Thursday, 15 August 2013

Business Economics of Fibre vs Copper: a slam-dunk win for Fibre

A good post in an Advertising, Marketing and PR industry publication: NBN: ‘Do it to the home, do it once, and do it right’

My comment:

Fibre offers a revolution in the business economics of Broadband.
Finally ISP's can offer multiple consumer "models" with different features, such as speed, but also more, for different prices.

Just like cars and most other consumer goods, people can choose to trade features and price. In Economics, its reducing the "Consumer Surplus", increasing producer profits.

The beauty of Fibre is the SAME physical service can be resold at many prices: $24 entry level to $150 for 'premium' service.

THIS is the primary difference between Fibre and Copper. Fibre makes a lot more profit, while offering consumers features they value. "Speed" allows consumes to put a value on their time. Those with the need and means can elect to pay a premium, other can choose the entry-level service.

Copper's "one price fits all" and "any speed you like, so long as it's slow" kills the economics. If FTTN stars at $16/mth wholesale for everybody, that's under half what NBN Co is already getting: $38/mth ARPU.

This single innovation is why the FTTP NBN can expect sustained 9% real-growth while the FTTN NBN will be lucky to hit 3.5% and be cashflow positive, let alone make a profit.

The distribution of demand is also highly skewed: it's exponential.
The top 1% consume 10% of download data, the low 50% just 6.4% (six point 4).
NBN Co profits are generated by the top 25% high-demand users, the rest get the service at cost, or less. Everyone is happy.

This WHOLE business model is thrown out by the Coalition.

For a 10% saving in CapEx and around four-times more in OpEx, they sacrifice most of their revenue stream and destroy one of the prime NBN value propositions:
20%-25% discounts on access rates in 2021 and 51%-89% rates by 2040.
Nobody seems to have noticed we've only been shown by the Coalition the first 5 years of a 30-year business plan, that includes throwing away the FTTN and upgrading to full FTTP. The Coalition itself estimates that the "throw away" will waste $4 billion. Wasn't that what they saved in CapEx.

If the FTTN business doesn't turn a profit, then how will it ever pay for the $4 billion wasted, let alone provide a positive Net Present Value over going directly to FTTP?

Would any serious investor stump up $30 billion on the basis of a 36-page document that doesn't mention Marketing, Segments, growth or even pricing?

So why are the Coalition pitching the taxpayer for $30 billion without a complete Business Plan?

If the Coalition were concerned about the high price of Fibre, they could've levied a charge of $250 per service, either up-front over spread over 2 years.

That would give the same CapEx, but allow all the financial benefits and OpEx savings to be realised.

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