NBN: Turnbull claim "$20,000" for guaranteed 1Gbps. rating: 1/30

A friend asked for my rating on Turnbull's latest fantastical & exaggerated statement.

Credibility rating:

• technical: 0/10 [confusing point-to-point with public switched]
• business: 0/10 [confusing wholesale and retail]
• financial: 1/10 [at least he used the right CVC charge & multiplied correctly]

Question:

From Albanese/Turnbull on Lateline:

MALCOLM TURNBULL: No - well let me put this to you: let's say - Anthony said that fibre to the premises can deliver one gigabit per second, 1,000 megs, and you're quite right, it can. Do you know what it would cost to have a guaranteed one gig' service? At least $20,000 a month.

http://www.abc.net.au/news/2013-08-13/your-say-nbn-debate/4883522

Big Dave@BigDaveTsv
PS. 'Albo' didn't deny the 20K cost of 1 GB connection or rising costs in #NBN business plan @ledbyexample! @abcnews #NBNdebate

Answer:

Turnbull has taken the word "guaranteed" and given it a new meaning:

If you wanted 100% utilisation of an access line, the same as for a Point-to-Point link. These are called "dedicated" links, not "guaranteed".

Turnbull is wrong on so many levels.

Firstly, he's quoted a wholesale price not a retail price.
Does he appreciate the difference? It's a fundamental of running any business, don't confuse Inputs with Outputs.

It's exactly the same confusion he has with the $110 ARPU, he's implying a Retailer Input cost is somehow related to the bills that most customers will receive. That's like saying that total crude oil imports have increased, therefore motorists must be paying more. No, crude oil has many uses besides transport (chemicals, lubricants, ...) Cars are actually a small fraction of transport use: trucks, rail, shipping and aircraft combined are, I assume, much larger consumers of crude oil

A higher wholesaler ARPU is a Really Good Thing for Retailers, because they've tripled their turnover and increased Profits much more than that! Ask any hamburger or coffee franchisee.

It's also much, much better deal for customers. In that $110 forecast, customer access rates have dropped from 60%-89% and Volume charges have gone down 4 or more times. The high-end consumers are paying massively less per GB than now and the low-end consumers are paying less in real terms for their whole service. Everybody has gotten a good deal and is happy with the savings.

Retailers have considerably more extra costs over and above NBN's CVC charges: NNI, backhaul, peering, Tier-1 interconnect, internal networking, billing and customer care, advertising, sales and marketing costs.
With margin, iiNet charge 60c/GB as marginal rate for "Data packs", versus the 6.08c/GB that's the NBN Co CVC charge of $20/mth for 1Mbps.

Ie. at a minimum, the retail charge would be $200,000/mth for a dedicated line with 100% utilisation for a retail customer, not the input price to an ISP/RSP.

Then there's "every link has two ends".
Anyone wanting a "guaranteed" permanent, private connection would want TWO services.
That's $400,000/mth not $20,000.

If you compare that to the $8,500/mth list price from Telstra for a 10Mbps business service (2 ends = $17,000 + distance between charge) ~= $20,000/mth. or $2,000,000/mth for 1Gbps. [I assume Telstra do offer higher speed services for lower rates. Others will correct me and I can update.]

BUT, anyone who wanted a 1Gbps point-to-point dedicated service and had $400,000/mth on hand to pay for it, would go to tender for dark-fibre, or lay their own at $10-20,000/km.
If your two sites are within 20km, you pay for it in a month, if within 200km, a year.

That's a pretty fair return on your money. [Exactly what the Federal Government Agencies have been doing for around 15 years in Canberra with ICON.]

If you're spanning the country, there are specialist firms that deal in high-capacity and dark-fibre. It is conceivable that for someone, somewhere $400,000/mth to a Retailer might be cheaper than buying the link themselves.

But that's unlikely, the Retailer has access to the same market, but has to make a margin on top. If, say, the connection is in Tasmania, notoriously expensive, and a customer floods the Retailers link because they subsidise that service, then the customer will be disconnected for breaching "Fair Use" contract terms.

But NBN Co KNOW this and they're NOT selling that type of service: dedicated leased lines.

They're selling managed services, which mean low-utilisation, AND public switched connections, not point-to-point.

No doubt at some time NBN Co will respond to market demand and start selling both Point-to-Point managed services and dark-fibre.

I can guarantee the wholesale price from NBN Co will be below $20,000/mth for both ends on a managed service, especially off the same PoI or FSAM, and dark-fibre will also be 'competitive', if they go there.

Rating:

• technical: 0/10 [confusing point-to-point with public switched]
• business: 0/10 [confusing wholesale and retail]
• financial: 1/10 [at least he used the right CVC charge & multiplied correctly]