NBN: Understanding the NBN: it's simple business.

Summary:
The Coalition's Copper/Node Plan is complete dud, able only to send NBN Co bankrupt and will never pay-back the Government Equity, let alone make a Return on Investment. This would've been apparent to any informed investor had the Coalition made public their complete Business Plan.

NBN Co, the owners and builders of the NBN, are a wholly-owned Government Business slated to be sold one day. It is NOT a Government Programme and is NOT included in the Federal Budget, apart from low interest payments because it is funded off balance-sheet solely because it's an investment.

Investments make money, that's their only definition. There are exactly three things you need to know upfront about any potential investment:

• ROI, Return on Investment, as an equivalent yearly rate over the life of the investment.
• Most people also like to know the schedule of repayments.

• Pay-back period: exactly when will your original capital be returned to you in full.

• Downside Risk: If everything "turns to mush" (goes as wrong as it can), what is the full extent of your liability. This was the 'gotcha' in the partly-paid shares of BrisConnections so ably exploited by a young investor taking on $96 million in commitments and then selling his $47,000 of shares for $4.5 million to the developer. He won, the other small investors lost their shirts.

You'll note that all of these are very clearly laid out in the public NBN Co documents, and Turnbull has released nothing about them for his Copper/Node Plan. We know from multiple statements within all three of the Coalition NBN Policy documents that Turnbull has prepared a full set of financial forecasts as part of a Business Plan, yet has deliberately failed to release it, or the key figures (ROI, pay-back, Downside).


Understanding the NBN is simple:

Nobody has to understand the blizzard of technical details, claims and counterclaims, they're only of interest to the people running the business, not investors, not customers.It's a just business and everyone can grasp "Does it make a profit or will we, the taxpayer, have to bail it out, like the GFC?"

Turnbull is a Master Illusionist, his stock in trade is hiding the obvious and making people believe the opposite of what they see. This is why the majority of the 36 pages of confusing content in his "Policy Background" are doing in what should be a simple, clear, transparent and complete set of financial forecasts with all material information revealed and all assumptions clearly laid out.

Instead, Turnbull gave us 34 pages of carping and criticism of the current NBN Co Corporate Plan, and two very sparse pages on the Business side of his plan. All Turnbull gives us about the Financials is just the first 5 years of a 30 year Business Plan. Truly bizarre, especially from a seasoned investor and a party that styles itself as "great Economic Managers". This disconnect between what they say and do is extreme.

Turnbull's attack, with bogus assumptions, on the current NBN Co numbers rolls out out to 2025, yet his own figures halt very early at 2019. What is he NOT telling us? Why are the three key investment indicators deliberately withheld?

All you need to know about the NBN

As an investor: Will it pay for itself and make a profit? Can I get blind-sided with a big loss?

As a business manager: Where does the profit come from? What are our revenue growth drivers?

As a customer: Will I have my choice of 'models' to suit my needs and budget as they change? Will they be able to affordably meet my possible future needs?

The Investor question: Not Cost, but Profit.

As every investor and share owner will tell you, "cheap is seldom good, good is never cheap". This is why of the three critical investment indicators (ROI, pay-back, Downside), Profit (Revenue - Expenses) and the four major Accounting categories: Assets/Capital, Liabilities/Debt, Revenue and Expenses, Turnbull has only focussed on a small part of Assets: Capital Expenditure (CapEx) and Total Funding.

CapEx is an irrelevant distraction and Turnbull knows that. It's his sole point of apparent advantage, on every other measure his Copper/Node Plan can only be an unprecedented Financial Disaster.

As a Master Illusionist Turnbull must be very pleased that not only has he hoodwinked the entire Mainstream Media, but all the business journalists, including our finest like Alan Kohler and now the PBO too.

The Customer question: What do I get for my money? Can I choose, based on need and means?

As investors and consumers, you don't need to know about "speed". This is why Turnbull focuses the argument there. Any technical discussion of "speed" is multi-layered and quickly gets very detailed, complex and intricate. The details haven't mattered to customers since 1996, so why do they matter now?

"Speed" is solely measured in your time spent waiting for something to happen. It's not complex, it's not about Megabits or throughput or latency or congestion or contention ratios. It's your subjective experience of time passing when waiting for something on the Internet. For businesses, including the self-employed, there are very simple and direct means to value their Time. "Time is Money" and good business owners do put a dollar value on their time. They'll choose expensive plans if they pay for themselves.

As consumers, you want to know a few things about product offerings so you can spend your dollar wisely:

• What are the range of plans offered? How much? What's included and what upgrade options do I have at what prices? and
• What future products will you be offering me? What will they cost?

If you have the need and means, you might buy the most expensive service, otherwise, you can express your preference by deciding for yourself what feature/price tradeoff you'll take.

If a service provider cannot, or will not, offer you a guaranteed service, then you need to be asking "what are they hiding" or "what bad things aren't they telling me about?"

This, "guaranteed access rates with tiered pricing options", versus "one price fits all, take what you get" is the essential difference between Fibre and Copper/Node Plans:

• For the 30% of people who want to pay 50% more (later, 500% more) for a fast service, why shouldn't they be allowed to pay a premium and subside the rest of us?
• The Fibre wholesale prices will fall between 19%-26% by 2021 and 51%-82% by 2040.
• Copper/Node wholesale prices, not yet disclosed, will fall by 10% by 2024 and 30% by 2040. A very pale comparison.

There's a simple question you can ask as a consumer:

If a car manufacturer wanted to offer you the same deal, would you take it or look elsewhere?"We have 7 models from 2-seat runabout to 7-seat people-mover, SUV and V8 utes. All are the same price, we just randomly give them to people." The only guaranteed outcomes are: most people pay a lot more than they need and almost nobody gets what they want or need.

The Copper/Node Plan is the Jackboot Business Model: "You can have any speed you like, as long as it's the one we choose for you in the Bandwidth Lottery." I think that's a really, really bad deal and believe most people will as well.

Confusion about "Average Customers"

The most outrageous of Turnbull's illusions is deliberately confusing terms:

• There is NO "average user" and Turnbull should know it.
• The top 1% of users consume 10% of downloads and the low 50% consume just 6.4% (six point four) of download data.
• The top 25% "high demand" users generate all the NBN Co profit, the rest of us get the services at cost or less. The top-end subsidise the rest of us handsomely.
• In the "one price fits all, take what you get" Jackboot Business Model of Copper/Node, the 25% of people who will pay more, cannot.
• Entry level subscribers get to pay a lot more.
• The super-profitable top 25% can't be supplied with services to match their needs.
• Nobody is happy with their service: it's expensive or too slow.

• NBN Co's ARPU is the wholesale price charged to Retailers for the product they sell, NOT the bill charged to the 'average' user.
• Turnbull often confuses the wholesale prices charged by NBN Co with what Retailers charge.
• A tripling of ARPU by 2040 means two things:
• The 75% getting a free-ride aren't paying more!
• The Retailers won't just triple profits, but increase them 5-10 times because of economies of scale, premium pricing and service 'upgrades'.
• It's a Business Bonanza, not high-costs to users.
• The "secret sauce" of NBN Co's business plan is the heavy discounting they will deliver, passing on technology and economy of scale savings to customers:
• Entry level prices go from $24/mth wholesale to $11.75 and entry-level speed goes up to 100Mbos.
• Current premium prices for 100Mbps reduce from $38/mth wholesale to $11.75 (69%)
• while Top end service, 1Gbps, reduce from $150/mth to $27, (82%).
• On top of this, the cost for everyone, of download data is set to reduce by between 2 and 4 times.

What you don't know will hurt you!

Perhaps the most insidious Illusionist work by Turnbull is NOT telling, as investors and customers, about many hidden costs and not comparing Like with Like (or Apples and Apples).

The list is far too long for here, the most important points are below. Apologies for the length, this is the work of the Master Illusionist weaving his magic:

• I'm not going to do more than mention the many technical "slam-dunk" advantages of Fibre over a Copper/Node network. When, not if, you need these features, there is no substitute:
• Very low errors rates.
• Immunity to lightning and electrical noise/disturbance. You won't blow up VDSL2 modem and connected TV & PC in a storm.
• Guaranteed access rates.
• Guaranteed high upload rates, for backups and sharing videos and pictures.
• Already in production are 100Gbps fibre transceivers, guaranteeing cheap, commodity upgrades of 100-fold, for the very few that want or need that and will pay. This will allow NBN Co to keep charging a premium to the few high-demand users and using that to subsidise the rest of us.
• Multiple service Quality and Reliability options, like dual-paths, for home businesses and content producers.
• Fibre costs 5-10 times less to maintain than Copper.
• This significantly increases Profit by lowering Expenses.
• The Coalition's own figures suggest that in just 5 years, the $90/yr they estimate Copper will cost to maintain, makes Fibre cost less.

• The Copper/Node Plan is temporary, it is designed to be thrown away and that cost, under normal project accounting guidelines, must be counted in.
• The Coalition claims their Copper/Nodes will cost $8 billion to build (9M lines at $900 ea)
• BUT, half of that will be wasted:
• The Coalition, by their own figures, is deliberately wasting $4 billion, but does not include that in its plan.

• The Coalition claims a $17 billion saving by building 9M Copper/Node services:
• The whole Fibre sub-project is $28.5 billion, of which 25% will be kept,
•  or $28.5-$7.5 = $20 billion in Fibre construction abandoned.
• How can they save $17 billion out of a $20 billion project, when they need to spend $8 billion? At the very best, they can only save $12 billion up-front, but also have to add back the $4 billion in planned wastage.
• The maximum savings from Copper/Node are $8 billion, not $17 billion.
• Either they are deliberately concocting figures or can't add up.

• Of the $28.5 billion Fibre sub-project, around $11 billion is in payments to Telstra, not for any copper, but for the holes in the ground, the "lead-ins" and other access.
• The Copper/Node plan has to cater for an additional $8.25 billion in Telstra payments.
• These contracted amounts don't appear anywhere in the Coalition documents.
• These payments to Telstra won't change and cannot be avoided, they are cast-iron contracts.
• As well, they expect to get 215,000 kilometres of Copper (compared to 208,000 km of Fibre in the total NBN) from Telstra for free, without a shareholder vote.
• The Coalition has not included any payments to Telstra, and expects a massive free gift of all the Copper they want.

• The real maximum savings of the Copper/Node construction are at most $450/line, or $4 billion.
• NBN Co have two firm costs for the mass rollout of Fibre:
• $1100-$1400 for Fibre past the premises, "to the street", and
• $1100 for Fibre into the premise, included the Telstra payments, the internal equipment (NTD etc) and the install and testing of it.
• This amount will be around the same for either Fibre or Copper/Node sub-projects.
• The $900/line cost only reduces the $1100-$1400 cost.
• For ease of calculation, I assume $1350/line for Fibre, and $900/line for Copper
• = $1350 - $900
• = $450/line savings, for 9M lines.
• = $4 billion maximum construction savings
• The total possible savings, $4 billion, from build a Copper/Node network are identical to the deliberate wastage in building a temporary network.
• The Copper/Node Plan costs exactly the same to build as Fibre, but is far inferior.

• For the Fibre, Wireless and Satellite networks, NBN Co provides, installs, maintains and replaces the network interface ('box of tricks'), the NTD, Network Termination Device.
• The Coalition does not supply Copper/Node NTD's, they are not even a pay-for option.
• The cost of a VDSL2 modem ($150+) and installation of a central splitter ($300+ per retail service call) is the same as the maximum $450 savings possible with a Copper/Node Plan.
• But there's more: Over the 20 year life of the Copper/Node Plan, the average consumer will have to replace their VDSL2 modem 3 times, or another $450 in forced costs.
• Because the VDSL2 modems aren't remotely managed, tested and monitored by NBN Co, customers will have to pay for any service calls to diagnose a faulty modem, wiring or central splitter.
• The Coalition have silently and deliberately forced over $1,000 of unavoidable additional costs onto Copper/Node customers. These are over and above what a Fibre user will pay.

• Multicast Video and network features like "TC1" necessary for high-quality, reliable telephone over Internet will not be included in the Copper/Node network VDSL2 modems.
• The 75% of fixed-line customers, probably all in the Metro areas, won't be able to access the most revolutionary service offered by NBN Co: universal, cheap Cable TV.
• Multicast hasn't been planned yet for 4% of Satellite premises.
• The Coalition is deliberately denying 75% of NBN Co customers access to multicast Video.

Conclusion

The Copper/Node Plan is missing all key financial indicators and 25 years of their 30-year Business Plan. Payments to Telstra and renting or buying an additional 215,000km of copper are ignored.

If you add in the planned wastage in replacing it, a Copper/Node network costs the same to build as Fibre, but Operational costs of Copper are, by the Coalition estimates, at least 5 times more. A Copper/Node network is more expensive to build and operate than Fibre after just five years.

Tiered access pricing, costing up to six-times more for 80-times the speed, is critical to the Fibre Business Model. It allows real consumer choice, each paying according to their need and means, reduces entry-level pricing below cost and is already generating more than twice the income ($35 ARPU vs $16) that Copper/Node Plan can deliver.

The top 25% of high-demand users generate all the profit for NBN Co, the rest of us get a free ride, getting NBN services at cost or subsidised.

On top of this, the Coalition is attempting to further hoodwink us either not denying Copper/Node consumers essential NBN features or saddling them with high, hidden costs.