Monday, 23 September 2013

The death of NBN Co: OZ Telecoms permanently screwed.

Alan Kohler today gives Ziggy advice on accepting the  "hospital pass" which is the NBN Co CEO/Chair role. He's forgetting that Ziggy presided for 5 years over the meltdown of Telstra's PSTN business and ran a strong under-investment strategy for the Howard Government. We know this because Sol Trujilo  penned these words just 6 weeks after assuming control in 2005.

An aside on Kohler: I'm starting to think he's "a fool or knave, or both".

He has never asked the most important, and obvious business questions of Turnbull, perhaps because he now works for News/Murdoch, perhaps because he's a dyed-in-the-wool Conservative:
  • What's the on-budget cost, the interest on loans, over the full life of your Plan?
  • What's the pay-back period and Rate of Return (IRR) of the Turnbull NBN Plan?
    • Which should've led to "where's your full spreadsheet/model to 2040, not just 2014-2019?"
That Kohler let himself be distracted and misdirected by Turnbull's technical B/S means he was in-league with Turnbull and the Conservatives or simply doesn't understand business. Given he made many millions from selling out to Rupert, he just might be a competent businessman.

Ziggy does what he's told and is happy to do so, I've written about the differences between him and real Oz Telco CEO's with backbone: George Maltby, Sol Trujilo and Mike Quigley.

Somehow under the Turnbull Plan, all the cheap/easy work will be done privately (and NBN won't 'overbuild' because that's not 'cost-effective' when an area is already 'fully serviced') while NBN Co becomes "supplier of last resort" and gets ALL the most expensive and least profitable installs.

It is NOT possible for NBN Co to make a profit under these conditions, but Ziggy has already presided over the foreseeable and preventable meltdown of one Oz Telco, Telstra, and we know both what's coming and why he's been chosen.

My prediction for the "free competition" and "cost-effective" policies of Turnbull:
  • Telstra will move quickly and offer a residential FTTN network in the cheap and profitable areas, with other players taking the MDU market (30% of services at just 4% of street addresses. Neatly clustered.)
  • TPG, OpenNetworks and a very few other "well-connected" businesses will dominate the large apartment complex market, with a few smaller players taking a share of the mid-sized apartment market.
    • This is because "management agents" used by Body Corporates are the gatekeepers to almost all apartment blocks.
    • Telcos need only sign one management agent to control huge portions of the MDU market.
    • In return for a sweet commission, the Telco's will get exclusive long-term access to the private wiring inside the building.
    • The trouble for other Telcos is that access within the complex is privately owned. It is ONLY equal access to the network interconnection point.
  • NBN Co will be left with the most expensive, least profitable crumbs, making it impossible for them to provide a single, low wholesale price or cross-subsidise the expensive services and service their debt.
To me the resignation of the NBN Board says they won't be the fall guys for when NBN Co goes broke, as it must and as Turnbull has always known that it must, under his Plan.

Think about the 3 networks NBN Co is building and why they're building them - if the Operational rules are changed, NBN Co won't make a profit, no profit = can't pay bills = liquidation = "Told you so, worst Govt ever".

Which is really cynical, vindictive and an appallingly deliberate waste of taxpayer money, not to mention destroying the future productivity and competitiveness of the nation. What do they care, so long as their masters' agenda is met?

Costs of the 3 networks:
  • 93% FTTP. - upper-limit set by cost of next technology, $300 - $2,400/premises (+$1,100 leadin)
  • 3% Fixed Wireless - roughly constant price per premises ~$3,500/premises
  • 4% Satellite. constant price for system + cost for dish, ground station and install. >$3,500
The single price is only possible because of cross-subsidies.
Allowing "competition" kills the economics of the 93%, which kills the cross-subsidies.

This is why LNP will push for different pricing "in the bush" and has promised to give out explicit (taxpayer funded) subsidies to them.

It's a really, really bad model:
  • there's nothing to protect rural/remote subscribers from lowering/withdrawal of the subsidy.
  • it's economically inefficient to give savings to one group, collect taxes from them, then redistribute the taxes to a small group.
The cross-subsidy is efficient and effective because it happens at source within the cashflows of one commercial entity, but doesn't put money in the hands of Mal's Mates, so cannot be allowed.

History might show this one decision to be the worst economically, socially and politically that has ever been made in Australia. There is NO coming back from an eviscerated NBN Co. Once they are prevented from executing a universal roll-out of Fibre, it can never happen again. Like Banks and Insurance companies, the majority of customers never change Telcos, especially for fixed-line, it's just too hard for customers.

A rational, national wholesale network can never happen after the market is fragmented into a zillion pieces. Nobody will ever again be able to get sufficient coverage and market share to rollout a single network. Not even Telstra.

The Balkanisation of Telco access to premises, with areas controlled by just one provider, will create the worst possible commercial outcome with the highest possible prices for retail customers. Turnbull's "Competition" model is the exact opposite, it's a set of permanent monopolies handed to the favoured few.

The Liberals are the "party of business", but have an almost complete disregard for small, even medium business. They are the political wing of the IPA and the Sydney & Melbourne clubs: Abbott and Co are executing the wishes of their corporate masters, not providing the best outcomes for the populace.


  1. I can't believe that it can actually be lawful to so f*ck the country like this.

    Kudos to NBN board if they follow through and go. There's no honour in presiding over this crime.

  2. The electorate voted them in... Kinda, sorta. [Was it a 30+% first preference?]

    "You get the politicians you deserve", unfortunately.

    I agree, it'd great to be able to pursue these guys personally, but pollies, not the public, write the laws and won't ever allow themselves to be held to account.

    The wonders of democracy :(
    [As Churchill said, 'its' the worst of all possible systems, except for the alternatives'.

    1. "Cheaper, faster, sooner" or some-such doesn't really equal "We're going to bankrupt the NBN, through away $50B and consign you losers to monopoly providers".

  3. I have long classed Kohler as a Lib stooge - seems I'm not the only one

  4. Its even better for the cherry pickers. Since the NBN will now have to charge more to break even, they can offer wholseale access at this new, higher value. Not only do they get to cherrypick, they get to price match the most expensive parts of the network.

    1. Paul,

      Good call, I missed the double-whammy. That's really important.

      NBN Co will go to the ACCC cap-in-hand and ask for higher rates, citing the Cherry picking.

      Telstra et al will still undercut, but by being lower than the max price, can't be fined.

      kaching! goes the senior exec bonuses.


  5. "This is why LNP will push for different pricing "in the bush" and has promised to give out explicit (taxpayer funded) subsidies to them."

    They already did this, at least twice - once with HiBIS and once with BC and both were utter failures, I should know I worked for one of those ISP's from the ground up - as soon as the government funds ended the company tanked.

    1. Thanks. great to have real experience from the field.


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