coalition deal is returning money, we can guarantee devices, content, speeds, services and operator margins will be completely different. Any reasonable forecast of Internet changes over 10-20 years must include significant change. "The Internet Changes Everything, including itself."

Not just even in an economic downturn scenario, but especially then, because everyone will be looking for cheaper ways to do everything: the Internet is the ultimate product-substitute and market disruptor. An economic downturn will radically increase demand for Internet services, just as sales of cosmetics boom in downturns, at the expense of the usual luxury goods.

Fibre starts off as a more desirable consumer service because it's faster, more reliable and upgradeable.
It is intrinsically cheaper to maintain and GPON can be upgraded in-field, possibly even by the client. Want a 10Gbps service? "I'll just mail that new card to you... That'll be $100. Charge or Credit?"

Even when a huge price barrier of $3-$5,000 for conversion is artificially introduced by the Coalition plan, consumer desire will be very strong. With current consumer technologies, it's mindlessly simple and under $200/premise to share a single expensive connection. One household pays for the Fibre upgrade and 2 or more piggyback off their connection. A 10m cat-6 cable is really cheap, a WiFi router, well you might already have one of those on a shelf collecting dust.

We know from experiences like "chipping" games consoles and "all region" conversions of DVD players that consumers will blow-past artificial restrictions for desirable goods and services, especially those they find are high-utility.

The effective price barrier is closer to $1,000, maybe as low as $350, if specialist businesses form around "sharing Fibre".

At $3,000 to convert a premise to Fibre, a DSL-NBN may take 10 years to reach the tipping point.
At $1,000 to access a shared Fibre, a DSL-NBN doesn't have a 5 year life.
At $350 to access shared Fibre there is no price barrier to leaving DSL-NBN.

Remember the fall of the Berlin Wall and the subsequent collapse of the USSR: when a "tipping point" is reached, the rest of the change happens with blinding and, to some, startling speed.

That's the question for Telstra shareholders to consider:

Can DSL-NBN maintain sufficient market share for even 5 years to make "rent not buy" at least as good as their current deal?

That same question should be keeping the Coalition NBN team up at nights.

NBN: Deal or No Deal? The short version on questions for the Coalition.

Which side has the better deal? Is the Coalition NBN Plan a good deal?

It's $3 billion less or $245 per premise, a miserable 8% saving, but "backloaded" with a nasty sting: householders pay $30 billion directly from their wallets, to upgrade. The Coalition is perhaps a year earlier but with so much detail missing & withheld we don't actually know what they are proposing. More affordable? With an extra $10-$15 billion thrown at Telstra for renting lines, maybe not.

Is providing the same service equally to everyone, not just the privileged few carefully selected by the Coalition, "gold-plating"? I have an opinion, but everyone must decide for themselves.


If Fibre were so unnecessary, why did all the Coalition members accept the recent upgrade of their electoral offices to fibre? Multi-million dollar upgrades for themselves from the public purse are OK, but a few hundred dollars extra per elector is not. What's going on there?

The only good I can find in the Coalition's NBN Plan is: it is better than their last one... Which is faint praise indeed.

The central question of both NBN plans, I haven't been able to unpick for the Coalition: Who Benefits?
"The usual suspects" are not the obvious beneficiaries. Telstra has generally been hated by the Coalition. I wouldn't expect a plan that did them favours.

The answer for Labor's NBN is simple: it's an enormous "freebie" intended to buy votes, pitched as "Nation Building", an obvious "must-have".

That should be an easy Policy to meet and beat by naming it and then flipping it. My version:

We can't offer you a free lunch like Labor, there is no such thing. What we can offer you is the same technology, if you want it, but you'll have to personally contribute, now or later, your taxes only go so far. Whatever most people want and will contribute to, we will have built. If you want it sooner and will pay extra for that, why not?

NBN: Unpicking the Coalitions' Plan

Summary: On an Apples-and-Apples basis, the Coalition's NBN-with-DSL is $3 billion, or 8%, cheaper to rollout, affecting 75% of those currently scheduled for Fibre. The big change is to trade $8 billion in up-front payments to Telstra for $11-$15 billion in "time payments". They've not just created the Digital Privileged by deferring Universal Fibre access, they've increased the upgrade cost to more than $30 billion, payable directly by householders.

If you're looking for an answer to "Which NBN Plan is best?", this isn't it. My intent here is to layout facts, strengths and weaknesses for you to make your own judgement. This will be of interest to just a few: many folk Just Don't Care and most already know which side they'll support in the election. This piece builds on "Correcting the Record".

Both NBN Plans have strengths and weaknesses, but both can be improved, at first pass, considerably.
Both sides currently seem locked into a position and are unwilling to take feedback or public preference into account. Both plans embrace and encourage free-loading, the electorate expecting significant government largesse.


I don't have the data and resources to produce an optimised NBN Plan, but its easy to show that both sides are sub-optimal on different criteria. Labor is rushing to completion, spending money early, whilst the Coalition is locking the network into a makeshift solution for 20 years, whilst transferring considerable costs onto householders. Both plans produce a series of undesirable outcomes, some quite ugly.

Special mention has to be made of the extraordinary measures taken by the Coalition to disguise and hide their data and intents, to actively mislead and to create doubt.
Most obvious is the generation of a worst-case scenario that is only remotely possible, less than one in ten-thousand.
In the documents it is described as "likely", then afterwards claimed as "will".

But is that a surprise? As Richo shockingly said in the mid-1990's, "All politicians lie", meaning they spin, mislead, misdirect and dissemble as their core competency and main public activity.

The effort and detail put into attempting to discredit the other plan completely outweighs the detail provided on their own plan. The 36 page "Background" document contains just two pages dedicated to their own forecasts. That imbalance speaks loudly: "the best form of defence is attack".

There are three levels of the Coalition NBN Plan to describe, after listing its errors and omissions:

• Technical
• Fiscal, Funding & Financial
• Political & Ideological

Active Deceptions and Withholding

The Coalition forecasts, as presented, don't add up.
Critical data, Interest and Depreciation, and later Debt funding, were deliberately removed from the published forecasts.

Whilst we are told in the commentary that Revenue overtakes Expenditure by 2021 and the totals of both from 2012-2021, all data for the last two years are withheld. What are the projected take-up rate and usage then, let alone later when the fiscal differences between the plans really shows up? We're not told.

Telstra is a "drop-dead" project risk as the single biggest creditor of NBN Co, with payments coming as both CapEx, disconnections & lead-in one-off payments and OpEx, 35 years of facilities and ducts access leases. NBN Co has recently published a figure of $11.3 billion for "FTTP Access", presumably the one-off payments to Telstra. Telstra carries the ability to make or break the Coalition plan, is known as a tough negotiator and took 2 years to agree to the current deal, including an Extraordinary General Meeting and shareholder vote.
What's the Coalition treatment of this "drop-dead" project risk? Denial. "Our plan is in their best interests" and "we expect a quick agreement because the copper has near zero value".

Also ignored is the Regulator in charge of these services, the ACCC. It is tacitly assumed that the Regulator will sign-off on any agreement to rent Telstra copper lines, necessarily at higher rates than the current ULLS charge. In the past, this has not been a quick or easy process. Can a new Government merely change the Act the ACCC works under, forcing compliance? That's a fraught path as well.

The Coalition has planned a major fiscal change, to rent, not buy, the "D-side" copper as they call it, needed for a DSL solution. But not only isn't this radical change highlighted, deliberately misleading phrases are used to hide the fact and in interviews where this question is directly asked, the answer is dodged. 72% CapEx is saved on $11.3 billion for FTTP Access ($8.1 billion), replacing it by mortgaging our future to the tune of an extra $11-$15 billion, but they won't mention it even when asked.

There is a contradiction inherent in the Coalition statement "Telstra shareholders will be made whole", or won't be worse off by trading the current payments for renting lines. The current ULLS line rental charge won't return as much, even under an extended lease agreement. How is the shortfall going to be made up? How will the ACCC be made to agree to non-competitive deals?

The claimed $20.5 billion CapEx also fails basic sanity checks. $8.1 billion in CapEx is traded for Opex and only 28% of FTTP network is built or $5.5 billion of $17.2 billion after Access costs. Then  $8.1 billion has to be added for an FTTN. That's $3.6 billion less in construction and $8.1 billion swapped for OpEx, for total CapEx savings of $11.5 billion, yet they turn a real $5.5 billion difference into a claimed $17 billion saving.

Conveniently $6 billion of "Other CapEx" has been ignored. The sub-projets are now identified in detail by NBN Co. Because the breakdown of CapEx and OpEx has been deliberately withheld, nothing is included in the plan.

Two major costs are transferred to customers with the costs withheld and impact undiscussed:

• Network Termination Devices, NTD's, must now be installed in FTTN services at the owners expense.
• A $2.5-$3.2 billion impost on households.
• Upgrades to full-Fibre are now one-off installs  fully customer funded, against the current minimal build-cost project:
•  at $3-$5,000/premise, that's at least a $30 billion impost on households. 

The current project, with the NTD impost is really only $3 billion cheaper, except for the additional $11-$15 billion in unnecessary line rentals. Is that $3 billion less or $10 billion more?
If you add the future upgrade cost, the Coalition plan is wildly more expensive, based on the Coalitions own statements and forecasts. The need for an outlandish worst-case scenario of the current plan to use as in "Straw-man" arguments becomes brutally clear.

All details of the critical differentiator of their NBN, DSL Nodes, are omitted. The number of nodes, the maximum distance, distance of fibre run, cost of transit networks and most importantly, the cost of network reconfiguration and rehabilitation/remediation. This is an area rich with estimates and analyses since the Telstra/Trujillo 2005 pitch to the Howard government. A lot is known, including about the problems and project risks, yet strangely no detail or discussion is provided of the second highest risk factor to their project.

In 2009, Telstra estimated it would cost $12 billion to build an FTTN to 90% of premises, without needing to pay $20 billion or more for access as NBN Co must. The Coalition DSL NBN is a comparable plan, estimated to be 33% less without the same detailed data and Telco knowledge. Despite this gap, nothing is said to justify such a radically cheaper estimate.

An unjustified figure of "$900 per line" for an FTTN, derived as "25% of $3,600/premise for Fibre", is used. None of the NBN Co estimates or actual per-premise cost of Fibre construction and install has ever been close to this figure.

Not only are details omitted, the cost of the FTTN component, presumably $8.1 billion for 8.9M lines at $900 each, is never spelled out. Why withhold the costing of the centrepiece of the plan? It's not just illogical but counter-intuitive to hide all details of the very thing you're selling.

The factor at the heart of every financial plan, customer demand, is ignored completely. We're told ARPU (Average Revenue Per User) is expected to grow at 3.5% with inflation at 2.5%, despite one of the justifications for 12-25Mbps being "you can watch a lot of video on that". Every credible source is predicting growth in Australian Data Download Volumes of 30%-60%. Yet the underpinnings of nearly 2 decades of exponential growth of the Internet is seemingly ignored.

The on-going phone service for which the copper was laid is ignored. The PSTN, Public Switched Telephone Network, both analogue on which DSL services are piggy-backed and ISDN services used by business, are not mentioned. Will NBN Co now provide all phone services? Via the NTD outlets or via ATA within the nodes? What happens to businesses with ISDN services, are they orphaned, moved to Fibre or provided with an inferior and incompatible Symmetrical DSL service from a node?

There are more than 5M residential and business phone customers affected by the Coalition compulsory acquisition of lines that need to be informed the impact on them and the new options available and costs they'll incur. The operators of all those services may also have a view on fair compensation.

There's a key difference between the FTTP and FTTN rollouts: the copper is cut for an FTTN.

This means every operator who's invested in equipment to provide services directly over the copper, under the ULLS arrangement, is financially disadvantaged. Under the current deal, only Optus and Telstra have been compensated for losses from income producing assets. Under the Coalition plan, every ISP should be entitled to fair compensation for their loss of income and orphaned assets. If compensation is not offered, this will be tested in the courts. There is no discussion of commercial compensation, only the clawback of HFC payments to Telstra and Optus. Either the Coalition is intending to blindside a lot of operators or they've omitted these additional payments from their plan.

There are multiple issues that arise from cutting the copper apart from Operator ownership and compensation:

• "No Disruption" claimed by the Coalition at best applies to analogue PSTN services, but its possible only for those on compatible suppliers, like Telstra.
• Done right, current ADSL services could be migrated to nodes with little disruption
• but because they're PPPoE based, not VLAN, with customer-supplied modems and line-filters, they need to be replaced with a DSL-NTD to be properly connected. That is a significant disruption and cost.

• What Service Level will now be mandated for services provided by DSL nodes vs GPON Fibre?
• GPON Fibre services, or FTTP, will easily achieve and exceed the current "Central Office" based service levels of 99.99% availability. (% avail to be confirmed)
• The Canberra fires in 2003 showed a weakness with Node based services: small batteries.
• DSL nodes fail more often and in extreme conditions, such as floods, fires & widescale events, will fail within hours of reticulated power failure, leaving the community isolated at exactly the time they need reliable communications.
• We've seen from the World Trade Centre attack and Hurricane Sandy that Mobile Phones are not a replacement for fixed-line services, either in the middle of events or in cleanup and recovery afterwards when power is off for extended periods.

• Telstra has 10,000+ nodes already deployed, RIMs and CMUXs. They will be orphaned when the copper is cut. Will they be leveraged? The building approvals, civil works, power, "ties" to pillars and uplink fibre are all there. Reusing these cabinets would be "cost-efficient" and require yet another new, costly agreement with Telstra. This important detail goes unmentioned.

Telstra and other network operators already have extensive Fibre networks within the Customer Access Networks,  surely reusing that as much as possible would be cost-efficient for FTTP. No. It's completely the wrong type: NBN Co are using 12-core ribbons in 'tubes' of 12-ribbons, with 846 cores, i.e. 6-tubes, the usual underground cable used to pass premises. Most fibre out there is thin and can only support a few nodes: it's separate cores in 12- or 24-core cable. Incompatible and under-sized for the NBN Co rollout. The mantra "reuse what's there" is wrong an misleading.

The Coalition uses "self-evident" justifications, with no supporting data or modelling, for several policy points:

• It's more Cost-Effective to use existing services than over-building them with GPON FTTP.
• Unrestricted competition always leads to more efficient markets and lower prices. Even in Common Infrastructure Natural Monopolies and despite the complete failure of Cable TV "competitive" rollout in 1994-1997.
• Installing on a "needs first" or priority-basis will have no impact on roll-out efficiency or cost.

Technical

The Coalition is proposing:

• Leaving the Wireless & Satellite roll-out "as is".
• Maintaining FTTP rollout for Greenfield sites of more than 100 dwellings
• Criteria for Prioritising roll-out and impact on Project Efficiency.
• Allowing HFC and 3G/4G operators to compete
• Removing Cherry-Picking restrictions
• Slowing down the Brownfield FTTP rollout after 2014 to around 40% of premises passed.
• Stopping Brownfield FTTP rollout in 2019, with
• FTTP 28% (2.8M) total premises passed
• From Jan-2015 to Dec-2017, passing 8.9M premises with VDSL2
• at guaranteed 25Mbps, either 800m or 400m.
• ~60,000 nodes implied.
• From Jan-2018 to Dec-2019,
• upgrading 90% of FTTP premises to guaranteed 50Mbps
• no explanation as to how
• These areas unexplained:
• PSTN & ISDN phone services
• DSL-NTD features and install
• Conversion of ADSL/PPPoE services to VDSL/Layer-2 Bitstream (VLAN)
• Migration of ULLS services.
• Passing premises with GPON Fibre to comply with direction "upgradeable to Fibre"
• Material waste & stockpiling through FTTP cancellation.
• Telstra RIMs & CMUXs, reuse, refurbishment or replacement.
• Copper CAN:
• Reconfiguration
• Rehabilitation
• Replacement
• GPON FTTP 

Fiscal, Funding & Financial Issues

• The forecasts supplied are incomplete:
• Essential line-items are missing (Interest, Depreciation, Debt)
• Common years after 2019 are not included, only totals are provided.
• No CapEx breakdown of the 4 separate rollouts are not included.
• subscriber numbers, by rollout type, are unspecified
• Take-up rates & timing are unspecified
• Consumer demand, Data Volume Downloaded, is not modelled.
• The impact of Video, a prime justifcation, is not modelled
• $6 billion in necessary "Other Capex" is missing.
• Significant costs, NTD's and Fibre upgrades, are transferred to customers without comment.
• Costs, Risks and Terms/duration of Telstra contracts aren't discussed/revealed.
• Financial impacts on & compensation for non-Telstra operators not stated.
• The costs of the FTTN are not provided, justified or detailed.
• Coverage and take-up timing details aren't detailed.
• The major funding change, rent not buy, 8.9M lines from Telstra is not mentioned, nor the impact explored.
• The necessary charges to not disadvantage Telstra shareholders are well in excess of approved
• Major project risks and their mitigation are not discussed:
• Telstra SSU payments variation
• per-line rentals and other facility access/rental (RIMs)
• ACCC approvals

Political & Ideological Issues

The Coalition policy seems driven by two ideological stances:

• The CapEx must be reduced at any cost, ignoring all undesirable outcomes & illogical processes.
• Competing services to The Big Bad Monopolies, Telstra and NBN Co, must be allowed, whether they are commercially viable or economically sound, or not.

Cherry picking, the servicing of the most profitable market segments by competitors, is back on the agenda. The first NBN Co plan estimates it would have ~$1.5 billion impact on Revenues.
Trading CapEx for OpEx on the copper lines will destroy margins on the FTTN by loading it with very high costs. This will increases the rate and impact of Cherry Picking from every source: HFC, 3G/4G mobile and other fixed-line competitors. If existing ISP's can maintain their ULLS services, they will undercut NBN Co significantly on Telstra line rental.

The failure of Cable TV in Australia, but nowhere else in the world, when Optus and Telstra both rolled out networks down the same streets to just 2.7M homes in 1994-97, then wrote off most of their investment within 5 years, demonstrates the problems in the Telco marketplace.


More to Come.

NBN: Why the Coalition won't answer the "rent or buy" copper from Telstra

The Coalition seems to have achieved its "$17 billion cheaper up-front" by proposing to rent, not buy, the copper D-side from Telstra.

If I ran Telstra, its not the deal I'd want [including sources and calculations].

This swaps $8 billion in Capital Expenditure by 2021 for $1.7-$3.0 billion/year for 20-25 years, a $34-$75 billion commitment, which on the surface seems bizarre.

It's "pay now, or pay and pay and pay and pay", just like Hire Purchase, but you never get to own it.


What we don't know is:

• What rate per line Telstra is willing to accept and over what minimum period.
• The current regulated price of $16/mth for an Unconditioned Local Loop Service (ULLS) won't return as much as the current SSU agreement.
• Optimistic (30% margin) modelling suggests a minimum of 25 years.

• The number of lines that will be charged.
• Will all 8.9M lines "passed" and presumably connected to DSL nodes need to be leased, or
• just the lines actually in service, a much lower figure requiring considerably higher payments.

• The EBITDA margin Telstra wants to achieve for that last-mile:
• it's average 40-44% or
• the 18-25% it gets now for ULLS.

• What happens when a customer stumps up $3-$5,000 to convert their copper service to Fibre?
• Telstra will need to be paid out the minimum lease payment.
• Who bears that cost?

• Will the Regulator, the ACCC, agree to any of this?
• Will the Telstra shareholders agree to Turnbull's "slight" variation?

NBN: Why Telstra should want to sell, not lease, its copper to NBN Co.

The Coalition acknowledges it has to strike a deal with Telstra and leave their 1.4M retail shareholders "no worse off", or even with "a mild positive".  We know from the 2011 Explanatory Memoranda to shareholders that the disconnection fee was worth $4 billion to Telstra in Post-Tax 2010 Net Present Value terms and that last Friday NBN Co put a 2021 figure of $11.3 billion on "FTTP Access", presumably mostly the Telstra disconnection fees + lead-ins.

The Coalition has to meet or beat this figure and tell us if it is CapEx, a one-time payment per line, or an OpEx, small payments spread over many years costing a lot more in total.

What the Coalition hasn't said clearly is how they intend to execute the deal, presumably meaning its Not Good News for their plan:

All CapEx, all OpEx or a combination?

Why this matters:

• Telstra won't settle for a worse deal, they are known for driving hard bargains, and
• the $20.5 billion of the Coalition Plan doesn't appear to allow for $8-$11 billion in CapEx to buy Telstra's copper.
• Or there's at least an additional $1.7 billion in OpEx, more than half the current $3.1 billion in the Coalition Plan.

The Coalition, as Abbot, Turnbull and others, have implied it's a CapEx deal by saying 'Telstra get their money sooner, that's a benefit to them', but that's not clear policy.

The FTTN proposal is for 72% copper services with 28% FTTP covered under the original Structural Separation Agreement. A new agreement must beat a hurdle of 72% of $4 billion NPV or $2880M.

The crunch is:

What happens when a copper service that's been leased by NBN Co gets replaced with a Fibre service. Does the existing disconnection payment kick-in, in full or pro-rata'd up until a minimum lease period?

An optimistic (30% EBITDA margin) calculation of 8.9M lines leased under the ACCC approved Unconditioned Local Loop Service (ULLS) at $16/mth, has a 10-year NPV of $2.3 billion and $2.85 billion at 15 years, with $3.1 billion at 20 years, or 2032, suggesting that the minimum lease period is 20 years.

What's unknown is Telstra's EBITDA margin for ULLS. Trujillo in 2005 (pg 13) gave a figure of 27% for all new services. The 2012 Telstra Annual Report (pg 36) gives EBITDA margins of 60% for retail PSTN and 37% for retail fixed broadband and 40.5% for the whole company, in-line with Trujillo's 44%.

The Telstra EBITDA margin for wholesale ULLS might well be 18-25%,  not the 30% used, making the deal unacceptable to them.

The Coalition could instruct NBN Co to offer Telstra a higher rate than the ULLS $16/line/month, but the ACCC would have to agree, which would burn time and cause grief.

The beauty for Telstra of a sale, as in transfer of ownership or sole rights to use of the copper asset, is twofold:

• remediation and maintenance are no longer their problem, and
• they get all their cash by 2019
• much better than having ULLS payments dribble in over 20-25 years with uncertainty from Policy changes or wrangling over conversions to Fibre.

Because the Coalition has deliberately obfuscated this issue, their proposal must be weak in this area.

My interpretation is they've traded $8 billion in CapEx for $30-$50 billion in OpEx to make their plan more appealing at $20.5 billion, not $28.5 billion at least.

---

Quotes and Sources

Coalition Policy Document

NBN Co and Telstra
We may seek to negotiate variations to commitments to provide efficiencies, allow the NBN to be more quickly deployed or otherwise create benefit.

NBN Co will seek permanent access to Telstra’s copper between premises and concentration points such as pillars, cabinets or exchanges. Telstra has publicly stated the copper has minimal economic value, leading us to anticipate cost-effective access will be attainable.

ABC Inside Business. Turnbull doesn't clarify the "rent or buy" question when its asked.

ALAN KOHLER: So the other thing that strikes me about your scheme is that you need access to the copper, right? You need to either own it or rent it or something from Telstra. Now you announced the policy; you'll go to the election with that policy, but without having done a deal with Telstra. So you're a bit hanging out to dry, aren't you? I mean, they've got you over a barrel.

MALCOLM TURNBULL: Well I've done a lot of deals with Telstra over the years and they know me very well; I know them very well.

ALAN KOHLER: Well you'd know how hard they can play it.

MALCOLM TURNBULL: I do. I do. And I know that it is in their best interest to support the approach we're taking. You can see that the market has welcomed the approach we're taking. They've treated it - as I've said for some time, our approach is somewhere between neutral and a mild positive for Telstra shareholders. Uncertainty, disagreement, tension with government has never been good for Telstra shareholders.

I am very confident that we'll achieve speedily the slight rearrangement to the agreements that we're talking about.

AFR reporting on ratings agency Fitch warning of a downgrade to Telstra shares:

due to a technicality that could threaten billions of dollars in disconnection payments.

AFR reporting Telstra "keeps NBN Cash". Abbot is specific "start to get some money" sooner. Goes either way, but leans to "rent".

Mr Abbott said: “Telstra only gets paid under the government’s scheme when the NBN connection becomes live and there are very few live NBN connections right now. Under us, the thing will become operational vastly more quickly, so Telstra will start to get some money.”

An AFR opinion, not source, says Telstra shareholders will benefit:

Having the network rolled out faster is important because it means the payments to Telstra for the switchover of customers from the old copper wire network to the NBN will be paid quicker.

An ABC interview with Turnbull. Does the singular "payment", not "payments", imply "buy"?

JON FAINE:
There’s an assumption that you make that you can get at no charge access to Telstra’s copper connection to the home. It took years for the Labor Party to negotiate access to that under their plan. Why do you assume and isn’t it a fatal flaw to your assumptions that you’ll get access easily and without cost?

MALCOLM TURNBULL:

Well, obviously I’m not uninformed or inexperienced in dealing with Telstra. I’ve had a lot of dealings with Telstra over the years.

JON FAINE:

That doesn’t mean they’ll dance to your tune.

MALCOLM TURNBULL:

No, no doesn’t mean you’ll let me finish a sentence either but what it does mean is that they are getting paid under the existing contracts which we will honour, $1500 per premise as it is connected to the NBN Co and whereupon they switch their copper network off, so that it is of no value at all. Under our approach because premises will get connected to the NBN sooner – that’s to say, more quickly, Telstra would get paid more quickly. So it is in their interests, because they would get their payment – it wouldn’t get any more than they’re contracted for but they would get them sooner – it is in Telstra’s interests to go along with the proposal we’ve made which is why all of the stockbroking firms have said, and I think it’s a fair comment, that our approach is a mild, not a big positive, but it is certainly a mild positive for Telstra. So Telstra shareholders are no worse off and they might be a little bit better off and that is why Telstra has an interest in going along with that.

So this is actually very well thought out as opposed to some of the loopy, uninformed, reckless comments that you’ve seen from people like that gentleman Mark Gregory at the RMIT who not so long ago was saying Julia Gillard should get the army to build the NBN, and yet he’s apparently treated as a serious commentator in this field.

NBN: Political mis-statements decoded

Political spin and half-truths normally only annoy me. About the NBN, it riles me more: the Herald-Sun reporting on the NBN in Blacktown:

last week Mr Turnbull said most residents didn't need super fast broadband and the network could be upgraded down the track.

The only truth in the Marketplace is what people are prepared to pay for. 100Mbps and 1Gbps services wouldn't be on the menu if they was no demand for them.

Unsurprisingly, there's no mention of the real economic legacy of the Digital Have's and Have Not's the Coalition is preparing to enforce: Digital-Have-Not house prices will be $3-$5,000 less.


Here's what's being said:

• "super fast broadband", like 640Kb of RAM, is "all you'll ever need".
• Do they mean 1Mbps like Al Gore's "Information Superhighway"?
• What was "fast" in 1998 is laughable today, it's a vacuous and misleading phrase as it is relative.
• If he means 25Mbps, he should be saying it.
• Now that NBN Co has announced the availability of 1,000/400Mbps services, doesn't that rate now define "super fast", relegating100Mbps to "fast" and 25Mbps to somewhat less than "fast", say "barely adequate"?

• "most residents don't need" has two problems:
• There are very few folk who need more than 56kbps dial-up, seriously.
• Everyone who values their time at more than $0 will pay for higher speeds.
• The basic theorem of Economics is that Individuals uniquely assign a Utility value to goods and services, expressed as their willingness to pay:
• What we need is not nearly the same as what we want.
• What we desire is different to what we're prepared to pay for what we want.
• In the Market, the most critical factor is willingness to pay:
• How else do you explain the "cost" of women's shoes and cosmetics?
• Women complain about high prices, but keep buying...
• From the 50% higher take-up of NBN than predicted and the associated 50% higher Data downloads, we now know that many, not all, people place a high-value on reasonable download speeds.
• The second problem is "most residents":
• Those people willing to pay for higher speeds aren't neatly grouped by street or postcode, they are spread through the community, albeit, often correlated with ability to pay, or disposable income.
• It isn't possible to run a fast network just to the people who want it and will pay.
• To reach the Early Adopter and Early Majority markets clamouring for higher download speeds, the network has to pass every premise.
• But you'd be surprised, demand is unpredictable:
•  a group-house of low-income guys in the Far West may well spring for a 100Mbps/1,000GB plan while the "rich" neighbours of Turnbull almost all would just keep using their 4G smartphones and tablets...
• It's just as important to fully network Greenway as Double Bay and Vaucluse.

• "the network can be upgraded" is at best fatuous, at worst hypocritical and deceptive.
• This is pure B/S, the same misleading statement as "You can always trade-in your 25yo Gemini on a Rolls Royce".
• It's syntactically and semantically true, but never happens in real-life.
• The Coalition paywall of $3-$5,000 per-premise upgrade to full Fibre is an effective barrier to entry for most households.
• The Coalition will say in 10 years "Look we were right, there was no demand for Fibre to the Premise, because nobody buys the upgrade". Then babble on about what great fiscally-responsible economic managers they are...
• All the while, the statistics will show that the 2.8M "lucky-few" on FTTP are using more and more services over their real "super fast broadband".

• Can we demonstrate the Coalition knows it is telling "less than the the whole truth" or being misleading and deceitful?
• Not so much without recordings... That's the game of Politics.

NBN: Sanity checking the Coalition's $17 billion savings

The Coalition Maths that led to a 45% savings on the NBN with DSL have always had me perplexed: they don't add up.


On the 8.9M DSL services, they were to save $1910 per line, valuing the Fibre install at $2810/line, or a total of $34.3 billion vs the $28.5 billion of the NBN Co 2012 Corporate Plan. The Coaition estimate could never have been less than $26.5 billion.

What about extra planning & preparation costs, unused material for the Fibre rollout, copper costs for reconfiguration and remediation/rehabilitation? All apparently zero cost or included in the guesstimate of $900/line.

What about working backwards, using the newly released cost breakdown from NBN Co?

NBN Co report $1100/line per Fibre connection (pg 6), leading to a maximum saving of $200/line or just $1.78 billion. Less cost of change-over and waste of unused material.

Is the real Coalition NBN plan going to need CapEx of $20.5 billion or $35.6 billion, a 75% increase on their first estimate?? The electorate deserves an update.

NBN: Coalition is in the box-seat, should it choose to "fine tune" policy in light of latest NBN cost figures

Since the NBN Co released more detailed figures for the latest Joint Committee meeting, the Coalition has been put in the box-seat, if it can tear itself away from its current policy position.

The Coalition has options, whereas Labor is locked into a "all or nothing" position. Turnbull can plan to transition to full-Fibre over time, exploit savings where available, enjoy the benefit of deferred investment and introduce new policy elements, such as standard connection & upgrade fees.

The trouble with the future is: nobody knows what's coming. The Rudd/Swan post-GFC budget promise of "we'll absolutely return to surplus in just 5 years" proves the point. Treasury's modelling was good, but ultimately they missed: there are external factors outside the control even of politicians.

Ultimately, the problem for both political machines in forming Broadband policy is a lack of data.

By the end of 2014 or 2015, there will be sufficient data on consumer demand, product preferences, price sensitivity and demand elasticity to make good policy choices, assuming the global economy doesn't fall off a cliff again. If NBN Co turns into a River of Gold, and who can prove it won't, an incumbent government can choose to sell it early, speed up the roll-out or enjoy the income.

Disaster planning is another topic entirely: it comes down to technical and financial hedges and risk mitigation. The Coalition has flexibility, Labor has only a single-choice. Guess who can better deal with "unforeseen economic circumstances"?


The Coalition can now:

• Modify its plan. Already the Coalition has flagged "we'll do whatever is cost-effective, reuse assets wherever we can", allowing it to modify its plan in the light of new data:
• If the cost of fibre is closer to $1400/premise after the Telstra payment, than $3,600, it means much less copper remediation is needed, lowering overall project price.
• This allows the Coalition to both roll-out more Fibre and lower, or maintain, its budget, because the cost-barrier for "fibre or not" is considerably lowered.

• Nobody should be expecting Government handouts or subsidies from either side in the current economic climate. The high A$ is challenging industries right across the economy, from Mining to Fruit Canning. Because its driven by "Quantitative Easing" by other countries, it's beyond our control and won't improve for quite some time.
• The Coalition can remove the biggest downside for consumers (and its weakest policy point), an unknown, variable cost to upgrade to Fibre with a guaranteed connection fee, cheaper if "done in bulk", and
• challenge the Labor position of "Connect to the NBN for Free".
• The Coalition can easily justify the NBN is not free and a co-payment is necessary. 
• At a stroke, they maintain their credentials as "fiscal realists" and introduce a new source of funding.
• How much an on what terms should NBN connections be is a policy matter for them.

• Nobody disagrees with Turnbull that DSL provides the cheapest broadband, but only in very limited circumstances. Fibre is cheaper than DSL in some cases, e.g. low-density, rural areas.
• Nobody disagrees that DSL is a good transition technology: it leverages existing assets when the downside isn't too large.
• Nobody disagrees that full-Fibre is currently the best choice for fixed services over 100Mbps.

• The upshot of this is that by carefully choosing where to deploy DSL & Fibre, highest density, lowest cost urban areas, an optimal transition, with maximum flexibility, can be planned. It won't come at a premium, but cheaper than either current scheme, neither of which is optimal:
• By running Copper and Fibre roll-outs together, work-forces with different skill-sets can be engaged, hopefully meaning a faster overall rollout.
• Spending an extra $3 billion on laying GPON capable Fibre loops past all premises initially, saves $5-$10 billion in copper re-configuration and remediation/rehabilitation costs.
• You'd think that just running the local loops would be cheaper & faster than doing the full premises external connection as well.
• Deploying the 2005 Telstra plan, ADSL2+ @ 1,500m, in selected areas, would be fast and an immediate benefit to those stuck below 4-5Mbps while reducing remediation costs.
• That same network can later be augmented more nodes at 800m and upgraded to VDSL2.
• That plan only works if rollouts aren't done piecemeal, but like a production line.
• There is ample time and need for an optimum roll-out study and plan. It needs to identify:
• The Inner- and mid-urban areas with good enough copper and high enough density to achieve absolute lowest-cost VDSL2 at 400m and 800m. Those services could reasonably be expected to rise to 100Mbps and stay in-service for 10+ years.
• The areas where ADSL2+ at 1500m will deliver good improvements for minimum cost. While cheap and quick, this would only be a stop-gap measure of 3-4 years.
• The highest cost areas for DSL with most to benefit from Fibre, can be identified and scheduled for early roll-out.

• By not having to rush to 100% full-fibre roll-out, the Coalition gets time to assess external factors, consumer demand and usage and avail itself of new developments, in DSL and Fibre.
• That has to be a win-win situation for them and a path not available to their opponents.

I've previously laid out that a large DSL roll-out, especially with hidden connection costs, like the NTD, and compensation due to compulsory acquisition of income-producting assets have a large number of issues to be resolved. Hopefully, many of those issues would be less contentious in a optimised planned-transition to full-Fibre.

NBN: Political Lies decoded

Political spin and half-truths normally only annoy me. About the NBN, it's much worse: Herald-Sun reporting on the NBN in Blacktown:

last week Mr Turnbull said most residents didn't need super fast broadband and the network could be upgraded down the track.

The only truth in the Marketplace is what people are prepared to pay for. 100Mbps and 1Gbps services wouldn't be on the menu if they was no demand for them.

Unsurprisingly, there's no mention of the real economic legacy of the Digital Have's and Have Not's the Coalition is preparing to enforce: Digital-Have-Not house prices will be $3-$5,000 less.


Here's what's being said:

• "super fast broadband", like 640Kb of RAM, is "all you'll ever need".
• Do they mean 1Mbps like Al Gore's "Information Superhighway"?
• What was "fast" in 1998 is laughable today, it's a vacuous and misleading phrase.
• If he means 25Mbps, he should be saying it.
• Now that NBN Co has announced the availability of 1,000/400Mbps services, doesn't that rate now define "super fast", relegating100Mbps to "fast" and 25Mbps to somewhat less than "fast", say "barely adequate"?

• "most residents don't need" has two problems:
• There are very few folk who need more than 56kbps dial-up, seriously.
• Everyone who values their time at more than $0 will pay for higher speeds.
• The basic theorem of Economics is that Individuals uniquely assign a Utility value to goods and services, expressed as their willingness to pay:
• What we need is not nearly the same as what we want.
• What we desire is different to what we're prepared to pay for what we want.
• In the Market, the most critical factor is willingness to pay:
• How else do you explain the "cost" of women's shoes and cosmetics?
• Women complain about high prices, but keep buying...
• From the 50% higher take-up of NBN than predicted and the associated 50% higher Data downloads, we now know that many, not all, people place a high-value on reasonable download speeds.
• The second problem is "most residents":
• Those people willing to pay for higher speeds aren't neatly grouped by street or postcode, they are spread through the community, albeit, often correlated with ability to pay, or disposable income.
• It isn't possible to run a fast network just to the people who want it and will pay.
• To reach the Early Adopter and Early Majority markets clamouring for higher download speeds, the network has to pass every premise.
• But you'd be surprised, demand is unpredictable:
•  a group-house of low-income guys in the Far West may well spring for a 100Mbps/1,000GB plan while the "rich" neighbours of Turnbull almost all would just keep using their 4G smartphones and tablets...
• It's just as important to fully network Greenway as Double Bay and Vaucluse.

• "the network can be upgraded" is at best fatuous, at worst hypocritical and deceptive.
• This is pure B/S, the same misleading statement as "You can always trade-in your 25yo Gemini on a Rolls Royce".
• It's syntactically and semantically true, but never happens in real-life.
• The Coalition paywall of $3-$5,000 per-premise upgrade to full Fibre is an effective barrier to entry for most households.
• The Coalition will say in 10 years "Look we were right, there was no demand for Fibre to the Premise, because nobody buys the upgrade". Then babble on about what great fiscally-responsible economic managers they are...
• All the while, the statistics will show that the 2.8M "lucky-few" on FTTP are using more and more services over their real "super fast broadband".

• Can we demonstrate the Coalition knows it is telling "less than the the whole truth" or being misleading and deceitful?
• Not so much without recordings... That's the game of Politics.

NBN: Coalition might be able to have cake and eat it too.

The Coalition aims of "sooner, cheaper and more affordable" are laudable, suggesting they've attempted to think about the business & consumer needs and technical issues underlying.

But their proposal is both ill-described and doesn't give real choice to consumers:

The decision "what connection do I want?" gets made for you in the Coalition NBN, and "What can I pay?" gets made for you in the Labor NBN.

Neither side's "one size fits all" solution will only work for "some of the people, some of the time".

The fundamental objection I have to both plans is, It's new services for nothing.


If consumers aren't just freeloading on Government largesse, their willingness to trade "utility" for hard-cash needs to be tested. i.e. Faster broadband can't come for free, subscribers need to pay, either up-front or a repayment-over-time: HECS for broadband.

Many of the technical weaknesses in the Coalition plan can be solved by adopting a two step plan:

• Intend to always roll-out full GPON Fibre, just not all at once:
• Provide two standard prices for premises to connect to Fibre:
• $750 as part of a mass-rollout or
• $1500 as a one-off install.
• The contracts for the 200,000 km of fibre will have been let.
• The detailed routing plans for the fibre is done. It's a waste not to utilise all that planning effort. Assembling an equivalent team and verifying/correcting the data in 10-20 years will be more work than already done.

• Deploy FTTN nodes now where they are cheapest by a large margin, so will pay for themselves in 15 years.
• The nodes already need 80,000 km of Fibre, but of a much lesser capacity.
• Instead of buying an additional 80,000 lower-spec Fibre, deploy the high-spec already contracted for.
• Cost is $4 billion vs $1 billion. Savings are greater.
• Subscribers need an NTD for either DSL or GPON Fibre.
• If NTD's are designed to be upgradeable, either in-field or not, the change-over costs and disruption from DSL to GPON Fibre will be minimal.

NBN Co have now publicly stated their budgeted cost for Fibre Install per-premises is around $1,000 + a larger amount to Telstra.  Only if DSL lines can be installed significantly cheaper, in high-density areas with good network assets, should they get used. The benefit of these areas is cable runs will be shorter and attainable rates higher. Plus the deployment should be faster.

But that still leaves problems with Telstra disconnection payments, maintenance and ownership.

Plus all those ULL and LLS operators are going to be out of pocket.

If the intention is always to fully decommission the copper, maybe Telstra would accept a minimally altered agreement.

The major change would be to charge everyone connected to the NBN a fee, either up-front or spread over 24 months in their NBN bill. The incentive to use DSL must be a lower connection fee ($250?), the cost rebated off a later upgrade to Fibre.

It's not nearly a perfect plan, but it starts to address the problem areas and Black Holes in the Coalition NBN plan, and breaks the expectation of consumers that they can get a free ride for a considerable capacity upgrade.

NBN: Black Holes in Coalition FTTN Plan

Previously I've written that the Coalition Financials don't add up for their majority FTTN NBN Plan: they've deliberately omitted material figures.

One of the major differences between Fibre and Copper on the "last-mile" is ownership and reasonable reimbursement for a compulsorily acquired asset:

• For copper lines, 100% are acquired and each must be paid for, in service or not.
• For Fibre, compensation is only required for loss of earning capacity: only services in-use must be compensated by NBN Co.

Those are just the tip of the iceberg... Below is my current list, totalling around $22 billion extra in CapEx.

• Financial projections supplied have material amounts omitted:
• Interest, Depreciation, Change in Working Capital.

• Modelled period is "short", only to 2019.
• Every other model is to 2021 or 2024.
• Model projections are cited for 2021, so we're told the model was run, just withheld.

• Model omits critical expense and revenue inputs: passed and connected subscribers.
• Following the assumptions included in prose, I was unable to recreate the figures within a reasonable margin.
• Those numbers are in the NBN Co Corporate Plan and were necessary to create the Revenue figures.

• Large CapEx items, now clearly identified by NBN Co, seem assumed away:
• CapEx for Wireless & Satellite is around $3.1 billion, we can presume are included,
• but there is another $6 billion of CapEx for necessary facilities that may be missing.
• This was always apparent as the difference between the FTTP CapEx ($28.5B) and full CapEx ($37.4B) in the 2012 NBN Co Plan.

• Major cost inputs, with high uncertainty, seem to be missing from the calculations:

• The only FTTN cost that can be infered is the $900/line guesstimate for 8.9M lines.
• $8.1 billion seems to be the full FTTN cost assumed by the Coalition.
• That appears to be around half the Coalitons' own estimates to purchase the Telstra line asset.

• Telstra line costs, either as CapEx or OpEx aren't mentioned:
• Purchase over 3 years at current PSAA rates (MT: $1500, SJ: $1200) for 8.9M copper lines: $13.35 billion or $10.68 billion.
• We know the lowest price to be $11.3 billion from the recent NBN Co figures on FTTP Access.
• Lease 8.9M lines over 25 years at current ULL rates of $16/mth/line ($192/yr/line) or $1.7 billion per year.
• Telstra would likely contest this with the ACCC and ask for increases based on increased maintenance required for higher-spec lines, plus remediation and reconfiguration costs.
• Telstra could ask for $27/mth/line, the same wholesale price charged by NBN Co and agreed to by the ACCC,
• or $2.9 billion OpEx from 2017.

• Copper network costs are not apparent:
• Reconfiguration for DSL,  not Phones: Telstra has commented that 40% fewer nodes are needed, but only if the network is reconfigured, requiring major labour input and new copper to be run.
• It's not free, but is cheaper at 1500m than extra nodes.
• At $120/line for 8.9M lines: $1 billion.

• Rehabilitation/remediation of last-mile copper for DSL: Telstra's copper "last-mile" is reportedly very degraded and needs extensive repair/replacement to bring up to DSL-spec.
• In 2005, Trujillo seems to suggest $4.7 billion could be paid by the government to rehabilitate the network for 12 Mbps, not 25Mbps.
• $2.6 billion was quoted for 6Mbps as part of $5.7 billion for only "Big 5 cities".
• Later than year, Telstra presented a VDSL solution for ~90% national coverage for $11 billion, with Trujillo citing $15 billion for 98% coverage a year later.
• Telstra has halved its lines workforce since 2005, we can't presume the network has improved.
• The minimum copper-only rehabilitation is $10-$15 billion, based on the 2005 figures.
• This might be as low as $5 billion with 28% Fibre & 62% copper.
• Telstra in 2005 highlighted remediation as a major cost, comprised of:
• Removing 7,500 Pair Gain systems (RIM's and CMUX's), now more
• Bridge taps and loading coils
• replacing copper.

• Customer Premises Equipment, NTD's (Network Termination Devices) are not mentioned, presumably a cost to now be borne by the subscriber.
• The NTD now marks the edge of the Telco network, it must be installed by them.
• The current NTD's provide 2 Phone sockets and 4 "UNI" sockets for broadband and other digital services, such as video.
• The NBN is VLAN based, not PPPoE like current ADSL services.
• Current ADSL modems may work for a short transition period,
• all subscribers will need to be upgraded to NBN compliant NTD's.
• My estimate is $450/premise ($200 + $250 labour). For 6.3M FTTN services connected,
• $2.8 billion extra is transferred to subscribers or is missing.

• Compulsorily acquired assets appear now not to be compensated.
• Network Operators currently relying on ULL and LLS access will have their investments orphaned when the copper is cut to install nodes. These include:
• DSLAM's not fully depreciated.
• Phone services over non-Telstra networks
• Telstra RIMs and CMUX's.
• The biggest compensation due may be to Optus and Telstra for phone services and RIM's.
• There will be 10-20,000 devices involved.
• Compensation might be $1-$3 billion.

• Full Node Costs, both number and Cost-per-node are unstated in the plan. Nor is the critical determining factor, the distance rule stated: Is it 400m, 800m or somewhere in-between?
• "60,000" nodes have been spoken about,
• maybe at $30,000/node + $75/line-card + my guess $3,000 for 10Gbps GBIC's (4/node: dual uplinks and 2-per-end). 
• $1800M + $650M + $180M
• ~= $2.5 billion
• There's also 81,000 km of fibre to be laid and jointed at $25,000/km
• $2 billion
• And a share of the $1.7 billion transit network and PoI's
• Plus extra for Exchange switches and other equipment.
• 1,000 exchanges with $250,000 of switches and ancillary equip.
• $250M, minimum
• Scaling up from 1500m to 800m and onto 400m is not simple:
• whilst the area per cell is notionally "radius squared", four times as many cells are needed when reducing the distance by half, in practice other effects come into play:
• For 1500m to 800m, I'll assume a 3.5 ratio allowing unserviced areas.
• For 800m to 400m, I'll assume 2.1 ratio to allow for majority "same run".
• The best data we have are the 2006 Analysis Mason estimates  of 38,457 nodes (20723 for "Big 5 cities" + 17734 for a full FTTN)
• This was for 12Mbps ADSL2+ at 1500m with 33% services direct from exchanges, costing only 40% of lines off Nodes.
• Without a 40% improvement from network reconfiguration
• Nor with the 28% FTTP coverage in the Coalition Plan
• or 62% of FTTN coverage via Nodes.
• Fewer services can be directly connected to cheap exchange lines as distance reduces by geometric area:
• 1500M: 33.3% = 66.66% node-equivalents in the field
• 800m: 8.3% = 91.7% in field
• 400m: 2% = 98% in field
• Using the 2006 Analysis figures, 57,685 node-equivalents were needed.
• For 800m:
• 57,685 * 3.5  (scale factor) * 0.6 (reconfig) * .917 (field) * 0.62 (fibre)
• = 68,872 nodes or $2.9 billion with previous cost estimates
• For 400m:
• 57,685 * (3.5 * 2.1) * * 0.6 (reconfig) * .98 (field) * 0.62 (fibre)
• = 154, 567 nodes or $5.7 billion with previous cost estimates
• Tesltra commented on the FANOC proposal, cutting the copper and adding new nodes would cost $1 billion extra at least, plus massive disruptions. That was for only "the Big 5 cities", add 50% national.
• The Coalition does promise that in the second upgrade, to 50Mbps in 2017-2019:
• only 90% of FTTN premises will be guaranteed 50Mbps.
• Is that an 800m rule with vectoring, a software upgrade, or
• through a 400-50m rule?
• Transmission lines reduce 'exponentially' with distance.
• If 25Mbps is available at 400m, only 20Mbps at best is available at 500m and 6Mbps at 800m. Distance losses are much higher with VDSL than ADSL2 and 1, so attainable rates will be lower.
• A $3.5 billion difference in 800 vs 400m.

• Existing Phone services are not mentioned:
• The two 2005 Telstra plans seemed to assume ATA's within the nodes, allowing non-DSL subscriber service to continue unaffected.
• Current NBN NTD's place those ATA's within them, either requiring transitional node equipment or special through-cabling, or the disconnection of phone-only services.
• There are no arrangements or costings mentioned for ownership, control and operation of the new Phone network, based around VoIP and Soft Switches.
• If they are assumed to be already provided by NBN Co, they are a major cost item
• and commercial arrangements for existing network operators like Optus need to be clarified.

NBN: Fibre Cost and Disconnection fee, no surprises

There is no way the Coalition should've been "surprised" at the figures released by NBN Co last Friday to the regular six-monthly Parliamentary Committee. That data is embedded, though not explicit, in the 2012 NBN Co Corporate Plan. Available easily to anyone willing to do a quick calculation or two.

The Coalition knew, or should've known, these figures a long time ago. If they didn't, they are incompetent and/or negligent and not suitable to run assume control of Telco Policy. If they did know, then they are deliberately misleading and disingenuous, again not suitable to be put in charge of Telco Policy.

Why did they choose to NOT use the correct per-premise Fibre costs? 

From the NBN Co 2012 Corporate Plan, I derived the per-premise Fibre fees and glad my results were within 10% of actual:

• $2,195 per premise
• With a "common cost" of $1700M for 121 PoI's, transit networks, FAN's...
• This same network, and cost, will be used by a FTTN.
• $1,200 per premise Telstra disconnection fee (from 2010 Plan, used by Telstra in 2011)
• $10 billion total vs $11.3 billion "FTTP Access Fees" released by NBN Co
• The effective rate per passed premise, with only 70% premises connected, 
• is $845.

The upshot of this, the per-premise construction costs of Fibre from the 2012 Corporate Plan are:

• $2195 - $845
• = $1,350

The variable costs, labour, machinery and consumables, are, I'm told, typically 50% on Network Engineering like this, or:

• $1,350 ÷ 2
• = $675
• or $48/m for an average 14m/premise. Well above the $20-30/m for Fibre Backhaul construction.

This variable cost has to increase 300%, to $2,080, to reach the "reasonable" figure of $3,600 proposed by Turnbull et al. Because NBN Co hires sub-contractors to actually install the fibre, presumably on tight, outcome based, contracts, I can't see how such a huge variation is possible.

If Turnbull et al knew that construction was multi-phased and that the early notional "cost-per-premise" passed was wildly unrepresentative of the real costs, why did they make such a big deal of them?

Was it ignorance or mere political opportunism and grandstanding? Either way, it's a very unimpressive behaviour. There are real questions about schedule and construction milestones that have gone unasked. For me, that's the real failure of Turnbull as Shadow Minister.

Getting Fibre construction costs so wrong is something, I feel, Turnbull needs to explain:

Why with all their expert knowledge and "fact checking with experts" did they get their numbers so wrong? 

NBN: Coalition's Voo Doo Economics

How to Value the NBN and its Benefits?
The Coalition is very gung-ho on the need for "Cost Benefit Analyses" but has never said just what it will count as a Benefit... It appears they are very happy to transfer costs onto the public and ignore real gains in the economy outside their focus.

Previously I've suggested the 70% increase in the value of Telstra, already around $25 billion, already justifies the Common-wealth investment. There are many other businesses who's value the NBN will increase: just the task the Productivity Commission is there to do.

There is also a hidden economic cost is the loss of value to affected assets.

We aren't just getting a two-tier Digital Access Network, the Digital Have's and Have Not's, we are getting at least 6M residences that will be worth less.

The amount is at least $3,000, the lowest amount of an upgrade to Real Fibre that Turnbull has admitted to. At $18 billion, spread over the 2nd-class Digital Citizens, it wipes out the most optimistic savings of the Coalition NBN Plan. They transfer losses to people who can't avoid them, an inconsiderat, cynical political act.

There is also the ghettoisation effect: when there is a sharp delineation between areas of special benefit, be it a selective school, low-risk insurance, a specific good/bad council or "Got Fibre?", then literally one side of the street will be worth considerably more than the other.

This small initial difference gets amplified over time due to the limited nature of the resource and perceived extra "utility". Secondary effects come into play where one side of the street attracts a substantial premium and the other induces a large discount, bringing less investment and less wealthy residents and tenants who invest less in the "wrong side of the tracks".

Whilst both sides of the street may increase in value, they are two very different markets. Long-term data tells us there's an iron-law: more expensive real-estate areas increase in value faster. Over time, "the rich get richer" and their houses increase in value a lot more.

You only have to look at the suburb of Redfern to see how that plays out over decades.

In 1972 I drove to Uni most days via the Redfern short-cut, through what was to become "The Block". Within a decade it was a No Go area for most people, another decade later it was the subject of a major riot.

All properties, shops and businesses within 1-2 km of The Block lost considerable value over time.
It's an effect that feeds on itself: people find the area difficult, won't invest in upgrading their properties and sell at a discount to those who can't afford to go elsewhere. This locks into a death-spiral...

So, there's another piece of the puzzle which is the Coalition NBN Policy: they really don't care about the economic damage they inflict on communities, as long as they get elected now.