Thursday, 23 May 2013

NBN: Coalition Extraordinary Claims require Extraordinary Evidence

In writing another piece, I realised that the Coalition in their NBN policy are actually making an extraordinary claim, requiring extraordinary proof, in backing an FTTN for the majority broadband network:
25-50Mbps is more than anyone will ever want.

Unpacking that statement there are two key concepts:
  • Not anyone will want more than FTTN offers.
    • The NBN Co activations, "the only poll that matters in business, customers hard cash", conclusively disprove this notion with 40% of people signing up for 100Mbps, forcing NBN Co to bring forward plans to offer 1000Mbps (1Gbps) services.
    • Already we have a significant fraction of the consumer market, let alone Small & Medium Business, that are very willing to pay for more bandwidth than an FTTN can ever deliver.
  • Nobody will ever want more than FTTN offers.
    • The same dataset also shows that when artificial limits are removed, Australian internet users consume 50% more download on the NBN, 47Gb/mth vs 30GB/mth (ABS).
    • This suggests that a compound annual growth rate, CAGR, of download volume for the NBN will be well above the 30%/year incorporated in the 2012 NBN Co plan, probably 50%, even 60%.
    • Is this trend continues, then by 2021, the NBN will be a River of Gold, testing the limits of an FTTN while the FTTP network runs flawlessly.
Mr Turnbull will surely go down in history as "Mr Broadband" if he gets elected and implements this craziness, for the same reason that, while as Treasurer, Howard was ironically labelled "Honest John".

Howards' ability to bend the truth and be selectively keeping promises is enshrined in his "non-core promise" doctrine.

The Turnbull FTTN fails every rational analysis: technical, commercial, competitive, national economy and business enabling and demand growth. Even their claim of "lower CapEx" is questionable, based on the project risks and lack of comprehensive FTTN implementation plans, despite Australia being the most intensively studied nation for this.

The vehement insistence by the Coalition on FTTN as a fully capable fixed-line broadband service makes sense in a "4G wireless vs copper FTTN" contest. Commodity wholesale mobile service provision is not part of the NBN plan, Telstra and Optus are allowed to operate and compete are vertically integrated suppliers/retailers in the mobile/wireless world.

Perhaps the Coalition will get to implement their OPEL vision of privately owned wireless broadband for everyone when an FTTN fails in the marketplace against 4G & LTE services.

There is a cascade conversion effect when one of two competing services becomes slightly less profitable than the other: the more profitable service can drop its pricing and steal more customers, making the other provider still less profitable. For the more profitable provider, it's a virtuous circle, for the other, it's a "death spiral", a trap it cannot escape from. The failing provider will abandon the market long before its run out of customers as its cost overwhelm its revenue.

My estimate from the high cost-base, and inability to offer roaming, of the FTTN compared to mobile, that if market penetration of the copper FTTN falls below 65-70%, it will become unprofitable and be promptly shutdown. Telstra will know these breakpoints and will have calculated them: it can choose to keep an FTTN alive for as long, or as shortly, as it wants.

Shares in WiFi equipment manufacturers, anyone?
At 300Mbps, going to 1Gbps, WiFi "hotspots" from Mobile Network Operators are a necessary & highly profitable adjunct to their service, even if offered for free.

So, I'd like to see some extraordinary evidence from the Coalition that both their dubious FTTN network can be profitable against an aggressive 4G/LTE/WiFi operator such as Telstra and that there is any basis for their outrageous claim "Nobody will ever want more than an FTTN can deliver", especially as there is now real data on consumer preferences from NBN subscribers.

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