NBN: The Economics of FTTH vs FTTN

Do you know a Bargain when you see one??
Is either NBN Policy proposal offering a bargain or the opposite, a "lemon"?

First, what do we mean by "bargain"?

My "New Oxford American Dictionary" defines bargain as:

a thing bought or offered for sale more cheaply than is usual or expected : the secondhand table was a real bargain | [as adj. ] household and electrical goods at bargain prices.

On-line Dictionary.com:

an advantageous purchase, especially one acquired at less than the usual cost: The sale offered bargains galore.

Collins World English Dictionary, via Dictionary.com

a. something bought or offered at a low price: a bargain at an auctionb. ( as modifier ): a bargain price

On-line Merriam-Webster.com:

something acquired by or as if by bargaining; especially : an advantageous purchase <at that price the car is a bargain>

The dictionary examples seem to point to price: The cheapest things are bargains.

But look again, the wording is often "advantageous", not "lower than normal price". Bargains imply both "value for money" and "notably lower than normally expected price". Purchase price is only one of many factors influencing value.

If you've bought any second-hand cars, you know that what looks like "a great bargain" on the day might turn out to be "a real lemon"... Nasty problems, whether existing or latent ('broken' vs 'will break soon'), may cost several times the notional price of the car to repair. A $2,000 "classic" car that winds up needing extensive rust-repair or (hidden) accident damage fixed may turn into a $15,000 vehicle, still with a worn engine, suspension, steering and transmission!

Just because the sale price is low, doesn't make an item "a bargain", unless you can afford to discard it, for free, when it proves unserviceable.

The other type of value-decision is constant price, but different quality.

Which is a better deal for $15,000, a 2 year-old Hyundai (ie. 'cheap' car) or a 10 year-old BMW or Mercedes (ie. 'premium' car) with a higher build-quality and inclusions? It depends...

If you can work on the cars yourself, have access to specialist tools and test gear and can source parts at reasonable prices, then the older car may well suit your needs better.

If you're at the mercy of others, especially the official Dealers who aim to extract high premiums over the entire life of the product, the newer car may well suit you better.
If you're not going to drive the car far each year, have had it checked for problems by a good, local mechanic who specialises in that brand and who will maintain it for you, then you will, as far as these things are guaranteed, get a bargain by buying the older, 'premium quality' car.

What are we buying, as voters and taxpayers?

How, as consumers, do we "buy" at the next election an NBN that will be at least "good value" and at best "a bargain"?

Firstly, just what is being sold?
What is the up-front price, what's included and not included, what hidden costs might there be and what are the future costs that are reasonably predictable?

At the moment, this completely disregards: are the two options even roughly equivalent. Is one a beat-up old "paddock car" and the other shiny and new?

Update 28-Nov-2012: I've corrected the Fibre component to $26.8B (was $26.4B) and total project to $37.4B (was $43B).

The GPON FTTH solution, for 93% premises, starting to be rolled out is not $37.4B: the fixed-line fibre is $26.8B. The rest is for Fixed Wireless, Satellite and other system/project costs.

An FTTN solution, without copper-line leasing or purchase costs, for 98% of premises was estimated by Telstra to cost around $15B. Paul Fletcher, in Wired Brown Land, suggests a cost of $9-10B for ~90% of premises. The last 1.1M premises were estimated to cost $4-5B, more than four times each than the first 4M premises.

To be generous, let's compare a $10B FTTN with $26B FTTH, both to roughly 90% of premises.

The elephant in the room, the unknown cost, is: What will Telstra charge to use its copper?
Whilst the current agreement pays Telstra $11B in NPV, for access to ducts, pipes, pits and exchanges, it does not pay for access to copper: payments only accrue when copper lines are disconnected.

But here's a surprise: the biggest single component of replacement cost of Telstra's Customer Access Network is the "ducts and pipes". Together with copper cables, well over 50% of replacement costs. One estimate from the ACCC is over $40B (for a competitor) to build a replacement copper C.A.N.

Update 28-Nov-12: With my limited knowledge, I hadn't understood just how deep the Telstra pipe-and-duct network went. It extends 100mm conduit well into the local neighbourhood, with 25mm conduit on "service drops" to premises for the lead-in. A large part of the $11B NPV given to Telstra is for access to that network. NBN Co will be upgrading parts of the network and installing its own pits and probably many new service drops (old, congested, collapsed and to wrong location on-site). Because paying to reuse the Telstra pipe-duct network resulted in a saving, I'm guessing a net cost of $10B, with $2-3B in upgrades. It must be noted that the current SSU contract doesn't buy anything from Telstra: it allows access and allows Telstra to decommission and remove its copper after a declared date in each region (I didn't read who owns the pipes-ducts after then). There is a deadline that NBN Co must meet to declare a service, or Telstra gets to keep its copper in service. IANAL, but that sure looks to me like the Coalition can't rely on the existing SSU and automatically acquiring the pipe-duct network. To be an "apples-and-apples" comparison, they still need to provide an irrevocable right-to-use the $10B pipe-duct network and to upgrade it to the minimum usable standard, as NBN Co will.

The GPON FTTH project is two projects in one:

• For around $12B in construction costs $10B in Telstra payments and their own upgrade costs , lay build and upgrade 100,000km of pipe (conduit) and associated connection cabinets.
• For $14B $14-16B, lay a GPON FTTH inside the new pipe/conduit network.

If Telstra has known since the early 1990's that it would've been needing to move residential premises to fibre in the mid-term, why did it not start to lay the conduit then or since. As a 20-year project, or 5,000km/year, it would've allowed a refresh of copper cabling where needed (lowering maintenance costs), been well within their technical and capital means (under $500M/year), and given them a $10+B asset to lease or sell now. They were able to garner the majority of their $11B NPC from this source.

Which prices should we compare for FTTH and FTTN?

• $40B for a copper CAN to $26.8B for GPON FTTH?
• $10B FTTN to $14B for the GPON component of the FTTN + $2-3B for upgrades?

Neither of these support the Coalition assertion, "FTTN will be 3-4 times cheaper to build than an FTTH".

The first bargain NBN Co is delivering is the $12B $10B conduit-to-the-premises, included in the price. If ever new cables need to be run (upgrades or maintenance), the majority of the construction costs are already covered.

The FTTN does not include this new and very important feature. If this was a car, the salesman would be now saying: "Oh, did you want tyres and rims on your new car?" This new "Structured Cabling" approach became standard in computer network nearly 20 years ago. It's not a new idea, nor outrageous to expect.

For a proper comparison, an FTTN has to include the same options: conduits and cabinets to 75% of premises served.

The apples and apples comparison for FTTH to FTTN is: $26.8B vs $20B ($10B+$10B)
Not that much of a difference.

What do each solution cost in running costs, repairs and maintenance?

All the FTTN proponents acknowledge the ageing copper network has rising maintenance costs, and these are higher than for a) fibre optic in general and b) a brand new fibre network.

By how much?  Nobody has been willing to put a figure on that.

We can get a hint from Telstra itself, from their ASX released Briefing Paper, Aug-2005, "The Digital Compact and National Broadband Plan". Page 18 cites: "14.3M fault calls, 14+% of all lines have fault".

This is without considering the running and maintenance of those 70-350,000 little grey boxes spread across the countryside for vandals to smash, weather to impact and heat to break the electronics in... The cost isn't in electronics, though they were estimated at over 50% of the node costs in 2009, it's the millions of kilometres that technicians will have to drive, reducing their productive hours to below 50% of their hours.

That's the second bargain NBN Co will deliver: much lower operational and maintenance costs.
This is a "gift that keeps on giving": maintenance and electronics upgrades are always going to many-fold cheaper than an FTTN. It designed to be efficient.

What are the major project costs?

In the ACCC Report to the NBN Expert Panel in 2009, the cost modelling says that for ULLS (Unbundled Local Links), the cost of capital was 75% of Telstra's costs. The Cost of Capital is the overwhelming cost in every NBN Solution.

The Federal Government, with its AAA credit-rating and "risk-free" status, borrows money much cheaper than anyone. The ACCC analysis added a 6-7% "risk margin", on top of the "risk-free" rate, to the modelling of a privately built FTTN.

Funding NBN Co with "risk-free" debt effectively halves the dominating cost in the project.
A 50% discount: sounds like a great bargain to me!

What the ACCC didn't discuss was IRR (Internal Rate of Return) and Profit Margin.
As a wholly-owned Government Business, NBN Co is expected to return 350 basis points (3.5%) above the reference rate: this is barely above household mortgage rates and much, much lower than any business loan for this project.

The Internal Rate of Return and Profit Margins demanded of NBN Co by the Government are extraordinarily low. They are many times (4?) lower than Telstra or a private consortium would charge.
A 75% discount on the profit margin:  sounds like an outstanding bargain to me!

How do we know what Margins Telstra likes to charge (apart from the headline Profit Margin of 42+% of turnover)? From the Aug-2005 ASX Release. Page 13 gives EBITDA Margins for various services.
They range from 88% for Domestic Long Distance (STD calls) to 55% for Local Calls and Basic Access and 40-42% for Mobiles and Data Services.

Because of the very modest financial target set by the Government, we know that NBN Co does not have to charge the extraordinarily high margins Telstra has been used to. As consumers, we get to enjoy lower charges and better services.

Lifetime and Upgrade: Do I get a 15,000km or 150,000km warranty?

The new equipment installed for both FTTN and FTTH solutions will have a 30-year economic design life. Whichever we choose, we are locked into the decision for a very long time. Most people think of a 25-30 year mortgage as "a lifetime"... This is the same sort of commitment.

FTTN proponents acknowledge the capability gap between ADSL/VDSL and GPON Fibre.

Their usual response is "nobody will ever want or need more than DSL can deliver" or "Fibre is sooo expensive, who'd want to buy it?"

The speed difference, out of the box, is 80:1000Mbps at best, but for guaranteed rates 12-25:1000Mbps. That's the difference between walking and a 320kph Ferrari.

For twice the upfront price, one-tenth the running costs, 40 (forty) times the speed and better quality?
Is that the bargain of the century or what??
A Ferrari that uses less fuel than a moped, for just twice as much.

As I've noted above, the monthly rental for subscribers is based on many more factors than he headline/up-front cost of the project. Twice as much up-front does not translate to "Twice the rental".

While the new nodes and electronics installed for an FTTN will have a 30-year economic life, does the ageing fault-ridden copper network come with a warranty of any sort?

That's the weakness of the FTTN: the copper is old and reaching the end of its service life in the majority of premises, it doesn't come with a warranty. [no references found]

You get what you pay for: new GPON Fibre will have a 30-year service life, will support 100-times speed improvement as it is,  (just add new electronics either end) and, if you need to replace or augment it, being in conduits - that's really quick, cheap and easy.

Just 15 years ago most Australians on the Internet used 14.4k-28.8bps over the same phone lines they are now getting 4Mbps on. Those same phone lines will be upgraded to 12-25 Mbps by an FTTN.

Is that a 1,000-fold or 6-fold improvement? Which ever way you count it, that's really impressive improvement.  How much more improvement can we expect from copper DSL services?

There's the rub... FTTN advocates will say "People have 1Gbps or 10Gbps over copper in the laboratory"... Kinda, sorta, but not really.

You can get 100Mbps over new Cat-5 ethernet cable: for 100m, sometimes 500m.
You can get 1Gbps over new Cat-6 ethernet cables: for 10-30m.
You can get 10Gbps over purpose built cables, either Thunderbolt (active parts) or SFP+: for 2-3m.

Because as frequencies increase, the signals travel in a smaller band just on the surface of a conductor, they are unduly affected by imperfections, corrosion and the breakdown of joints. In the real-world with old cables designed for 3Khz voice, not Mhz DSL, you will never see 1Gbps on copper. The speed that GPON Fibre starts at.

At best, over the next 10 years we'll see a 2-4 fold increase in DSL speed, and then that will probably be it.

Pay 50% more and get a lifetime warranty on a new product: sounds like a really good deal to me. That's the difference with fibre.

In another 10 years will you be wanting 12Mbps or 40Mbps, 100Mbps or more?

Chances are you'll want a lot more bandwidth than 12Mbps and a DSL FTTN just won't take you there then, or for the following 20 years.

In 10-15 years, will the Coalition bow to public pressure for Better Broadband and adopt a GPON FTTH? That replacement will cost only marginally less than the current implementation: the DSL FTTN will cost additional money to remove. It isn't just "building one to throw away", it's also "paying almost the say to remove it as put it in".

Building a DSL FTTN to throw-away: that's not a bargain and disposing of 10,000's of nodes won't be cheap, quick or easy.

Summary

GPON Fibre is a bargain compared to an DSL FTTN solution, even a hybrid FTTN solution.

The construction/install cost does not reflect what you'll pay per-month.
The basic price, for 12Mbps, will be higher than current DSL services, but if you're getting 2-4 times the speed as the majority of DSL subscribers will, that's still good value.

• GPON FTTH is delivering is a $12B conduit-to-the-premises, included in the price, allowing cheap, fast, easy upgrades, repairs and additions.
• FTTN does not provide the conduit, leaving us in the nineteenth Century.
• GPON FTTH will deliver: much lower operational and maintenance costs, probably 2-5 times lower.
• Using government "risk-free" funding and a comparatively low Return (3.5%), more than halves the financing costs, which normally account for 75% of internal costs.
• Any FTTN that is built via a Public/Private partnership or solely by Private, will have much higher financing costs and many-fold higher Gross Margins to provide shareholder returns.
• The guaranteed bandwidth of GPON FTTH starts at forty times faster than DSL and will only improve. 100Gbps ethernet fibre-optic is currently commercial available, not a laboratory pipedream.
• The problem isn't that DSL FTTN can or cannot match speed now, but that it will never scale to meet future demand. It is at the end of its lifecycle.
• The copper network is old and near the end of its service life: it's warranty period has expired, while GPON Fibre, which has lower maintenance costs, will be new and easily last the next 30 years: Fibre comes with a "lifetime warranty".
• An FTTN built now, will cost us twice: Once to install and again, nearly as much, to remove.
• What's the sense in building something intending to throw it away. It doesn't make sense.

DSL FTTN might seem cheaper up-front, but is like a clapped out old car on its last legs: it will cost you dearly to run and maintain, let you down when you need it most and will one day die on the side of some lonely road.

But there's a "gotcha" nobody in the Coalition will address: "What will Telstra charge?"
The SSU is about an FTTH not FTTN, Telstra will be obliged to pursue its shareholder interests and charge $8-$12B for its copper network, or lease it for (much) more. Trying to finesse this charge by partnering with Telstra shifts costs to the financing side: much more expensive.

Bargains represent good value, not just "cheapest to buy".

The GPON FTTN is a great bargain, a DSL FTTN is a lemon that for the next 30 years you'll regret buying.

NBN: Framing the Questions - What's Good Policy?

There's a simple methodology to assess any Public Policy:

Roll forward in time 25-50 years, then look back and ask "Is this what we wanted for ourselves?".

We don't have Time Machines, but we do have our imaginations, and can answer some, or most, aspects the question about the competing NBN Policies.

I believe there are four areas to consider:

• Competition
• Regulatory Environment
• Technical Solutions
• Commercial Arrangements

Competition

The "last mile" of any utility network, the Customer Access Network, is a "natural monopoly". The right number is of networks is one, if your objective is to minimise cost and maximise Public Utility. Allowing competition leads to poor, expensive services, where no player gets good returns discouraging investment and upgrade. We saw the Optus/Telstra HFC Cable TV debacle that destroyed billions in shareholder funds and failed to create a viable Cable TV industry.

The problem is "how do you keep them honest and motivated?" not "Fat, Dumb and Happy" or complacent, inefficient and possibly corrupt.
How does a society grant any body, public or private, a monopoly on anything, let alone essential infrastructure, and expect them to operate efficiently, selflessly and altruistically for decades on end?

It's an impossible task when real people with their many failings and drivers, like greed and ambition, are involved.
Certainly some degree of regulation and oversight/governance will stop, or eventually detect, most excesses.

I suggest two things are desirable in a natural monopoly:

• Private ownership, under the close control of a Regulator, to allow incentives for management and prevent business being "captured" by Trade Unions. Making a profit, while preserving a fixed asset in good order, is a discipline missing within Public bodies.
• Micro-competition: New entrants should be allowed to enter niche markets where new technologies or business/funding/ownership approaches can offer users a substantial benefit. The Regulator needs to prevent "cherry-picking", where an operator runs the same technology past the same premises, but only in the cheapest deployment areas. Providing a Universal Service at a consistent, affordable price is a Social Benefit that implies some degree of cross-subsidy.

The on-going challenge is encouraging the Operator to both maintain their assets and invest in upgrades, but not to "game" the Regulatory system with over-investment or other strategies, such as we've seen with New South Wales retail electricity pricing in the last 5-10 years.

We know from the past in Australia with the PMG/Telecom/Telstra that a self-regulated monopoly does not put the National Interest first, that some form of external discipline is needed to replace that normally provided by Free Market competition.

From the USA and the break-up of AT&T into a number of local "Operating Companies", a number of which recombined, we know that geographical monopolies are not "competitive".

Regulatory Environment

Whilst a natural monopoly exists for the Customer Access Network and no, or tightly controlled competition, is in the best National Interest there, strong competition should be enabled and encouraged for the provision of full retail services. To maximise both the Public Utility from the C.A.N. and the economic viability of the Operator, necessary for efficient operations and minimising customer pricing, there cannot be wide-scale alternatives, they will undermine the Network, destroy the economies of scale and inevitably lead to higher prices, limited availability and poorer service: none of which are in the National Interest.

The problem the Regulator has is preventing near-monoply players, like Telstra, from manipulating the market and driving out competitors, or using predatory pricing in high-demand/low-unit-cost markets to use other services to undermine the profitability of the C.A.N. operator. Telstra can over-dimension a 4G mobile network in dense urban networks and, via "special bundles", price it to undercut the C.A.N. in just those areas.

Technical Solutions

NBN Co has currently defined a single network topology, layer 2 Ethernet VLAN-in-VLAN, and is currently rolling-out three C.A.N. technologies:

• direct-fibre, GPON, to 93% of premises. Up to 25% will be strung on poles, i.e. "aerial".
• Fixed Wireless, or 3G/4G mobile to fixed base stations in premises for marginal areas.
• Satellite delivery to remote areas outside the economic areas of GPON and Fixed Wireless.

In 30 years, the end of the current NBN plan, still having a copper C.A.N. analogue phone service, ADSL, VDSL and limited Fibre-from-the-Node in addition to GPON/Fixed-Wireless will produce an catastrophic environment, very similar to the National Railways until the 1960's: fractured, expensive, inefficient, unattractive to new operators and new investment only limited to the already well-served, advantaged "low-cost" areas.

Deliberately fracturing the market and undermining the economics of a full-fibre GPON roll-out now, will inevitably lead to being trapped in a digital ghetto: prices will be high, speeds low and coverage poor, with no commercial operator willing to invest because competing providers will always destroy their business model.

From the first century of Australian Railways, we know that "good" short-term decisions can, in the long-term, be not just a "drag" on the economy, but a positive millstone, actively preventing wide-spread economic development.

From the Optus/Telstra Cable TV rollout, we know that once it is clear a business model is destroyed, no further investment will be made.

Like it or not, the only "technically correct" and viable Customer Access Network in 15 years is one technology per service area. After the sunk costs are recovered, the most profitable, least expensive to run and most upgradeable/extensible is a full-fibre GPON for the majority of premises.

The 2009 Expert Panel observation, from Prof. Reg Coutts, that an FTTN was a wasted investment because it did not provide a bridge to even current technology still stands.

Commercial Arrangements

Transferring ownership of NBN Co from Pubic to Private hands only after it has established a reliable positive cash-flow, so that it can be reasonably priced by the Stock Market, is essential.

Preventing Telstra, or any other Retail Telco Service Provider from controlling a privatised NBN Co is also essential. This suggests wide-ownership and a preponderance of small shareholders is in the National Interest.

The core objection the Coalition has to the current NBN plan is centred around costs and funding: it is unclear from their many statements just what they object to...
Is it solely Government funding, is it that $30B is too large for their tastes, do they want to limit ownership to a select few large investors, do they want Telstra to once again control the Access Network or is it a solely Partisan Political stance: not what they said?

What may be more useful to explore is non-centralied funding and ownership models:

• NBN Co, if it offered good, guaranteed returns, could access some of the large pool of "DIY" superannuation funds, either as fixed-rate bonds, equity (shares) or pre-paid instalment costs - a lease/buy-back scheme offered to small- and mid-size investors, not the large end of town.
• Promotion of local Co-Op building and ownership of small regional Access Networks to NBN Co specifications. Operation of the Co-Op Networks would be by NBN Co. Maintenance could be contracted out or undertaken by locally employed staff.

Digital Network Infrastructure in 2050

Desirable:

• A single, national solution offering Ubiquitous, Universal Digital Network access with simple pricing regimes, internationally competitive pricing for basic and high-end bandwidth, latency and volume.
• A privately owned and viable major Access Network Operators with possibly other small niche Access Network Operators.
• A highly competitive, multi-player Retail Network Services sector.
• Per service area, an economically sustainable choice of connection types.
• A Competition, Regulatory and Commercial regime that encourages efficiency, investment, good asset stewardship  and non-predatory competitive behaviour.

Undesirable:

• Telstra still as the dominant, controlling player across all sectors.
• A fractured, inefficient, divided and undercapitalised/under-maintained Access Network and Retail Services.
• Highly variable and complex local charges, unavailability of basic or premium services enforced by geographical boundaries.
• Highly variable services and "preferred areas": an entrenched Social and Digital Divide.
• Disincentives or Perverse Incentives for investment, upgrade and asset maintenance.

Both major Political Party policies do not adequately address all issues and ensure the most desirable National Outcomes will ensue. The Political Debate needs to start from a basis of National Interest, Social, Economic, Environmental and Human-Capital, rather than short-term political gaming.

NBN: Click Frenzy's "Click Fail" and Lessons for the Coalition

Just past midnight, as the day turned into 1st of June, 2000, my boss and I packed up and headed home. It had not just been a long day, but a long six months for me: we had just successfully managed the first major Government On-line Transaction, GST Registrations, "over the hump" and through its busiest day, without failing and without making the headlines. We were pleased, our managers relieved.

The lessons from that day apply to Internet Adoption generally and the NBN in particular. Something that the Coalition might take on-board with their NBN policy.



The system specified by the ATO and implemented by Wizard, since liquidated, had failed three iron-clad rules of performance analysis :

• On-line Projects and Critical Systems require Performance Plans as much, or more, than Functional Specifications and Security Plans. This implies you have a trained, experienced Performance Analyst involved. I filled that role when I arrived late onto the project notionally to do Systems Admin.

• What you don't know will kill you: Integral to the System Planning and Design phase is collection demand data, developing a load model and forecasting peak traffic over the Design Period. The Performance Plan, when exposed to open-ended demand, must include Overload Protection: mine was "Busy Tone". Within six weeks of arriving, I'd created a demand model and predicted a peak-load of twenty times their Design Goal: correct to 5% on that busiest day. When the ATO and Wizard did not respond to this forecast or to an early overload event, I designed/specified "Busy Tone" which our managers backed and Wizard grudgingly implemented, delivering untested at the last possible minute. Wizard disregarded a specific design requirement (NO database access for Busy Tone test) and post-event analysis showed the hasty implementation and this disregard almost caused a catastrophic system collapse.

• Your system needs to collect and report critical performance metrics in real-time for adequate Systems Administration, Operations and Troubleshooting/Diagnosis. You cannot manage what you don't measure. I designed and implemented an adequate tool in early January 2000. Whilst it didn't provide automatic alerts and alarms, it was instrumental in detecting and explaining an overload event in February and selling management that morning on a $100,000 system upgrade.
•  It also became Management's Best Friend: during the final three weeks, when demand regularly exceeded our capacity, "Busy Tone" activated when needed, and the managers could see for themselves if the systems they were accountable for, were performing or not. They slept evenings and kept out of my hair, knowing they'd done everything they could and it had worked.

From what I saw reported and screen images, "Click Frenzy" had quite sophisticated Overload Protection, it was active and doing its job perfectly: allowing the systems to usefully work at Maximum Capacity preventing them degrading into "Thrashing" - running at 100% but not completing any useful work. This behaviour was first documented in the 1960's with Virtual Memory and a definitive theoretical description and solution provided by Peter J Denning for his PhD.

What went wrong at "Click Frenzy" was the same as what we saw with the GST Registrations in 2000:

The traffic/demand forecasts were off by an order-of-magnitude (10 times) or more.

This is quite common on the Internet for systems with open-ended demand...
It's part of what it means to be a disruptive technology: you cannot forecast demand.

Think about the Industries that the Internet, as a disruption, has redefined, removed or invented in just the last 10 years:

• Newspapers are closing at an alarming rate. Locally, Fairfax has seen its "Rivers of Gold" go.
• On-line Advertising has taken off, pushing Google into one of the most valuable stocks around.
• Print publishing has radically changed: magazines, news, books, academic publishing, even Encyclopaedia Britannica, have had to change what they do and their business models. 
• Music, Video, Movies and even TV/radio have all been seriously affected by either pirating, free publishing (Youtube etc) or by on-line merchants: iTunes and Amazon.
• Online Retailing is starting to become a major competitor to "Bricks and Mortar" operations.
• "Click Frenzy" demonstrated just how fast adoption of "etailing" is progressing.
• Skype and Tablets have become the default "videophone" - where all calls are free.
• Fixed-line phones and national/international toll-call traffic is down, everywhere.
• Online Banking, Insurance, Markets/Trading and Finance is coming to dominate those sectors, not just changing the businesses cost base, but increasing the speed of transactions and customer control and services.
• Mobile Devices, with 3G/4G/WiFi connectivity, have burgeoned in just the last 5 years, creating Application Stores, displacing Desktop/laptop computers and spawning whole new business models. This trend has years and years to run.
• Education, one of the early adopters of All Things Internet, is now suffering its own Disruption: MOOC's - Massive Online Open Courses.

Since 1996, there has only been one constant with the Growth of the Internet: It's been faster than anyone has predicted. This was the driver behind the "Dot Boom" - and the inability of businesses to "capture the lightening in a bottle", the cause of the "Dot Bust".

NBN Lessons for the Coalition

The On-line GST Registrations, commissioned by the Howard Government, had no Cost/Benefit Analysis. They were a natural extension of a Policy: go on-line.

If they'd run a Cost/Benefit Analysis on the initial forecasts (1,000/day, 20,000 on-line, 1M total), then the $2-3M project would've been shuttered before it began. Instead we saw 20,000/day, 600,000 on-line from a total of 3.3M registrations. At $5/registration, the project was brilliantly cost-effiective.

The replacement system produced within 6 months for $100,000 total, and handling 50-60% of on-going registrations (30,000/mth, IIRC), was even better cost-justified.

Cost/Benefit Analyses (CBA's) are a good, necessary, business tool when properly applied.
If you don't have demand/traffic forecasts that you know to be accurate, then "Garbage In, Garbage Out" applies: the analyses aren't just useless and a waste of time and resources, they are actively counter-productive because they provide an illusion of competency and preparedness: a fools paradise of certainty.

Cost/Benefit Analyses are profoundly useful when evaluating low-growth, high-volume Industries, like Mining. But even there, they have limits. Recently we've seen Twiggy Forrest's "FMG" forced to recapitalise and restructure its finances because of the sudden, but not unexpected peak of the mining boom, whilst Nathan Tinkler's paper empire, based on high Coal prices, is crashing down around his ears. No CBA's would've prevented either of these changes of fortune when externalities intervened. A more potent example is the massive failures in all sectors, especially the CBA-driven finance and investment sector, in the 2008 Global Financial Crisis.
CBA's didn't protect any investors who lost money, in fact the reverse: based on false assumptions and ignoring inherent risk and volatility, they actively duped investors.

This is amply demonstrated by one of Mr Turnbull's own anecdotes: not only did an (entrepreneurial) investment he made fail, the operation went bust within 180 days. If Cost/Benefit Analyses are universally applicable, how could such an astute and seasoned investor as Mr Turnbull get it so wrong? Because the forecasts of revenues and expenses were completely wrong.

The current Coalition, especially Mr Turnbull and Fletcher, should take note of the Howard Government: not everything can, or should, be subject to Cost/Benefit Analyses.

This is the first reason demanding predictive Cost/Benefit Analyses for the NBN is both spurious and fallacious: all we know about future broadband connection demand, market penetration and traffic use is: We Don't Know.

So I disagree with Paul Fletcher's observation that if anyone came to him with a business proposal, like the NBN, without a Cost/Benefit Analyses, he'd fire them on the spot. Exactly because the Internet is still in an unpredictable, explosive growth phase and "disruptive technologies" are emerging all too frequently, the fixed straight-jacket of a Cost/Benefit Analysis is not just wrong, it's the worst justification to bring to the table.
A Business Plan, that's a good idea, and that, not CBA's, is what the best Venture Capital firms in Silicon Valley demand.

By the Turnbull/Fletcher logic, they would not have funded iPods, iPhones, iPads, Google, Android, Skype, Facebook, Ebay, Amazon or the plethora of other hugely successful Internet businesses that are only 5-10 years old.
How did Apple under Steve Jobs become the biggest company on the planet? By understanding Innovation and Entrepreneurship, not through the "respected and well-understood methodology" of Cost/Benefit Analyses demanded as a Fix-Everything by the Coalition.

For National Infrastructure Projects, whilst the input costs are well-know, restrictive definitions of "Benefits" are inappropriate. As the Coalition frequently reminds everyone, the job of Government is not to run Businesses, so Projects, especially basic Infrastructure, cannot be justified or analysed on narrowly defined criteria: only the receipts, as if it were a business.

A Government can justify spending Public Monies on Public/Common Goods, like Infrastructure Projects, even where there is NO direct revenue resulting, but where Social or Economic Benefits do accrue broadly. Otherwise we'd have no Education, Health, Roads or Defence spending.

The ALP, quite correctly, in their 2007 pre-election NBN Policy document, laid out the best evidence for the Economic and Social Benefits that the Australian Economy would gain from Universal Broadband access to the Internet. That justification was both necessary and sufficient for proceeding with an NBN: the gains in the National Interest, the benefit to the Australian Economy, would dwarf any costs incurred by the Government.

Mr Turnbull himself now opines that "very fast broadband [is] a bedrock requirement for a successful digital economy. And a successful economy, full stop." Whilst glib and "self-evident", Mr Turnbull has failed to provide any reasonable evidence for this assertion. Perhaps his reliance on intuition or "business acumen" and the exactly wrong financial justifications, like CBA's, is why he complains of at least one spectacular entrepreneurial investment failure.

The Coalition, in Abbott/Turnbull/Fletcher, don't just not understand the difference in nature between, and tools needed to properly analyse, Business Projects and Government Infrastructure, they seem to not understand the wide set of tools needed to examine and justify unpredictable, high-growth sectors like the Internet and its supporting access infrastructure, an NBN.

Lastly, Paul Budde has recently raised an essential role that neither the ALP nor Coalition has discussed about the NBN:

Multi-Factorial Realised Cost/Benefits Studies

The whole point of investing in, and building, any National Core Infrastructure is not "because", but that there are tangible National Benefits to be realised.
If those projected Benefits are not actively tracked, isn't that a failure of Public Governance and Accountability?

If nobody is watching and Accounting for the Benefits:

• How can we, the taxpaying public funding it all, know if XYZ Project (Roads, Health, NBN, ...) was a good idea at all?
• If the Benefits, Economic, Social, Environmental and Human-Capital, are not measured, they cannot be managed.
• How do we, the taxpayers, or the Government know if too little has been invested? If the project is under-capitalised?
• How can we know if too much is being spent and returns are low or Nil or additional services or markets?
• How can we know if niche markets are under/over served, or if valuable markets have emerged that are being ignored?
• How can we know if services are priced too high, preventing adoption, critical-mass and full available benefits flowing to the Economy? Governments have always had a "pump priming" role of temporary subsides to invigorate new markets.
• How can we know if any of our original assumptions and project goals were Not Quite Right and need to be redefined, or "tweaked"?
• How can we know if something better has come along and we need to scale-back our plans or new, disruptive technologies/services/products (like the iPhone/iPad), have completely changed the Rules of the Game, and we need to scale-up our investment and bring-forward goals to realise available economic and social benefits?

Both the Coalition have neglected the most essential part of any Project: tracking and review.

Because the National Benefits accruing from any NBN are multi-faceted, not just economic, they are far broader than merely the receipts for services collected by NBN Co. Any Realised Cost/Benefit Study of an NBN must look much more widely than the revenues of NBN Co and its RSP's.

To adequately address this on-going role, a permanent authority, like the Audit Office, needs to exist to independently and objectively evaluate the benefits flowing from Government Expenditure. It needs to combine the hard-headed accounting of the Audit Office with the Economic Research, Modelling and Evaluation of the Productivity Commission and the objective data gathering of the Bureau of Statistics.

If the Coalition supported Realised Cost/Benefit Analyses, for all Government Infrastructure, they would both understand the nature of the problem and the necessary tools needed for objective evaluation. This would be a transformation of Australian Government processes far greater and long-lasting than even the NBN.

It answers the central Taxpayer Question: What did we just get for our tax-dollar?

It's a question that can only be asked in hindsight, not with false forecasts of Costs and Benefits.

NBN: National Interest vs Political Interest: Lessons from the Railways

What National Broadband Network Australia has from 2020 forward will be a Political Decision: whom the electorate returns to Canberra in the 2013 election.

If Abbott/Turnbull get to implement their NBN, they will become the most reviled figures in Australian History in 25 years time. To serve their very minor Partisan Political Interests, the National Interest will be sacrificed and we'll be left with a technical and regulatory situation that will make the current mess positively benign, even superlative. Telstra, now described by Turnbull's fellow MP, Paul Fletcher, as "a monster", will be even more powerful and incapable of being restrained.

What Abbot/Turnbull are promising for fixed line services for the next 100 years:

• (current) Telstra copper-analogue Plain Old Telephone Service (POTS)
• and direct Telstra ADSL services.
• (current) ULL copper-analogue POTS from Optus and other ISP's
• and their direct ADSL services.
• (current) Optus/Telstra HFC-DOCISS cable Internet
• 3G and 4G mobile wireless data networks for the disenfranchised.
• NBN-ADSL @ 12Mbps for 75%
• NBN-VDSL @ 25Mbps for 25%
• NBN-direct Fibre

All this alongside the current NBN Co (v 1.0) rollout:

• GPON Fibre @ 1Gbps
• Fixed Wireless @ 12Mbps
• Satellite @ 12Mbps

It won't just be a Digital Divide based on geography, it will be much, much worse: the haves, have nots and cannot-get-anything-decent everywhere.

We know from the Optus/Telstra HFC overbuild that if the Coalition ADSL/VDSL NBN is rolled out beside the current GPON network that they both will do much worse. The 

Mr Turnbull does subscribe to the economic necessity of good "broadband":

Now, I’m just going to say something on the NBN. You’ve all heard me speak about this a thousand times. It’s almost becoming tedious repetition but firstly, we the Coalition see ubiquitous, affordable, very fast broadband as a bedrock requirement for a successful digital economy. And a successful economy, full stop. [emphasis added]

Australian Railroads provide a perfect example. Once set, technical standards do not get changed by Politicians: it is always "too hard, too expensive":

• Queensland, South Australia and Western Australia have narrow gauge: 3' 6" 
• New South Wales, standard gauge: 4' 8½"
• Victoria, broad gauge: 5' 3"
• Until 1962, trains between Sydney and Melbourne had to unload and transfer all passengers and freight at Albury.
• Until 1970, there was no standard-guage railway from the East Coast to Perth: all freight had to be unloaded and transferred multiple times. To get anything, passengers, freight or animals, from outside Brisbane to the other Capitals:
• Narrow gauge to Roma Street, Brisbane (QLD Central Station).
• Transfer to Standard gauge terminal in South Brisbane, across the river with no direct rail-link.
• Standard gauge inland to Sydney, then Albury.
• Transfer to broad gauge to Melbourne, then South Australian border.
• Transfer to narrow gauge for Adelaide, Perth and Alice Springs.
• For Darwin, transfer to truck in Alice Springs.
• The "Ghan" stayed narrow gauge on its original track until upgraded for the Adelaide-Darwin rail-link in 2000, despite being promised by Politicians for over a century.
• New South Wales is held hostage by its century old 1500V DC electric train network, part of the reason its been slow to electrify its network outside the Sydney-basin conurbation, and contributes to making its rail services expensive.
• Queensland went directly to high-voltage AC. More power, cheaper, further reach, more controllable, lighter and faster rolling stock...

As voters, we get just one chance to get the NBN "right" - which is simply defined: What would everyone want as an NBN in 2050?

A: One fixed-line infrastructure that's cheaply upgradeable to new technologies as they become available.

By even floating a competing plan for the NBN technology, the Abbott/Turnbull Coalition is signalling very strongly that they are more than willing to commit Australia to a Digital Nightmare Future in the pursuit of their Political Interests.

We have already seen both the Coalition and ALP demonstrate their penchant for favouring short-term Political Interests over the National Interest by allowing Telstra to be privatised without being Structurally Separated. Both parties are at fault here, but for my money, the Coalition as the people to actually do the deed (full privatisation) are the most culpable, with the most to explain.

In 2050, will anyone thank Mr Turnbull for saving $10B in construction costs of an NBN and imposing a gargantuan millstone on the Australian economy?? I think not.

There's a lot riding on this: One fixed-line network technology is the right number for the future of Australia's Digital-driven Economy.

If the Coalition don't want a GPON-Fibre NBN now, they should put the National Interest ahead of their own Partisan Political Interest and do nothing, not compound the situation and lock us into an ungodly mess for the next 50-100 years. The decisions of the Howard Government suggest they will put short-term Political gain ahead of everything else.

NBN: How to fiddle the numbers on FTTN to get "quicker, cheaper, more affordable"

Mr Turnbull keeps pushing his line: the Coalition NBN, presumably an FTTN modelled on the UK, will be "Better Broadband, Cheaper, Sooner, More Affordable". Most recently in a speech to an Innovation Bay dinner.

I will try to deconstruct what the phrase/promise could mean, how that could be achieved and what that would mean to individuals and the Nation over the project lifetime of 30 years.



The Promise

• Better Broadband
• Without setting judging criteria, this is meaningless and vacuous: For whom? Where? For how long?
• By what yardstick will it be "better": bandwidth, install cost, total cost, link quality, availability, upgradability, premium services, ... Or does it come in a variety of colours?
• Cheaper
• The intended implication is "lower Capital Expenditure". For whom? For what? When? In total, per-year? For the Government or NBN Co?
• Allowing external investment by, say, Optus and Telstra and British Telecom would lessen the intensity of Government expenditure, and may be called "Cheaper".
• It's also very easy to deliver a 'cheaper' project by reducing the deliverable to say 50-66% of Urban premises and no businesses.
• Does it include the foreshadowed upgrade of services to fibre links to active Nodes (MDSA cabinets)?
• Mr Turnbull frequently uses the term "economic", in the sense of "cost-effective", when discussing his unspecified NBN Policy.
• But just what does that mean?
• The IRR, ROI, Cost-of-Capital and Duration of service radically affect the definition of "break-even" and "cost-effective".
• Sooner
• This implies the project finish date will be earlier than a full-fibre rollout.
• By one day: that's meaningless and insignificant.
• A total project time of 3-4 years for fixed-line connection of 93% of premises, now that's a promise!
• Or does it just mean, "we'll shuffle priorities so those whom we deem more worthy/needy will get their 12-25Mbps early so we can declare "Mission Accomplished!" early while we continue to dribble out services for another 10, 15 or even 20 years". 
• More Affordably
• Is another way of saying "Cheaper", if the interest on the CapEx, not OpEx & Maintenance, is the major factor in wholesale pricing.
• Will there be, for the privileged few, a direct Government subsidy, rebate or tax-deduction for their yearly NBN-based charges? That artificially lowers charges and creates notional "Affordability", yet is complete B/S.
• The nastiest way to provide this "benefit" would be as an Introductory Offer of 12-36 months. Get people on-board, claim the Political Points, then abandon them with no way back.
• Does it include the premises connection and activation fee?
• What costs be shifted from the network builder to the subscriber?
• Of course, without a full GPON FTTP, where costs are fully spread across all subscribers, as a reference or base-line, we've NO way to know what it would have cost.
• It will be trivial to fudge the numbers to show that GPON services are more expensive, therefore our FTTN services are more affordable. Promise Delivered!
• The comparisons won't be for equal services, but highly selected.
• Cross-subsidies (FTTP to FTTN) will be hidden in the accounts by the newly appointed CEO/CFO, sympathetic to the Coalition.

The Delivery

• The UK's BT/Openreach "Infinity" project has been suggested by Mr Turnbull as his model, but never confirmed. There is plenty of wiggle-room and opportunity for weasel words like, "You made the assumption, I never said that"... With that in mind, I'll proceed.
• The UK project is for:
• The company building the FTTN, Openreach, is the wholesaler who already owns the Copper Customer Access Network. It's free for them to connect nodes and take-over customer lines.
• In Australia, Telstra owns the copper lines to the premises.
• While NBN Co has a right to use Telstra ducts, pits and premises, it hasn't bought the copper, not the right to use it.
• Telstra is not a charity or Not-For-Profit Enterprise. Nothing is on record to say they'd agree to sell the copper or lease it under an ULL agreement cheaply.
• Telstra commented in Feb or May 2012, with the agreement of the SSU and NBN Co SAU they were "spectacularly agnostic" about each Political sides' NBN plans.
• 16M of 20M premises, only 66%, not 93% of premises. As the NBN Implementation Plan showed in spades, there is around a 10:1 cost differential between the easiest/cheapest premises to pass or connect and the most expensive, before wireless or satellite is used.
• They are passing 4M premises/year, or 80,000 premises/week, or 320 nodes/week.
• An additional £600-1200MM is being provided by the Government for out-of-area connections.
• The nodes notionally cater for 250 premises at 25Mbps, VDSL2, 800m.
• Australia has a much lower population and premises density than the UK:
• Only a very few medium-to-high density inner-urban areas will achieve 250 premises/node.
• Most nodes will only get 32-64 premises per node.
• Where will the "economic" line be drawn, 4-16 premises per node? higher?
• For the same rules, now explicitly confirmed as a minimum target by Mr Turnbull, we'll need:
• 75-90% of the road-distance of fibre laid, compared to the current GPON FTTP.
• Running fibre along the (guesstimate) 50km of existing ducts and pipes of ~1,250 major exchanges gives 60,000km of Fibre.
• If 25%
• and 300-350,000 nodes, with full construction, planning permission and 240V power-supply (and metering) as well as service connection.
• The TLS-2005 FTTN to 4M premises, 1600m, 12Mbps ADSL2, estimated 20,000 nodes.
• Others estimate 70,000 nodes, but that's only a scale up from 4M to 12M premises at 1600m.
• Halving distance to 800m to double data-rate will quadruple or worse the number of nodes.
• A project time of 5 years will see 60,000 nodes/year or 1,200 nodes/week, four times the construction rate of the UK project!
• They are only "passing" premises in the first-fix.
• "Passing" is "Do Nothing" at the premises. It's build a node and connect the wires from the pillar, presumably without destroying current ADSL services.
• "Connecting" a premise involves line-conditioning (a major expense in the Telstra 2005 plan), cutting the existing copper link and getting a working VDSL circuit, at the guaranteed minimum speed, for the premises and installing a Network Termination Device in the premises, complete with 240V power and battery backup.
• This is the level that the current NBN Co Plan is rolling out to.
• It's unclear what the constructors will do if, at connection time, the subscriber line is unable to support the guaranteed minimum speed:
• refuse the service
• run new "Cat-5" lead-in and retest.
• run new copper cable end-to-end, charging full or partial costs.
• run fibre from the node to the premise, charging full costs. 
• "Activating" a service is making the connection "live", testing it, install/connect/configure the Customer Premises Equipment, provision the services bought with the various Service Providers and test each service at the Customer Premise.
• The NBN Co plan is currently for ~120,000 road kms of network to be installed.
• 75% will be underground, all of which will be in 100mm or 50mm buried conduit,
• with 50mm lead-in to the premises from connection 'pillar'.
• 25% will be strung "aerially" on power poles, requiring agreement with Power Distribution companies and payments, including pole replacement/upgrade ($20,000/time). The NSW negotiations have been reported to have broken down.
• Someone familiar with the TransACT rollout in Canberra, circa 2002 said:
• The VDSL electronics were very expensive then, and would now be considerably cheaper. Prof. Reg Coutts, a member of the Expert Panel that in Feb 2009 reviewed the Rudd/Conroy FTTN tender, commented that "over half the cost of an FTTN is in the electronics in the Nodes".
• The cost of installing a node is dominated by the fixed costs of planning and site survey/selection, approvals/documentation, power-, fibre- and copper-connections, and multiple "truck-rolls" for construction, install and test.
• The cabinet/backplane and electronics installed are the only variable cost.
• TransACT passed 40-60 premises per VDSL node (a 300m rule), yet they only installed 32 port nodes, possibly only partially 'populated' to further reduce costs.
• With an FTTN, because of the low initial connections, the nodes can be radically under-dimensioned.
• Additional nodes can be installed alongside the original node to cater for higher connection rates.
• Construction costs will be lower because of already established services,
• but the essential "on-demand" nature of upgrades makes the pre-unit construction costs 2-4 times higher than a "mass manufacture" rollout.
• In "Phase 1", TransACT budgeted $40MM to pass 55,000 premises (Avg. $800/premise). As they used the power poles of one of their partners, lets assume a zero cost. Cost proportions were possibly, a guesstimate only:
• Local Fibre loop: 5%
• Copper Customer Access Network (aerial): 15%
• VDSL Nodes (50 premises/node: 1,250 nodes): 20%
• Phone "maxi-nodes" (500 premises/node: 100 nodes): 10%
• Transit fibre to Central Office:10%
• Central Office equipment: 10%
• Backhaul from Canberra to Sydney/Melbourne: 10%
• Customer Premises lead-in, connection, Network Termination: 20%
• Any xDSL service with one or very few active modems on shared copper bundles will perform reasonably.
• As activations increase, not even near 100%, mutual interference and "cross-talk" seriously degrades performance of all services on a node.
• There is no simple fix for this: it is inescapable physics.
• xDSL only works because not everyone is using it.
• If there is 50% take-up, the service will collapse.
• The sleeper issue is node-upstream capacity leading to congestion and 
• Initially, quite cheap upstream ethernet interfaces (100Mbps) can be used.
• Visiting each node to upgrade upstream links is very, very expensive.
• This is well documented with Telstra's RIM/CMUX deployment (FTTK) in the Gungahlin Experiment.
• The service provider is not obliged to provide adequate throughput or latency at any time, especially during "busy-hour", only to provide the agreed access line speed.
• Maintenance costs can be hidden and ignored: they become the result of inefficient practices, incompetence and poor management/execution at NBN Co - nothing to do with Our Fine Plan.

The Fiddles

The Coalition can achieve their NBN Policy Objective by:

• Defining "Better" to mean "lower Government expenditure".
• Defining "Cheaper" to mean "lower Government expenditure" and moving NBN Co to a Public Private Partnership with Telstra, Optus and possibly other players, in return for access to Customer Access Networks and Capital Investment.
• Offering NO Business services, only residential.
• "Business" services may be provided by Telstra or Optus as "premium services" over Point-to-Point Fibre.
• Covering only 6-8M premises FTTN (50-66% vs 93%)
• Still using a 1600m rule and Multi Service Access Nodes (MSAN) with 3 services available:
• 12Mbps ADSL2+ for 75% of subscribers
• 25Mbps VDSL2 for 25%
• Fibre, at "full cost recovery" for connections
• Deploying 50-60,000 nodes, not the 350,000 needed for full 25Mbps coverage.
• Measuring "premises passed" not "premises connected" or "active".
• Setting a roll-out schedule of 4 years.
• With "continuous network upgrades", adding nodes at 800m where there was demand and costs low.
• Declaring $1250/premise to be the "uneconomic" connection level.
• Fixed Wireless, Satellite or existing ADSL services will be the alternatives.
• Exactly as "2400 baud modems" were considered acceptable minimum connectivity for Rural and Remote users when ADSL was common in the Cities.
• Transferring as many costs as possible to the customer at connection time.
• Claiming, "if people want Fibre Connectivity, they can all have it, if they are willing to pay for it. That is the Free Market in operation. We are not here to subsidise household expenditures, but to provide the infrastructure necessary for our National Economy, which we have done much better and more efficiently than the other mob."

When the Network becomes popular, causing degraded VDSL speeds, uplink congestion and outrageous latency, NBN Co becomes the whipping boy "due to their incompetence" and they'll be privatised "because that will remove all the fat and make them more efficient".

NBN: Coalition non-Policy will lose it a third election

Mr Turnbull's CommsDay conference address is pure political rhetoric and says more about the Coalition in what it leaves out. It isn't just the absence of a Policy, coverage and pricing, or Costs to Build.

It's not a bold, confident statement about the future and how the Coalition will take the country there.

It's about spreading Fear-Uncertainty-and-Doubt (FUD), demonstrating the Coalitions' lack of Vision, Insight and Understanding of voters, the economy and especially Technology. This paucity of Vision will lead to a third Federal Electoral defeat, especially if Gillard choses a late March election to bring in the new Senators in July.



This piece is not intended as a political attack: the Government is as worthy of condemnation as the Opposition. In the current hung parliament, both sides continually fighting in the gutter have brought the institution into disrepute.

The reason the ALP is now reinventing Telecommunications is the Coalition under Howard failed to do it or invest in essential infrastructure and capitalise on the mining boom: preferring instead to sell assets as fast as it could to pay-down debt - Commonwealth Bank, QANTAS and Telstra after selling buildings and outsourcing as much I.T. as it could.
Surpluses were in large part due to increasing tax revenues from the boom, nothing to do with the Coalition efforts or policies.

For a government to set Budget Surpluses as a major policy goal is both ridiculous and ignorant.:

Governments are not business, a Surplus is not a Profit, it is over-taxing or under-investing. Governments and their Agencies need to be run efficiently and effectively, not "turn a profit".

Democratic governments are generally considered to be "of the People, for the People, by the People". That is: run for the collective benefit of citizens, not businesses, privileged individuals nor special interest groups like specific shareholders.

Cost/Benefit analyses for a Public Good, like shared infrastructure Utilities, need to broadly assess the Benefits - to count the impact on the whole economy, not the narrowly defined receipts to the business enterprise accruing the costs. The ALP's pre-election 2007 NBN Policy cites numerous economic analyses that amply justified the economic benefits of an NBN.

For Mr Turnbull to have raised the question in the first place showed an lack of understanding on the role and economics of Public Utilities - whilst underlining that the ALP had ample economic evidence for its NBN plans. To continue this theme now, I find bizarre to the point of wilful ignorance.

The Coalition under Howard did the worst thing possible for Telecommunications, not once but twice:

• it sold a majority stake in Telstra, losing control of a vertically integrated monopoly to a hostile, aggressive board and management team focussed on short-term profits, and
• ignored its own 2003 "Broadband Advisory Group" report and didn't start work towards an open-access NBN.

The 2008 FTTN tender by Rudd/Conroy for an NBN, with the Government offering $4.7B subsidy was only a co-funded version of the Telstra 2005 ADSL plan, albeit rolled-out nationally not for just the 5 major cities.

The outcome of the official tender process was the 2009 Expert Panel Report, saying:

• proposals lacked committed private sector funding;
• none of the national proposals was sufficiently well developed to present a value for money outcome; 
• no proposal submitted a business case that supported the roll out in five years of a NBN to 98 per cent of Australian homes and businesses with a Government contribution of $4.7 billion;
• FTTN is unlikely to provide an efficient upgrade path to FTTP;
• there was a risk of liability to pay compensation to Telstra for exclusive or near exclusive access to Telstra's customer access network; and
• proponents sought excessive regulatory restrictions on competitors building and operating their own fibre based networks in competition with the NBN (that is, overbuild protections).
• Telstra had been excluded from consideration because its tender response was non-compliant: they had failed to submit a detailed plan on how they'd engage SME's in the NBN project and didn't seek to address the lack when approached about it.

Not only is Mr Turnbull seemingly, because he won't release a Policy, saying that he wants again to "Go Back to the Future" of 2005. He wants us to believe that what wasn't economic, affordable or commercial in 2009 will result in "Better Broadband, Cheaper, Sooner" in 2013.

University of Adelaide Professor Emeritus of Communications, Reg Coutts, a member of the Expert Panel, told Computerworld Australia:

“The point is the NBN is not just about higher speeds, it is about ubiquity. Many of the problems with the current broadband rollout is it is patchwork quilt,” Coutts said. “Then you have to remember Australia is the fast technology follower market. We are still seeing the early days of the sorts of applications that require higher bandwidth.”

With Telstra’s copper network approaching the end of its life and few, if any telcos willing to fill in the blackspot patches in the country’s network quilt, Coutts maintained it is up to the Government to forge ahead with the plan as “the train has left the station”.

“Nobody can be definitive about when you hit the wall, but the wall is approaching and you can see it. Every developed country is going through this and because of the commercial context, the incumbent telco, with probably the exception of Verizon in the US, hasn’t got a business case for rolling out broadly fibre to the premise other than in restricted coverage to particular market segments in particular cities.”

“We are not building this so everyone can have an iPad,” he added “We are doing this so that we can restructure the deliver of health services, education, and science.”

“Essentially to go down the FTTN road would mean something in the order of, greater than 50 per cent of the capital being put into digital cabinets in the suburbs," he said. "They then become an obstacle to the final solution… fibre-to-the-premise. Fibre-to-the-node was not a stepping stone to fibre-to-the-premise. In fact, if anything it would put it backwards. The second reason, of course, is in no other market have people proceeded with fibre-to-the-node other than an incumbent. It is a solution that is the right solution for an incumbent that has a copper infrastructure.” [emphasis added]

These observations were borne out in the detailed NBN Implementation Study. Does Mr Turnbull seriously suggest he and his staff knows better than multiple groups of experts in both Telecommunications and Economics??

The only way I can see Mr Turnbull able to make his (apparent) plan work is to offer something much, much less. That won't fly well with the Digital Natives, now well into their twenties, nor with their increasingly Technophile parents and grand-parents.

Mr Turnbull correctly suggests that the costs of electronics are declining and this will decrease the cost of an FTTN. Where he is conveniently silent is that the costs related to Fibre Optic solutions is decreasing faster than for copper: Fibre roll-outs are getting cheaper much faster than VDSL.

Economist John de Ridder has researched and written extensively on Broadband, examining its role as a Utility, not a Profit-Centre Business. Ubiquitous Broadband is the 21st Century's core-enabling technology just as Reticulated Electricity enabled the last 100 years of economic transformation in the Developed World.

His conclusion: Broadband needs to be sold and provided as a Public Utility, not a high-profit commercial venture, to release its full value in the rest of the economy.
This is exactly the role of Governments: create Common-wealth by providing shared infrastructure that no individual or small group could afford.

Roads are a perfect example: could you imagine is all roads were privately owned and you paid tolls meter driven? Such a nonsensical approach blindly applying "the Free Market" is not even tried in the home of capitalism, the USA. Citizens pay taxes to unlock the benefits of Shared Utilities and Infrastructure and other Public Goods. Especially for those services or facilities where a single supplier is economically efficient. Imagine there were three toll roads from Sydney to Melbourne: none could be economically efficient with only a fraction of the traffic, quickly driving them all into a cost-cutting war that bankrupts everyone.

Piped broadband will deliver all the promises: Selling high-speed network access like electricity, gas or water is the way to go.

But we could be on the cusp of achieving True Broadband which will remove all these restrictions. True Broadband has three features:

• it will support any application from any provider. 
• It will be delivered over an unrestricted pipe like water.
• it should be affordable with a high level of adoption.

What drives broadband take-up? OECD paper. 2008

• Price
• Income
• Education
• Weather (Time outdoors, not competing for screen-time)
• Addressable Market
• Urbanisation
• Unbundling
• Competition

de Ridder's research shows there is consumer price-sensitivity, but  implies enormous demand elasticity in the market: as the price of services and devices has declined, sales and profits have burgeoned, probably beyond the wildest dreams of Telco executives stuck in the "Traditional Telco Pricing Model" of "what the market will bear" versus the "Cost-plus" small margins of NBN Co.

This driver, the non-direct cost benefit of new telecommunications services and devices, is the economic amplifier of "broadband", as we now call fully converged Digital Services.

We have a number of very good examples of Technology adoption in Australia. As a nation we are widely cited as been enthusiastic adopters of new technology.

Importantly, none of these trends were the subject of "Cost/Benefit" analyses. They were started as an uncertain journey into the unknown, probably supported by Overseas evidence, then expanded as demand surged:

• Networked PC's since 1991.
• Universal now in business.
• 50+% penetration into domestic market.
• AARNET.
• Founded in 1988, sold to Telstra after 2003. [Noted in 2003 B.A.G. report as a model 'aggregator', having just 12 staff]
• Fundamentally transformed Research and Tertiary Education in Australia, both in methods and cost structures.
• Led to later higher speed "research networks".
• Mobile Phones:
• Currently ~100% adoption rate, measured by services: 20M.
• 1997: 4% penetration,  635,000 services. Only 15 years ago. CAGR of 20% pa.
• $5.8B turnvover in 2006
• $6.4B contribution to GDP
• G1 Introduced 1987. 'AMPS', shutdown in 2000.
• G2 (GSM), introduced 1993.
• Introduced SMS ('texting')
• 642M texts sent in 2000-1
• 10.2B texts sent in 2011-2.
• G2 (CDMA), introduced 1999. Shutdown 2008.
• G3 (WCDMA/UMTS), introduced 2005-6.
• G4 (LTE) introduced 2011.
• The smartphone revolution is not yet 6 years old (iPhone in 2007), whilst tablet computing is not yet 3 years (iPad in 2010).
• Mobile devices, "Internet Readers", are redefining the Internet and Applications Markets, disrupting the established PC/Desktop market.
• Reliable, Robust Fixed-line services are more important in this new world.
• In the same way that Reticulated Electricity is even more important for those reliant on rechargeable devices.
• Mr Turnbull extolls the virtues of his iPad and is constantly seen carrying and using it.
• Did he do a Cost/Benefit before buying his iPad, or like all normal consumers said "I gotta have me one of those!", intuiting the benefits and satisfying his price-sensitivity.
• To be consistent, not hypocritical, Mr Turnbull needs to show the electorate his personal Cost/Benefit study leading to his iPad purchase.
• Apple since the iPod in 2000 has been disrupting one market after another, roughly on a 3-year cycle: all predicated on "broadband" services.
• Will 2013 be the year that they bring "a new way of watching TV" over the Internet?
• Will our ISP's drown in demand without an NBN following such a disruption?

We are left with many questions about Mr Turnbull's Policy and his vision for our Nations' Internet, one of the important economic bases and enablers of the 21st Century. We know from statistical data from 1960 onwards that we're in the midst of a massive structural change in the economy: every worker in every industry is being affected by new Technologies, none more pervasive or of more impact than Information Technology and its associated Digital Communications: I&CT.

The most important question, I think, is simple:

• If someone invents a must-have Internet-delivered Application or Service that requires increasingly high-speeds, how will the Coalition-NBN meet that demand?
• An FTTN solution simply can't take us there.
• Field-upgradeable MSAN's will allow Fibre services, but a poor-sort done expensively.

Arguing that "the market will fill the need" is fatuous and wrong: we have a single, strong incumbent who has shown themselves to be recalcitrant to the point of being actively obstructive (overbuilding the Optus Cable TV network and destroying that nascent market, extortionate ADSL wholesale pricing, or refusing to enable ADSL-2 where available are a few).

The examples that Mr Turnbull refers to from around the world underline the facts:

• Only in countries where the Government, or their fully-owned Telco, chose to provide Fibre as a Public Utility, does it exist for the general public.
• Everywhere else there has been a comprehensive market failure with FTTP: traditional Telcos want their usual premium prices for a now basic and commodity Utility service.

Lastly, it's incredible that the Coalition, champions of Business and Free Enterprise as they are, have failed to recognise both sides of the NBN roll-out:

• the NBN is about good broadband services to business as much as anything.
• The economic benefits of cheap, affordable high-speed bits-for-business has been documented for over a decade. More bandwidth, more profits, what's not to like??

If Mr Turnbull wants to slam-dunk the Governments' NBN, he needs to appeal to the Australian voters notion of "Fair Go" and our sentimentality for "The Bush" and its economic problems:

• Roll-out Fibre everywhere in the country there is reticulated electricity, using the same poles.
• There are a number of innovative solutions posited that leverage the already extensive, though 'thin', fibre Telstra has deployed for fixed telephones.
• Imaginatively reusing existing assets is key to producing a reliable country network and reducing roll-out cost and schedule.
• Prioritise country areas, train and hire local tradesmen and businesses by preference, leaving behind a skilled workforce for maintenance.

This might not be the cheapest version of an NBN, but it would fly incredibly well in the electorate.

Making the cities wait for new technology for once is not an entirely bad thing: waiting 5-6 years to deploy Fibre in the suburbs allows the roll-out to ride the technology cost-curve down.

Some stop gap, temporary solutions, like point-to-point WiFi, MDS or WiMax, might be needed to address demands for high-speed suburban services. But then, why do we have the CSIRO and the many fine research units in Universities is not to solve "interesting" problems?

NBN, TLS: Gold and toxins in them thar' phone lines!

Decommissioning Telstra's old copper Customer Access Network will be a mixed blessing: they could realise anywhere between $1-10B from recycling all that old copper and lead. Though this will be by 2025.

The old network, whilst depreciated and with a near zero marginal utility, has a residual value: as scrap metal - copper, lead and a little tin.

But it comes at a price: it's mixed in with a bunch of other toxic material  Perhaps enough cadmium and other heavy metals to be dangerous.

"Back in the day" people would burn the insulation off old cable in open fires - releasing nasties into the environment. When you have 100,000's of tonnes of old cable to deal with, that can't be hidden.

Telstra is an ethical and socially responsible organisation - its not about to release carcinogen's in smoke or heavy metals in waste streams. Lets hope they choose to process the scrap in Australia with high Environmental standards, not send the problem to the Third World and bestow lingering deaths on future generations.

It'd be even better if Telstra could sell it's exchanges as working units to economically developing countries. They've been well maintained and will probably last many more decades. That's a lot better than grinding up the boards for scrap copper, gold, maybe even tantalum.

There are many types of cable in use in the telephone network, some in lead sheaths, some paper insulation, some plastic (PVC?) insulation and some filled with a waterproof jelly that would take specialist knowledge to remove. To you use acids to leach the copper, heat to remove the casings or strong solvents, or all them?
High temperature sealed furnaces, anyone? That'd be a project for the CSIRO!

What's sure is that after extracting the valuable scrap, there will be toxic residues that will need to be safely dealt with.  And another billion or two of windfall income for Telstra, making shareholders a little happier every day.

NBN: After CommsDay, Questions for Mr Turnbull

In his CommsDay Conference 2012 address, Mr Turnbull came as close as ever to detailing the Coalition NBN plan, seemingly centred around a 25Mbps fixed-line FTTN.

These are some reasonable questions Mr Turnbull should answer to inform the electorate of the Coalition NBN Policy he is prosecuting. I can't see how he can meet any, let alone all, of the Coalition NBN promises - Cheaper, Sooner, More Affordable:

1. Given it took until early this year, 15 years since the start of the Domestic Internet Revolution, for the Coalition to grudgingly adopt a Fast Broadband Policy, What guarantee do we, the electorate, have that the Coalition will fulfil its promises, not revert to its previous position and nationally deliver everyone The Gungahlin Experience?

2. The exact details matter in Technology Projects like the NBN and Mr Turnbull has shown his poor grasp of critical details, or willingness to disingenuously spin the facts. Sanity checks against previous deployments (Transact) and FTTN proposals (Telstra 2005) of Coalition claims of lower FTTN costs  and comparing FTTN and Fibre construction costs suggests that in achieving the Coalition promise "Better Broadband, Cheaper, Sooner and More Affordable", something different, and not yet disclosed, will need to be deployed:
1. Does the Coalition guarantee to match the current fixed-line coverage of 93% premises?
2. The Coalition demanded detailed, precise costings for the current NBN, it is their turn to provide them well, the sooner the better to allow a full discussion. Will Mr Turnbull release costings to the nearest $100MM in the near future?
3. The GPON NBN has a design life of 30 years starting with new cable and equipment, while the FTTN is End-of-Lifecycle technology using End-of-Life cables: Will Mr Turnbull release detailed comparisons of the Total Cost of Ownership of both proposals?
4. Mr Turnbull has implied the Coalition FTTN equipment will be field upgradable to Fibre.
1. Won't building a copper network to throw away be more expensive?
2. If the Coalition intends to deploy a Fibre solution, why not start with it?
3. Isn't adhoc, on-demand laying of fibre and digging trenches the most expensive and inefficient method of rolling out Fibre?

3. FTTN technology is a very poor fit for low-population density areas, such as the regional towns and rural areas. Costs escalate exponentially: copper-run distances increase, pushing down access rates and ports per node decrease geometrically, raising the per port costs. Will Mr Turnbull release early the detail of how he will guarantee metropolitan access rates for Country users of the Coalition NBN? Will he guarantee not to rely on expensive, congestion-prone Fixed Wireless (3/4G) for country areas?

For some Party Political questions, I've included two recent sets included in Ministerial media releases. Duplicated questions are coloured. While detailed, they didn't address many questions that I, as a voter, wanted answered.

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Senator Conroy: Questions for Mr Turnbull, 4-Sep-2012

POLICY (OWNERSHIP)

1. Does he accept that his FTTN network is a government monopoly network?
2. Will Mr Turnbull’s network be on budget or off budget? How much will his policy cost the budget?
3. Is Mr Turnbull really going to buy back the deteriorating copper network and its expensive maintenance costs? Will he also buy the Telstra ducts? Does he stand by his media release of 17 May 2011 that acquiring use of the copper would be “more billions out the door”?
4. Will he guarantee the structural separation of Telstra? Has it been agreed by shadow cabinet?

CAPACITY AND TECHNOLOGY

1. What upload and download capacity will Mr Turnbull guarantee?
2. Which of his previous statements does Mr Turnbull stand by when it comes to what speeds Australians need:
1. In August 2010, he said he could do everything he needed with 3.5 Mbps download[iv]
2. In October 2010, he said 12 Mbps is enough for anybody[v], and
3. In May 2012 he said residential customers need no more than 25 Mbps.[vi]
3. Will FTTN be built in areas where there is HFC? Who will pay to make the HFC open access, enter multi-dwelling units or provide a business grade service? Does Mr Turnbull accept that the upload capacity of HFC is limited to 2 Mbps? Will Telstra be required to divest the HFC assets?
4. How many FTTN nodes does he plan to build? What percentage of premises connected to each cabinet will be able to benefit from speeds of 80 Mbps?
5. How many more premises will be connected using wireless than under the Government’s NBN plans?

PRICES

1. What price will be charged in country areas without the cross subsidy? What will regional users be charged before Mr Turnbull’s on budget “vouchers”? How much will the vouchers be and how many will be issued?
2. Has shadow cabinet formally rejected the National Party policy that fibre to the home should be built to at least 50% of premises in regional Australia?
3. Does Mr Turnbull stand by his claim that his FTTN network will be required to generate a 7% return as claimed in his Op Ed in the Tele on 23 August?

HOW LONG IT WILL TAKE

1. How will he select the private network providers for the few areas he plans to build any new infrastructure?
2. Will he guarantee his new broadband policy will start within 12 months, despite his promise of a Productivity Committee review and tender for a private sector network provider?

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Senator Conroy: Questions for Mr Turnbull, 10-Oct-2012

COST

1. Will MrTurnbull's network be on budget or off budget? How much will his policy cost the budget?
2. Is Mr Turnbull really going to buy back the deteriorating copper network and its expensive maintenance costs? Will he also buy the Telstra ducts? Does he stand by his media release of 17 May 2011 that acquiring use of the copper would be "more billions out the door"?
3. Will he guarantee the structural separation of Telstra? Has it been agreed by shadow cabinet?

CAPACITY AND TECHNOLOGY

1. What upload and download capacity will Mr Turnbull guarantee?
2. Does he accept that his policy only commits to providing a 25 Mbps service?[iii]
3. Has shadow cabinet formally rejected the National Party policy that fibre to the home should be built to at least 50% of premises in regional Australia?
4. Will FTTN be built in areas where there is HFC? Who will pay to make the HFC open access, enter multi-dwelling units or provide a business grade service? Does Mr Turnbull accept that the upload capacity of HFC is limited to 2 Mbps? Will Telstra be required to divest the HFC assets?
5. How many FTTN nodes does he plan to build?

PRICES

1. What price will be charged in country areas without the cross subsidy? What will regional users be charged before Mr Turnbull's on budget "vouchers"? How much will the vouchers be and how many will be issued?
2. Does Mr Turnbull stand by his claim that his FTTN network will be required to generate a 7% return as claimed in his Op Ed in the Tele on 23 August?

HOW LONG IT WILL TAKE

1. When would his FTTN plan be finished?
2. How will he select the private network providers for the few areas he plans to build any new infrastructure?
3. Will he guarantee his new broadband policy will start within 12 months, despite his promise of a Productivity Committee review and tender for a private sector network provider? Will his "thorough inquiry into the management and governance of the NBN Co" be conducted at the same time as the Productivity Commission review of the project?

OWNERSHIP/POLICY

1. Does he accept that his FTTN network is a government monopoly network?
2. Will he commit to maintaining the network in government ownership till it is fully built?

NBN: Fibre Construction costs.

The NBN Co Corporate Plan, 06-Aug-2012, has a headline Capital Expenditure, CapEx, figure of $37.4B from 2011 to 2021.

The individuals contracts to construct the Fibre network are "Commercial In-Confidence" and quite rightly not published.

In "Exhibit 9-7: Forecast Capital Expenditure" there is a line-item for "Fibre and Transit" networks, (vs "Fixed Wireless and Satellite" and "Other CapEx").
Adding the yearly CapEx for "F&T" gives: $28,498MM, or $28.5B.

A 2011 Business Spectator piece on the NBN Fibre Construction contracts starts with:

The protracted year-long tender process for construction of the $12 billion fibre component of the national broadband network collapsed amid acrimony two months ago because the 14 short-listed companies couldn’t provide acceptable terms and pricing.

This is echoed in another finance and investment piece published at the same time in TMT Finance:

This strategy came to a head around the estimated $12 billion fibre construction contracts, originally to have been signed by 31 December 2010, but still not completed at the date of this article.  NBN Co has indicated that the reason for the delay is that the 14 construction companies involved in the tender had failed to offer appropriate pricing. 

From 2011 to 2012 Corporate Plans, there was a 3.9% increase in total CapEx, suggesting that Fibre Construction costs are still approximately $12B.

The "Transit Networks" connect the Fibre Distribution Hubs (FDH's) back to Fibre Serving Areas and ultimately to the 121 Points of Interconnect, PoI's, where the Retail Service Providers interconnection with the NBN.

There was a change in strategy in the 2012 Corporate Plan: all Premises passed in a Fibre Deployment would have lead-in connections made then, not later on an as-needed basis.

Additionally to the fibre, each premise connected has an Optical Network Termination Devices, ONT's or NTD's, which I presume wouldn't be installed until a connection is activated.

Analysis:

Comparing another NBN technology, such as FTTN, to GPON/FTTP, the same costs need to be compared:

• The total project is $37.4B, the fixed connection component is $26.8B, the rest being for Fixed Wireless (4G mobile), Satellite and some other CapEx (unidentified here, possibly IT systems etc).
• The $26.8B must be used for comparisons.
• The Fibre Connection cost is approximately $12B, with nearly $17B in other network costs.
• Most, if not all, of these network costs will be common between an FTTN and GPON network:
• ONT/NTD's are needed at every premise, no matter what Access Network technology is employed. These are provided by the Network provider and will be approximately the same cost as they need to provide the same interfaces and functionality.
• Dual-interface, copper and optical, ONT/NTD's will be more expensive that single interface devices. They might be used to allow simple upgrades later on.
• The Transit Network is needed for all technologies.
• The 121 PoI's are immutable in all designs: they've been mandated by the regulator, the ACCC.
• There is a difference in equipment between GPON and VDSL FTTN.
• The major cost difference is the 148,000 km "covered road distance" for Fibre, most or all of the estimated $12B for "Fibre Construction"
• 25%, around 35,000 km will be aerial cable with lower CapEx but higher maintenance.
• Trenching costs have been estimated by others at $45-$55 per metre, or ~$50,000/km.
• Trenching 110,000 km would cost 110 * $50M, or $5-6B.
• 100mm conduits are laid down streets, with 50 mm lead-in and cross-street conduits and a standard fibre connection and Optical Splitter box shared between adjacent premises.
• The standard NBN 12-fibre "ribbon" is then laid in the conduit with pull-through rope.
• FTTN networks have a major capital cost of installing 350,000 nodes in the field

It is quite possible that installing nodes may be three to four times cheaper than buried Fibre Construction:

• Which would be $4B vs $12B, a potential savings of $8B.
• Only a fraction of the total budget of $37.4B
• But must also be offset by other costs, like copper circuit "conditioning" related specifically to an FTTN.