Turnbull's Fantasy: The Copper Fairy will come in the night and fix everything.

One of the consolations of losing the All-Fibre NBN (for the 93%) will be watching Turnbull's political career unwind.

Will his leaving politics be gracious and dignified like Julia Gillard or the mother of all dummy-spits? With his sharp tongue and unlimited belief in his ability and infallibility, I'm looking forward to the dummy-spit.

Turnbull delivered for the Libs in the election campaign with a "blocking" move: the NBN was removed as an election issue, regardless of what the real Coalition plan is. There is probably nobody else that could have done this, which for me, raises deep questions about Turnbull's integrity and character. He was very happy to destroy the current NBN for a political end, can anything he says now be trusted?

This tweet by RickW (on the Tooth Fairy theme) reminded me of one of the "drop dead" project risks of a (Telstra) Copper Node Plan: First, stocktake the assets and audit the records/database to see if the plan is still even possible.


I've never seen an estimate for this additional cost of the Turnbull Node Plan, either in time or money.

It's somehow magically assumed by the all-encompassing $900/port and "will take no time at all". Just ask Turnbull, as if he's ever going to provide any actual numbers (put your fireproof suit on, if you do ask).

Turnbull would like us to think the opposite of what's true, the "counterfactual" spell:

• he's experienced in dealing with Telstra, not just as a customer, but as a regulator or peer acquiring their assets when he doesn't, and
• [Telstra play "hard-ball", ask Senator Conroy]

• he has Big Project, even Telecommunications, experience, when the most he's done is push paper and sign cheques for an antiquated email provider, small by current standards. 
• [Ask BHP about the surprises in Big Projects. They are hard and sometimes even the best and brightest have to walk away. Size Matters, Experience is necessary.]

We already know there are two large significant and uncosted parts of the Turnbull Node Plan: remediation and reconfiguring the Telstra copper Customer Access Network (CAN), the last 800m that he desperately needs to work.

In 2005 and 2008 Telstra went on record with real plans for a Fibre to the Node network where their first priority was remediating the Telstra Copper network, including removing all pair-gain systems (8500 RIM/CMUX's out there) and "bridge-taps". In 2007 we learned in a Telstra response to the G9/FANOC proposal, they needed to reconfigure the (Telstra) copper to make nodes, not exchanges, the centre of each "distribution area", reducing the number of nodes by 30%-40%.

In 2005, 12Mbps at 1500m to Metro-only customers was an appropriate solution. It seems Turnbull and the Liberal Party didn't get the memo that it is now 2013 and both demand and technology have moved on many-fold. The "window of opportunity", where an FTTN could be economic and technically feasible, has long shut.

Before anyone can move building an FTTN, an audit of the whole line records database is required (20-50 million records) to reach acceptable, not perfect, "data quality", a "ground-truth" survey to get the database in sync with Reality and an assessment of the condition of every single metre of the 100-200 million pair-kilometres of the Telstra copper network.

To "fix the worst first", you first need to identify the worst and then define a test to "fix, replace or go Fibre?". There are at least 200-250,000 cable-km in those 800m passing 75% of fixed-lines Turnbull wants to thrown down the FTTN well? Compare this to the 208,000 cable-km in the whole FTTP rollout of NBN Co.

To survey the last 800m in one year, Turnbull needs to examine and test 1,000 cable-km every day. How big a team does he need? Thousands? How good will the results be? Variable. (If you rush, the results will be incomplete and/or inaccurate. If your intent is complete, correct records then rushing makes that impossible.).  Where will he find that number of spare, skilled and competent contractors? Not in Australia.

What's that 100,000 "man"-years going to cost Turnbull? $10 billion a time, because it has to be repeated. Remembering that he's not included either the cost or delay in his (public) plans...

The problem for Turnbull is, that unlike Fibre, the Telstra Copper Access Network is in a constant state of flux. As soon as an audit and "reality-check" are done, they are out of date. Guaranteed.

Turnbull has to pay twice for a complete database audit, ground-truth survey and line test:

• Once before planning can get underway, and
• immediately prior to cutting the Telstra copper in every Distribution Area.
• The second audit and survey/test is hidden in the cost of works.
• Starting from better quality data, the cost is 25%-50% of the first audit.

There's also the small matter of doing all this again in 10 or 20 years when the Telstra Copper is finally retired and replaced with Fibre. That's written in the Coalition NBN Plan, they choose to not emphasise  it. That additional $10 billion audit and survey of all premises has to be added, along with the deliberate wastage or "CapEx Reuse", to the budget of the Coalition NBN Plan. What's another $10 billion for the taxpayers to cop?

I know that it took 6 months for a major bank to have it's 120,000 network devices audited/checked when new network contractors were hired. Their records were 60%-70% accurate and these had been used for billing. The number of sites was a tiny fraction of the 9 million premises Turnbull wants to cover.

One of the first delays for NBN Co was "simply" creating an accurate premises database. The street address of every service in Australia: this wasn't available before NBN Co created it. Wouldn't you expect the Telstra records to already have that? This is proof positive that as recently as 2011, the line record database was inaccurate and inadequate for any major project, especially for an FTTN.

But there's more...

As RickW points out, what Telstra is giving NBN Co to run Fibre for the current $11 billion is prepared ducts.

This is necessary for the Turnbull Node Plan rollout as well.

After the audit, survey and test, before the remediation and reconfiguration of the Telstra Copper Access Network, the pits, pipes and ducts must first be "prepared", but that's code for repaired and remediated. The Copper Access Network is two separate parts: the cables and the access-ways. If you can't run the new Fibre to the Node or fix and reconfigure the (Telstra) Copper distribution pairs, then you can't build your FTTN.

Turnbull might be happy he's duped the public with his uncosted "NBN Lite", but he's also completely ignorant about the real size, costs and schedule of any project touching connections to every premise in Australia.

Size Matters. "Getting to scale" is difficult and requires great skill, ability and experience.

This is why Google, Amazon and Apple have survived while hundreds of "wannbe" competitors have fallen by the way in the last 15 years: Execution at 'scale' is hard. Something Telstra knows and has warned of [slide 12&18] many times.

Turnbull and his advisers simply don't have the experience or ability to complete or control an FTTN project, let alone get it done on-time and on-budget. But worse, they don't even know they don't know.

It's the taxpayer that is going to pick-up the tab for Turnbull's inevitable failure and we will have to wear the decade or two wait for better Broadband. Australian Business Productivity, and hence Competitiveness, will suffer and we will get even further behind the rest of the world. The all-Fibre NBN is simply a catch-up, not an overtake.

If Turnbull's magical "Cost Benefit Analysis" doesn't uncover these drop-dead project risks and predictable schedule challenges, then we'll know it was just a predictable sham and smoke-screen.

The Turnbull Node Plan is based on the Copper Fairy coming in the night and magically transforming decades of neglect and decay into a bright, shining new network. Telstra knows this and will lead Turnbull a long and merry chase, extracting tens of billions in taxpayer dollars in the process.

Remember back to late 2001 when the World Trade Centre came down and Ansett Airlines were stopped from flying. QANTAS kept "negotiating" with them to wet-lease their fleet (planes, fuel, crew, facilities) until the clock was run out and Ansett lease payments were due, forcing the company into liquidation. Who saw that coming? [A: Everybody but the Ansett management, seemingly.]

Just as Ansett were blind-sided by QANTAS, Telstra will 'take' the Coalition government for everything they can, forcing Turnbull to be sacked and rightly pilloried for his failure. The recriminations and fireworks within the Liberal Party will be quite something to watch. Not useful or helpful to Australian voter and taxpayer, but at least some sort of recompense for destroying our future.

The two guaranteed outcomes of the Turnbull Node Plan: Telstra will do well out of it! And the taxpayers will pay billions of ongoing dollars more than the full fibre scheme would have cost.

The Real Deal on the Coalition NBN: same price, worse outcomes.

The reason the ALP Government, not private industry, had to build an NBN is because the Coalition deliberately screwed-up both Broadband and Telecommunications. In the early 1990's, Telstra had plans, within it's normal budget, to rollout Fibre to all homes by 2010. In 2005, Telstra wanted to build a node-based NBN by 2010. What happened is solely the failure of the Liberal & National parties to make proper decisions.

Over the decade 1997-2007 when action was needed and the private sector could have delivered, they didn't just sit on their hands, they did exactly the wrong things: ignoring Broadband, privatising Telstra unseparated and not implementing legislation to create strong competition in Telecommunications.

For the Coalition to now want Broadband "sooner" is hypocritical and disingenuous.


The ALP created a new type of Public-Private Partnership where they leveraged the historically low interest rates, "patient" capital for long-term support and the Government's ability to accept low returns.

The NBN is built exactly like a Tollway/Motorway: someone else builds it, runs it and charges the public, then the asset is handed back to the Government. The sole difference is that the Government has contributed most, not all, the Equity - and it gets paid back in full with handsome dividends.

The real cost to taxpayers is the interest on the Equity funds: $12.5 billion until 2033 when its paid back. Then we get another $40-$45 billion in dividends by 2040.

The Budget to build the NBN doesn't concern the Government, it's NOT on their books. Whether it costs $30 billion, $40 billion of $50 billion to build the NBN does not matter to the taxpayer. What matters is what comes out of their taxes every year and that NBN Co doesn't just break-even, but pays back the Equity.

The Turnbull Node Plan is a tissue of lies. Here's how:

• The real cost to taxpayers of the current plan is only $12.5 billion, yet the Coalition has never released their estimate of this cost, or even if their NBN Public-Private Partnership will payback the Equity. Over 20 years to 2033, this is $40 billion in interest and $30 billion in loans, putting the taxpayer at risk of a $70 billion loss from the Fibre to the Node Plan.

• The Coalition NBN Budget is unbelievable:
• If their claim to only change one thing, 75% of fixed-lines are Copper/VDSL2, then that's only $12 billion of the Budget. Yet Turnbull claims savings of $17 billion after spending $8 billion on building the FTTN. It's a complete fantasy.
• On top of this, the Coalition plans to throw-away the FTTN, destroying half of its investment. That deliberate and planned waste of $4 billion is never included.
• At the best, a Copper FTTN costs the same as the current full fibre, and will only be complete a year earlier. This is not the deal of a lifetime, but the con of a lifetime.

• All the NBN profits are generated by the top 25% of users, the rest of us get services at, or below, cost.
• This happens because usage is exponential. The top 1% of users download 50% more data than the entire lower 50% (10% vs 6.42%).
• Higher speeds allow those, like businesses, who place a dollar value on their time, to reduce total costs. Wages are far, far higher than Broadband rental.
• The NBN take-up and income is already 18-24 months ahead of Budget. It is spectacularly  successful financially.

• The Coalition hasn't released the charges they used in their model, nor contradicted they'll use "One speed, one Price" charging, rather than the tiered pricing model.
• Because businesses make up 48%-49% of ISP connections, they need to be able to get guaranteed speeds anywhere, not just "designated areas". Wages lost waiting for downloads and uploads is many, many times the monthly broadband rental.
• NBN Co currently charges wholesale prices of $24 - $38 for the same line, soon this increases to $150. "Tiered pricing" reduces the entry-level costs at least two-fold, increases profits and allows customers, who want, to pay more for something they value: time savings.
• Contrary to Turnbull's assertion of "nobody needs more than 25Mbps", the real income figures of NBN Co released on 19-April, show that 31% of consumers are already paying for 100Mbps. That's way more than the 18% included in the forecasts, increasing Average Revenue Per User considerable. Something that a "one speed, one price" regime cannot do.

Since the April launch of the Coalition NBN policy, Turnbull has actively stifled debate, introduced distractions and misdirections and refused to answer basic questions about the finances, profits and charging of his Node Plan.

At a minimum, the taxpayer needs to know the planned pay-back period and Rate of Return of the Coalition model used in their Policy.

It's $70 billion of real taxpayer money the Coalition is risking, we have a right to know the figures.

Voter backlash over "NBN Lite" as they realise they've been 'had'?

On the weekend, 300-400,000 voters went with the Coalition over the ALP, based on many factors, one of which was Turnbull's "NBN Lite" was good enough. Just how enraged will they be to know they have been duped.

We know from Nick Paine's petition to the Liberal Party [real-time count] that getting a good NBN is still a hot-button issue for many voters, even post election.

Australian voters don't like candidates whom they feel have let them down or taken them for granted: witness push-back against Liberals James Diaz and Sophie Mirabella and the collapse of Bob Katter's personal vote.

Long term, Australian voters remember. The demise of the Australian Democrats was started with the defection of Cheryl Kernot, who lost her seat, and finalised by Meg Lees "flipping" on the GST.

Here's what Turnbull didn't tell, in fact hid from the electorate, what's NOT been said in "Cheaper, Sooner, more Affordable" - the reality is a very far cry from his claims and slogan:

• Cheaper, by 10% or $4 billion, but not if you take everything into account. In fact the opposite: fully costed, an FTTN then FTTP is more expensive.

• Sooner, by one year, after creating the problem by doing nothing for more than a decade.

• more Affordable, isn't possible when the Government don't set the retail prices. Even if they knock 33% off the wholesale price ($16 vs $24), why would any ISP pass-on the whole saving, not just follow the banks' example and pocket it?

What Turnbull didn't say:

• What will the NBN cost the taxpayer? It isn't any number you've been told.
• $12.5 billion in interest payments to 2033, mainly from 2018, until the loan is paid off.
• Then, over the next 7 years to 2040, the NBN returns $40-$45 billion. The taxpayer is better off by $30 billion at least.
• NBN Co is already 12-18 months ahead of financial forecasts. Keep up these early wins and it's like a house mortgage, small payments early on result in massive gains later. Because paying off the loans are NBN Co's highest cost, just like a house.

• How much PROFIT will "NBN Lite" generate? NONE, it makes a $10 billion loss over 20 years.
• Turnbull acknowledges it costs more to operate and maintain the Copper/VDSL network, but artfully hides just how this destroys the business.
• If NBN Lite charges $16 wholesale per line, they can just cover interest and maintenance and be "cashflow positive", but they can't pay-off the loans or cover depreciation.
• In 20 years "NBN Lite" will not only cost the taxpayer $40 billion in interest,  they will still have to payback the $30 billion in loans.
• Turnbull's "NBN Lite" plan will cost the taxpayer $70 billion by 2040, not leave them $30 billion better off. There is a $100 billion difference, but not the way Turnbull calls it.

Who's figures do you Trust?

One of the central criticisms of the current NBN by Turnbull is the "cost". It's NOT the cost to taxpayers he discusses, but the Budget of NBN Co, they're very different to begin with. Taxpayers don't have to meet ANY of the NBN expenses, only pay the interest on the loans to fund the business.

It's the difference between paying for a house in cash or taking out a mortgage and paying off the loan over 25 years. That's a massive difference, as every home-owner can tell you, but reality doesn't fit with the Coalition confabulated narrative.

The ALP did not create the NBN Co Corporate Plan. NBN Co is a business staffed with subject-area experts. They will be held accountable to their management and ultimately the NBN Co Board, for meeting their forecasts. These are industry professionals, experts in their field, doing their best work. They don't just make up numbers or parrot what their ALP overlords dictate to them. The Labor government set their maximum equity contribution, gave the design rules and stood back.

Turnbull would like people to think he knows more than the highly-experienced, expert professionals in every field of NBN Co, and that magically and mysteriously, they've overlooked risk factors that will blow out their project costs by a shattering 2-3 times.

That just doesn't happen with professionally run big civil projects. If unforeseen events occur, the project halts and is rebudgeted, redesigned or, if necessary, scaled-back or cancelled. No Professional is stupid enough to overspend a well run Engineering projects by 200%, it's a "strawman" argument at very best.

NBN Co has anticipated real risks to the project. They are well documented and included in the current Corporate Plan. They even have a 10% contingency set aside, as is good industry practice.

Who are you going to trust for accurate figures: a small bunch of faceless, self-serving, politically motivated non-experts surrounding Turnbull, or the multitude of highly experienced, professional experts within NBN Co?

Despite his claims of being unchallenged, Turnbull's wildly exaggerated "Stress tests" (my term) have been questioned and refuted in the media many times over and were never taken seriously by any Telecommunications Engineers, Accountants, Financiers or Economists. They don't make sense and never have made sense.


Cheaper

The on-budget, direct cost to the taxpayer is solely the interest on the loans taken by the Government to contribute equity to NBN Co.

The NBN Co Budget is something entirely different and includes loans it arranges for itself. Both the Coalition and Labor have never separated the two. The NBN Co Budget, be it $20.5 billion, $44.1 billion or something else is NOT what comes out of the taxpayer's pocket.

"NBN Lite" is identical to the current plan except for ONE change: 75% of Fibre services, 8.968M lines, will be replaced by FTTN (Fibre to the Node) using VDSL2.

That part of the NBN Budget is just $12 billion and Turnbull estimates $8.1 billion to build his FTTN at $900/line. This can be at most a $4 billion saving, 10% of the whole budget. A far cry from the oft-repeated claim "VDSL only costs one quarter of Fibre". (It does, if you ignore the majority of costs!)

Somehow, Turnbull saves $17 billion out of a $12 billion budget. That is a trick he has never explained.

But there are two BIG ticket items that Turnbull has craftily hidden away in his "NBN Lite" plan:

• For FTTN, he isn't going to provide the CPE (Customer Premises Equipment) which NBN call an NTD (Network Termination Device). For the other three networks, Fibre, Wireless and Satellite, NTD's are included. It's like making the inside of a car "optional".
• In Dec 2008, Telstra at their NBN Demonstration said "VDSL is much harder than you think" and specifically included a VDSL NTD with an integrated Central Splitter in their design, warning that without it, services would NOT be of an acceptable standard. [Full Telstra doc]
• No NTD option is offered for FTTN/VDSL in "NBN Lite".
• "NBN Lite" transfers all CPE capital and maintenance costs onto the subscribers. Over 20 years, this is upwards of $1,000 per customer, or $5-10 billion extra that's just ignored.

• "NBN Lite" makes allowance for wastage, not all the money spent on FTTN will be useful for a final Fibre to the Premises network.
• This deliberate wastage was the reason why the Expert Panel rejected all FTTN proposals in 2008 and recommended jumping straight to full Fibre.
• Turnbull puts this figure at half the cost of his FTTN build ("50% CapEx Reuse"), but doesn't include this charge against his project:
• "NBN Lite" costs an additional $4 billion in wasted investment on FTTN.

The "NBN Lite" plan is touted by Turnbull and the Coalition as saving $17 billion, off the Budget, not from taxpayer funds, yet it cannot.

Instead, at most it can save $4 billion, while adding $5+ billion in costs only borne by VDSL customers AND ignoring $4 billion in deliberate wastage.

"NBN Lite" costs the same, or 10% more, than the current plan. Why would anyone think an inferior service, that is designed to be thrown away, for the same price would be a good idea?


Sooner

In 2002, Telstra was under financial pressure as it's main source of revenue, the PSTN (telephone network) was in 2005 described by Sol Trujillo as being "in meltdown".

Leading up to then, the explosive growth in both Internet use and mobile phones was well known inside Telstra and broadly within the Industry. From 1997 onwards, it was a matter of when, not if, Telstra would get into serious financial trouble and a new digital-from-scratch broadband network was necessary.

Yet the Howard Government did nothing about creating a strong, viable 21st Century network for Australia for a decade. There were many studies, recommendations and even the odd billion dollars dropped on the problem, but by 2007, we were still in a digital backwater.

In 2005, the new Telstra CEO created a table-thumping presentation about the need to reform the business and build  Broadband. The Liberals ignored it then and in 2007, contributing to their electoral loss. They backed up to the 2010 election with an inadequate NBN plan and again, failed to carry the day.

From 1997 onwards when the Coalition was in control, Telstra could have been structurally separated easily AND a good broadband network could have have been built with no Government funding, if they'd been allowed.

For more than a decade the Liberal/Nationals did not act when they needed to and could have, and then they continued this policy for another 5 years! This antipathy to Broadband runs deep.

So finally in 2013, after deliberately and consciously creating the current situation, they now want to claim that speed is of the essence.

Why the urgency for "NBN Lite"? Turnbull has never offered a good explanation.

The actual "NBN Lite" end date is 2020, or 2019. A one year improvement over the current 2021 end-date. So why is a one year speed-up so important after 15 years of inaction and resistance?


More Affordable

As said above, NBN Co can set wholesale prices, but the ISP's can set any retail price they like.
But the real story is "if you charge one third less and it costs you four times as much to deliver the service, how can you still make a profit?".

The Government does NOT and cannot control retail NBN pricing. Why would the ISP's, especially Telstra, pass on, even in part, any savings?

It's not sophistry, there's a serious marketing point here. Customers are very tired of battling with incredibly complex and difficult "rate cards" from Telcos, especially with mobiles and smartphones.

ISP's, especially Telstra, are likely to offer simple NBN pricing, with a single price for each service speed. The entry level, 12/1Mbps services are likely to be the same just like now, with NO difference depending on Network: Fibre, Wireless or Satellite.

If the ISP's supply and maintain the missing VDSL NTD and Central Splitter for FTTN customers, they will be justified in charging both a service connection fee and not passing on any savings.

Customers on VDSL will not see any savings compared to Fibre, rather they will face higher "out of pocket" and connection charges and on-going maintenance, over and above what other NBN customers pay for in home connections.


Media Coverage, Costings and the PBO (Parliamentary Budget Office)

The greatest coup of the Turnbull disinformation campaign was having Alan Kohler, doyen of the Business Media, come out the day after the Policy launch (10 April) and declare "NBN Lite" was good enough.

Without costings, without financial forecasts, without charges or costs, without on going debt & equity figures, without a payback period or Rate of Return, in fact without ANY financial data necessary for a $30 thousand, let alone $30 billion investment.

Rather than attempt to analyse the Coalition Policy, question them and dig out the numbers, the Media quietly walked away from it, choosing to quote, as fact, the unverified project cost figures given by the Coalition

The PBO did not review the Coalition NBN Policy costings, nor was anything offered them.

They don't seem to understand the basic rules of accounting either: if it's not under your control, then it's NOT on your balance sheet and it does not affect you.

The PBO would've taken less than an hour to check both the ALP and Liberal Party on-budget costs, interest payments, if they'd been given the forecast Equity figures. It's that simple.

So why haven't any of the media reported on this or asked the Coalition for that information?
Especially after the election, does the public have a right to know what it is now committed to paying from its taxes?


Other Myths

The proponents of slower, inferior Broadband ask "Who needs higher speeds?"

That's easy: anyone who puts a monetary value on their time.

48%-49% of ISP connections are current "Business/Government", according to the ABS.
They value their time, currently around $120/hr to keep an average employee, and can work out what it's worth to save download time.

This is why NBN Co has sold 31% of services at 100/40 Mbps, the highest current speed, not the 18% forecast. This increases their AVC (access charges) by an easy 10% over the forecast.

Later this year, they're scheduled to turn on 3 higher speeds (250, 500 and 1000), and increase their income from access charges by another 10%-20%. This extra service speed doesn't cost NBN Co anything.

What's going on here? It's why NBN Co is going to be immensely profitable and what Turnbull has tried desperately to hide from the electorate: NBN Co can sell exactly the same physical Fibre connection for anything from $24 to $150, AND have all customers very happy with what they pay.

In Economics, it's called "removing consumer surplus". Current ISP ADSL pricing plans, which Turnbull hasn't said he will or won't continue with, are "One size, one price Fits All". This makes most customers unhappy, either because they get charged more or they can't get a fast enough service.

We know from a report in 2009 that includes a detailed economic model of the NBN done by the current NBN Chief of Pricing, that a "one price fits all" regime would charge the majority entry-level plans more than 3 times the current $50/mth of iiNet, or 2.5 to 8 times if uniform charging is also abandoned.

... for the most likely estimate of $170 per month, unit costs in metropolitan areas are of $133 per month, while those in non-metropolitan areas are just under $380.

For "NBN Lite" to not include their charges or clarify their pricing model can only mean bad news for consumers. Politicians always proclaim good news from the highest points.

The reality of a "one speed, one price" VDSL model for "NBN Lite" is entry-level charges need to increase by 50%-100%, while high-end charges reduce, those users would rather pay more to swap their money for time and make massive savings in wage costs. It's incredibly strange that the party that's "open again for business" doesn't understand how businesses look to reduce their total expenditures.

The world isn't well ordered, all the people wanting fast access rates aren't clustered together, around what will be decided as a "Node". Nor are all businesses located in business parks etc. The whole point of running out the ONE system, everywhere, is that anybody who needs faster access can do so without delay, cost or impediment. This is lost with FTTN/VDSL.

This leads to the next point: Who pays for the NBN? The low-volume users or speed hogs?

The entire profits of the Fibre NBN come from the top 25% of users, the rest of us either get NBN services at cost or below.

This is because the use of the internet is very uneven, it's an exponential, in fact.

The top 1% of users consume half-as-much data again as the low 50% of users: the top 1% account for 10% of downloads and the bottom half 6.24%.

The Fibre NBN is the best deal any of us are ever likely to be offered in our lifetimes. If we want speed, we can have it, if we don't then others pay for us.

If you remember the claim of "tripling of charges" by the Coalition, it's another upside-down argument. Yes, NBN Co are forecasting an Average Revenue Per User (ARPU) of $110 in 2040, but that's because customers who value the service will want to pay for it AND download large volumes, mostly for their businesses.

Neither has the media reported that NBN Co revenues are 12-18 months in advance of forecasts on all fronts. This is really important, it proves the Corporate Plan is conservative and that the reality will be far, far better than people expect. It's not unreasonable for a Fibre NBN Co to cost under $30 billion and return over 15%, simply because there is such large "pent-up demand" from a decade of inaction by the Coalition.

The NBN is about Business, Productivity Growth, Efficiency and reducing drags on our Economy. That it will be used, in very small part, for Entertainment, even Adult content, is an irrelevance. It's like banning ALL glossy magazines because there's a very small number with X-rated content. Adult content is a fact of life, it's still commerce and it's largely an irrelevance.

The Internet grew up in the 15 years the Coalition weren't watching, it's now about Business and the Economy.


Summary

"NBN Lite" is the OPPOSITE of how it's been portrayed in the media: giving us better Broadband but for less.

• It's an inferior service that will cost the same, or more, to build and operate.

• It will cost taxpayers $70 billion or more by 2040, NOT make them $30 billion or more by then.

• Fibre NBN doesn't just make money, it matches need and service, making everyone happy.

• Tiered pricing reduces costs to the majority, while allowing those who put a high monetary value on their time, to swap money for time. That's real consumer choice.

• The Fibre NBN profits all come from the top 25% of users, the rest of us get a free-ride.

Liberals: Liars, Fools or both?

Adam Turner of SMH wrote a definitive piece on the Turnbull/Fletcher/Abbott Policy Fiasco. He raises most questions that need to be answered. Angus Kidman writes in Lifehacker as well.

What the non-technical commentators aren't saying is the implications of having, on every single device, a remotely controlled and non-user-accessible piece of software in the system, not an application:

• These have a name, they're "backdoors". They are a very, very bad idea. The most awful security hole.
• This is completely opaque to users. The software can be made do anything, and users will not know, cannot know.
• Who's going to be controlling what you see? What you send? And monitoring what you do?
• You won't know and cannot know. This isn't simply invasion of Privacy, it has the potential to be complete on-line surveillance of the Australian population.
• An extreme view? Not after Snowden and PRISM. What's possible become Reality, very quickly indeed.
• Forcing all Internet connections in Australia to go under Abbott Rule is a Really Bad Idea.
• All Software has bugs, even from the NSA.

This isn't just bad policy, it is completely insane and bizarre, its a guaranteed technical & security disaster. We know from the exploit of the Google NSA/PRISM backdoors for Gmail, that if the Government can get in, so can others.

Here's a roundup of tweets I found interesting, insightful or amusing. There are many deep questions raised. Questions that need clear, straight answers before the Election.

Recent:

@Th2shay: Abbott wouldn't have a clue but @TurnbullMalcolm has no excuse
@Nanso44 Absolutely not poor wording!This was a slip showing that we have no reason to trust what they say


Tweets from Ric Werkhoven.

https://twitter.com/rwerkh/status/375749891328192512 for first.

•  it clearly was not poor wording. Someone should get that admission from Abbott. He lied.
•  how can someone insert comms policy into LNP policy like that? And it gets support till confirmed wrong?
• who has power to get policy through? What else could get in?
• That fits my theories about why the NBN policy is what it is.
• Not that could meant the opposite. This is weirder than spin I think???
• Yes @turnbullmalcolm exactly how many LNP policies do you think are BS?

This is particularly worrying. This really is Big Brother wanting Total Control of the Internet.

Once you have a filter/firewall installed on ALL your appliances & computers, one that YOU don't control, how will you ever know what it's doing ("Trust us, we're the Government", if its turned on and what "extra" functionality it's been given.

This is a very dangerous, very slippery slope, especially in light of how it was attempted to be snuck through.

• it's more than that. It's for mobile networks as well.

Other tweets

• Coalition filtering swindle? Abbott and Turnbull play us for fools [Link to SMH article above]
• Hmm, Ill thought out policy on the run that's hastily reversed a few hours later? Sounds like business as usual

No, not at all. It's about process and cover-ups, spin and denial in "Never our policy", no room for manoeuvre for Turnbull.

• The LNP are now running paid ads on Twitter trying to shift focus from their epic filter backflip to Labor's stuff-ups.

• Tbull on-air defending "not our policy, never has been" And yet opposing it at the same time.
• Turnbull, "Please Explain" the contradiction and inconsistency.

• "Nothing to see here"

• you know not to let a bad policy get in the way of a good story.

Last night

• Client side filters are a dime a dozen and don't need legislation. As usual, doesn't pass the stink test
• then why would it be a policy? Plenty of client-side filters already available. Market not working?

• he's all over social media now disavowing the filter We'll see but doesn't make sense to roll this out now
• It's a Comms policy, which is Turnbull's area. "switched on as default" was mistakenly written twice?

Process? Abbott read & authorised 'last night'. where was Turnbull in all this? He's provably NOT in charge of Internet and Communications policy. That he so easily and willingly complies with any policy put in front of him speaks to the character of the man and also that he whatever he thinks, he is very unimportant in the hierarchy of the Liberals.

• I'm not sure what bothers me more: that they may be crazy or are actually incompetent. Hopefully they're not both. :(

• Coalition #NBN is a sham and all misinformation. 

• What the Libs haven't told us is the real worry. We'll find out after their 'reviews/audits'.

• Yes it has to make you wonder what else do they have planned for us. They intend silencing any critic.

• honesty and trust. Except don’t be honest or truthful. How horrendous.

• I’m stunned. I’ve never seen any party sneak something like that in

early tweets

• You could from Conroy's too. At least his was done in the backend rather than at the consumers
• What's worse is that we already know a 12 yr old can beat client-side filtering. LNP #internetfilter worse than useless
•  at least you can opt out of this one!
• Comment: really? That is always very hard to do technically.
• Lucky for me I have a Windows Phone 7. No-one writes apps for that so I should be safe :)
• Wow. I never thought it would be possible to prefer Conroy's Internet filter over something, but there you go

Other worthy comments and questions

• Malcolm a man of mirrors and a smoky hazes.
• That famous Liberal Party unity. I mean they backflip, retract and obfuscate as one! 
• Turnbull defended an Internet filter on radio today (bit.ly/mallies) then lied to Australia about it 
• So the LNP internet filter was non core policy? Why isn't there like a list, a doc of all of their core, non core policies??
•  One has to ask - what other policies will the LNP & @TurnbullMalcolm change 4 hrs after publication? 
• LNP Internet Filter Policy wins the 2013 Federal Election Mal Meninga Award. 
• You've had 3 years to get your shit together LNP you pack of f'ing amateurs
• Mr Abbott only read the first page and approved it.
• Comment: speculation?
• "No opposition has ever gone to an election with a more carefully, comprehensively and thoroughly prepared set of policies."  Filter?
• The first cockup of a Coalition government was such a cockup that they couldn't even get into government before cocking it up
• The only error with the Internet Filter Policy was some dope released it BEFORE the election. What about their IR Policy?
• Mr Abbott read the internet filter policy as Stop the Boats not Stop the Bytes.
• Liar @TurnbullMalcolm has tried throwing LNP filtering policy down the memory hole. But the Internet doesn't forget! 
• LNP want to buy back all the modems out there in an attempt to control foreign bytes coming to our shores.
• I wonder if the policy of buying up the Indonesian fishing fleet was also "poorly worded."
• But LNP invented the internet so why wouldn't they control it with a filter? 
•  Look, if only they'd put a 3-star general in charge of the internet this stuff-up would not have happened.
• You don't make a fool of @TurnbullMalcolm it's more a case of self saucing pudding
• Mr Abbott's Internet Filter is designed to 'Stop the Sex Appeal' 

Collected Retweets from Geeksrulz.

https://twitter.com/geeksrulz/status/375600242390872064

Abbott's 5 pillar economy:

1. Stop BOTES

2. Stop GAYZ

3. Stop INTERNETZ

4. Stop PRON

5. Stop DREAMING OF A BETTER FUTURE

• .@TurnbullMalcolm - not your policy? You released it - you own it. You can't be trusted and nor can Abbott
• Tony Abbott:  "Look, trust me, I read that policy document and thought it said something completely different".  he admits it. 
• So Abbott saw the policy before it went online. Interesting! 
• Tony "I'm not tech-head" Abbott: "I thought it was a PC-based software." In other words,  #GetAMac
• The best internet filters are the ones people don't know about. LNP nearly got away with it
• Today the Libs announced an internet filter. No consultation. Hoping no one notices.  A vote for Abbott is a vote for filter & #fraudband
• Is this the competence we've been waiting for?
• So who authored this policy if it wasn't the Communications Spokesman @TurnbullMalcolm? 
• Liberal Party in last minute dash to take the "Dumb party organisation award" from the Wikileaks Party
• With sinuous ease, @TurnbullMalcolm is now backing an internet filter, an idea he furiously opposed just last year.
• Malcolm Turnbull on Labor's internet filter, 2012: "This was always a bad idea. It was bad for freedom, it was bad for freedom of  speech,"
• .@TurnbullMalcolm this is just insulting to voters, releasing policies just days before an election that you haven't even read properly.
•  Coalition announces internet filter ... and immediately backs down
• This mob was supposedly ready to govern in 2010, 2011, 2012 and can't even agree on a simple policy position on internet filters?? 
• One policy. One elevated degree of scrutiny. One furious backflip.
• There. Wasn't that hard, was it?
• "This is very much about protecting children against inappropriate content" - Liberal MP Paul Fletcher defends the, er, "policy"?
• Mr Turnbull and Mr Fletcher have been sent to their rooms by Mr Abbott. Baddies vs Baddies. Adult Alternative Govt
• Shortest lived policy ever? What 3 PM to 6PM? The LNP Mal Meninga Internet Filter.
• Thank f**k mr flip flop changes his mind as soon as his ideas are unpopular 
• Comment: Abbott won't be doing this, not when he's in power

https://twitter.com/geeksrulz/status/375578896185323520

Today we have:

1 Sweaty Joe

2 Perplex Andrew

3 Confuse Malcolm

4 Long Lost Paul

• Rumour is that Paul Fletcher will replace Turnbull after Abbott gets absolute power.
• .@TurnbullMalcolm who's actually running this net protection policy - you or @paulwfletcher?
• So on the same day Turnbull defends a filter which didn't exist and it appears in a costings doc. Nothing to see here peoples. Badly worded.
• This is a complete debacle. @paulwfletcher explains in detail an opt-out filter policy which the Coailtion apparently strongly opposes!
• If the Libs put in an internet filter and don't tell anyone, does it really exist?
• Why would Mr Turnbull know so much about an internet filter & defend it when it never existed?
• So the internet filter is enabled by default which means a majority of non techo people will be censored.
• A Rhodes Scholar cannot tell a LNP Policy is #NotBadlyWorded until a non Rhodes Scholar points it out.
• Hear that? That’s Malcolm Turnbull running 100 miles an hour away from Liberal Party policy...
• @TurnbullMalcolm Why would you need to make sense of a policy that you have developed?
• It was released by mistake. RT @AlboMP: Labor's release on Coalition last minute hidden Internet filter plan 
• Three years in the making RT @latikambourke: OL Tony Abbott - badly worded sentence or two in the policy document that went out.
• The internet filer policy was embargoed until after the election. Who leaked it??  
•  @LiberalAus don't even know what their own policies are. 
• The Coalition have removed a policy already. It was a mistake. An ENFORCED filter in phones & handhelds WHAT.? 
• Mr Turnbull is Shadow for Censorhip, Internet Filter and Mind Control.
• So why did lib backbenchers confirm it to two journos.
•  A filter policy, replete with all the media trimmings, suddenly becomes a poorly worded error? Pinocchiosis
• It appears that @TurnbullMalcolm is not in control of the comms portfolio. Ready for the reshuffle & cancelling of the #NBN?

The Liberal Party's Latham Moment: letting the Real Team Abbott out.

Last night saw an incredible piece of Political Theatre unwind. The ABC's Jake Sturmer wrapped it up for Lateline: first a policy is announced, then there's a monumental backflip. We're told "nothing to see here".

A relatively unknown MP, Paul Fletcher, went on-record to Josh Taylor of ZDnet about the latest LNP Policy slipped under the wire on the last day - a Back to The Future Internet Filter "for kids safety", Mandatory and Opt-out. Just the policy that in 2012 the Australian Christian Lobby was calling for after the ALP/Conroy Internet Filter was put to death.

Joe Hockey, the putative Treasurer didn't know of it. Malcolm Turnbull, the minister-in-waiting who's portfolio covers it, was on-air explaining how it wasn't filtering (though the Policy (or Scribd) does say "filter") at all and the Prime Ministerial candidate, Tony Abbott said quite clearly that he had read and authorised this Policy the evening before.

Then the back-pedalling began. Turnbull tweeted maniacally (13 tweets), including a statement "That is not our policy and has never been", which formed the narrative of a statement on his website, when it came back on-line, and the Liberal Party.

There are a number of massive FAILS by the Liberal Party. Like the Latham handshake in 2004, they cannot deny any of these.

• This was an official Liberal Party Policy that followed their process, was formally approved, and released.
• There was NO ACCIDENT.
• This last-minute under-the-wire release jibes with Abbott's promise:
• NO Surprises, NO excuses.
• It goes directly to a "referendum on Trust". Do we now trust anything Abbott says?

• How could the responsible Shadow Minister, Malcolm Turnbull, not be aware of a critical Policy in his Portfolio.

• How could Turnbull NOT understand this was political dynamite?

• What does it say of Turnbull and his position within the Liberal structure that he could not veto the release of this policy within his portfolio, that he had to go out and promote the party line with all his usual passion, aggression and certainty?

• Why did it take Turnbull more than an hour to remind the Liberal Party, "That is not our policy and has never been"?

• Turnbull is now saying, "This was released by Campaign Headquarters" and he had to correct it. What?!?! The central puppet-masters don't know their own policy inside and out?
• Is that really something you want to broadcast?

Clearly, it was an early insight into exactly how an Abbott government will work.

Turnbull is persona non grata to the Inner Circle. He is tolerated to some extent, and is told what to do and happily complies. Others make the Policy in his area, Turnbull has to sell it.
That does NOT bode well for all his promises and assurances about an NBN.

Nothing has happened by accident in the Liberal campaign. We just caught a glimpse of the inner workings: Paul Fletcher issued a Policy, read and approved by Abbot, without informing or consulting with the responsible proto-Minister. Just who's in charge?

This is Kevin '07, but more extreme. One man, Tony Abbott, is micro-managing ALL Liberal actions and policies. This megalomania can only end badly.

Further, Abbott has just been shown to have very, very poor judgement. Either he & his inner circle meant the Policy to be out there OR it was slipped past Abbott, when he failed to recognise it was "Not the party policy and never had been".

Either way, this is a damning insight into the Abbott "team": Policy on the run, inconsistent and contradictory and without regard for prior public commitments.

Whither the Abbott commitment: NO Surprises, NO Excuses?
That's blown completely.

If this Election is a "referendum on Trust", then what did we just learn about the nature of an Abbott government? It says one thing and does another.

This Policy was NO accident, no mere mistake. This was NOT a policy ripped off in an afternoon. This policy was carefully compiled, written, checked, authorised and released.

No matter how Turnbull spins it, in such a controlled, buttoned-down campaign, nothing happens by chance, there are no mistakes. We just looked into the future. This is how an Abbott government will work, You ain't seen nothing yet.

Australian Tech Media: Second to ALL.

Phil Dobie is a great Tech Journalist, just ask him. It doesn't seem a lack of technical or economic knowledge hampers his efforts in the least.

His latest podcast furthers the inane & self-serving Coalition proposition: "Applications NEED bandwidth"

Dobie bravely asks "How Much Bandwidth Do We Need?".

Answer: If the two Voyager spacecraft can map/image the Solar system at 160bps - 1400bps (no kilobits, megabits or gigabits there), then NO application NEEDs more bandwidth.

People WANT bandwidth and given the chance, are prepared to pay for it. From the NBN April results, we know there is pent-up demand and 31% of customers are happy to pay for 100/40Mbps services. Rather more than the average 4.2Mbps in today's ADSL Copper ghetto.

It's a very simple trade-off of time and money, based on how much do you value your time.
For some people, all that matters is getting the cheapest price. They'll always be entry-level users.

This seems far too difficult for Phil The Great to grasp. Or maybe he just likes recycling Coalition memes.

For my previous pieces on the topic:


http://stevej-on-nbn.blogspot.com/2013/08/nbn-need-for-speed-3.html
http://stevej-on-nbn.blogspot.com/2013/08/nbn-need-for-speed-ii-nobody-needs-more.html
http://stevej-on-nbn.blogspot.com/2013/08/nbn-need-for-speed-i-path-to-1-gigabit.html

Australian Media: Worst. Reporters. EVER. Example - the NBN election coverage.

I think it's not just possible, but easy to make a case for a "Fail" by Australian Media in reporting the election issues through the lens of the topic I know best, the NBN.

My opinion of the Australian media, at least on this issue (NBN), is that they are "soft" (vs hard) questioners, credulous and lazy. I hope what I write substantiates that for you. If one crucial issue is badly reported, then why would others be different?

Introduction

The NBN is an investment, not an expenditure, by the Federal Govt.
NBN Co is a company, running a business and being given $30.5 billion in equity to run a project for 30 years. It is expected to payback the entire equity and return a profit (7%pa) in the 30 years.

Both parties are funding the investment the same way: off-budget loans of around $30 billion raising 100% of equity, with on-budget interest payments. NBN Co has to raise any additional capital required by direct debt - raising loans itself above the $30 billion equity.

Both parties are making a pitch to the taxpayers/voters to fund around $30 billion via loans BUT the Downside Risk is that the taxpayer-as-investor has to underwrite ALL losses, besides funding the interest.

These losses are an uncapped amount.

There are two things that come out of this:

• there is a very significant BUSINESS story comparing the pitches, the Rate of Return, structure of income & profitability and likelihood & magnitude of losses.

• The "costing" of the both policies is trivial:
• what is the on-budget interest payable up until break-even? (equity repaid in full)
• Over the project period (2040 for the ALP), what is the equivalent yearly Rate of Return (IRR)?
  How much extra is returned after the equity is repaid?

From the 2012 NBN Co Corporate Plan, we know for the current project:

• The $30.5 billion equity is reached in 2018.
•  Equity repayments start in 2023 and is fully repaid in 2033.
• NBN Co from 2014 to 2021 expects to raise direct debt of ~$2 billion/year.
• At 2.5%, on-budget interest is $12.5 billion until 2033.
• By 2040, equivalent yearly return is 7% pa.
• Downside risk is low, with current financial results running well ahead of Plan and costs on-budget.

The Turnbull Node Plan sets an equity limit of $29.5 billion and tells us NOTHING else.

As investors, the Australian Taxpayer doesn't know about the Turnbull Node Plan:

• the timing of equity drawdown
• repayment schedule and break-even period
• the on-budget interest
• the Rate of Return
• maximum risk exposure

Turnbull supplies "summary financials", but these cover just a 5 year period (2014-2019) and NOTHING is revealed for the next 25 years.

NOTHING is supplied about the charges, traffic volumes or demand & growth used in the project forecasts/model.

As a business plan, the Coalition documents are woefully incomplete and do not pass basic sanity checks.

What we've seen is:

• NO mainstream media (MSM) has reported on the lack of basic business data and missing Financial Forecasts nor taken Turnbull to task over this.

• NO MSM has had BUSINESS reporters critically examine the Turnbull Node Plan.

Comments

Turnbull has specialised in "smoke and mirrors" illusions and distractions.
The outrageous estimate of "$100 billion cost" for the full Fibre NBN is one of these. I've published a rebuttal of this, it's been ignored.

There have been many technical furphy's from Turnbull, like "G.fast", that would need 1.25 million nodes. These are solely distractions, not serious argument, meant to mislead and keep attention off the real business issues.


Point 1. "Cost" not "Returns"

According to the MSM (there are many side-by-side NBN Policy comparisons), what's the cost of each sides NBN?

Coalition: $20.5 billion and $29.5 billion are quoted.
But they are almost never preceded by "claimed".
These claims, as above, have NEVER been checked or questioned by the MSM.
In late April I published a simple "sanity" check that says the Turnbull Node Plan can only save $4 billion, while it deliberately wastes the same amount AND transfers $2-$4 billion of extra costs onto VDSL subscribers while denying them multi-port access and multicast TV.

This has never been refuted by Turnbull's team, even though I did converse directly with them. I got abuse and disdain in buckets instead.

But the real story is COST.

We know the COST to taxpayers for the current NBN, it's $12.5 billion in interest until 2033.

Whatever NBN Co is given in equity or borrows itself is irrelevant to the taxpayer. As investors, taxpayers need to know:

• what they will pay each year out of taxes
• how long they'll be expected to pay that
• their maximum exposure.

It's Accounting 101 that a business ONLY accounts for the assets it owns and controls. That's why NBN Co is "off-budget".

It's an investment and a separate entity with separate assets, revenues, expenditure, debts and profit/loss. The ONLY connection it has to the Federal Government Budget & Accounts in the investment.
 - the equity put in and repayments due later.

The on-budget cost that's identifiable and linked to NBN Co is the interest payable on the loans taken to provide the equity.

This is so simple & basic, WHY hasn't any business reporter in the MSM asked questions?

The only reasons I can think of:

• a complete lack of critical thinking
• a herd mentality (play "follow the leader")
• an incomprehensible laziness, they report media releases, nothing else.
• an unwillingness to listen to anyone outside "the bubble".

Alan Kohler, the doyen of Australian Business media, interviewed (or debated) Turnbull and in his own words "lost convincingly".

But he asked NONE of the basic questions and continued the false view that the NBN Co accounts and budget were on-budget Federal Government "costs".
Consequently, he didn't ask Turnbull any of the most salient business questions.
Kohler followed everyone else in asking only about NBN expenses and never asking about Profit or Revenue. That's not just "soft" journalism, it's amazing thought capture or worse.

My modelling suggests that the Turnbull Node Plan makes a $10 billion LOSS over 20 years, at best getting to be cashflow positive, but never paying back the equity it's given.

I arrived at this by modelling Revenue AND Expenses. First I had to come up with a figure for VDSL/Node wholesale charges that weren't included in the Turnbull documents. A figure the same as the current ULLS charges, $16/mth, seemed in-line with the 2014 ARPU of $21.50.

When I queried a Turnbull staffer on this (and other) figures, I wasn't just stonewalled, but abused, reviled and sworn at.

The MSM did pick up this story when one of their own reported it.
But NOT as a Business story, but as "bad behaviour" by a staffer.

My modelling of the Turnbull Node Plan suggests:

• a $10 billion loss by 2034, leading to liquidation
• Interest on $29.5 billion from 2014 to 2034 of $20 billion, and
• a crystallised debt of $30 billion on the loans.

That's at least a $50 billion on-budget cost to the taxpayer.
This massive downside has not been reported in the MSM, nor discussed by any of them.

I put these points to Lateline Business amongst others, suggesting that he could get a series of experts to comments on the suitability & completeness of the Turnbull documents as a pitch for an investment of $30 billion, which is all it is. Nothing came of this.

A simple question to ASIC would be:

"Would these documents constitute an acceptable Company Prospectus to raise $30 billion?"

This question has never been put.

Point 2. "Cost Benefit Analysis"

I've put to Prof Henry Ergas of UoW the proposition that "Cost Benefit" Analyses are irrelevant if there is NO COST. Prof Ergas has advocated & been an activist for CBA's for public expenditure for over a decade.

Whilst being helpful, Prof Ergas was too busy to answer the question. Prof Ergas was also a co-author of a commissioned report that found in 2009 that NBN Co would have to charge $215-$380 retail for this services. A far cry from the $50 entry-level plans now available.

The whole basis of a CBA, especially of public programs, is that there is a NON-commercial expenditure with an unlinked benefit.

Businesses link expenditure and revenue. They are based around identifiable transactions where goods/services are traded for money or cash-equivalents.

Government accounts & budgets are fundamentally different: they raise money by "fiat" (demand it) through taxation. This isn't "revenue" but income, unrelated to ANY activity or transaction. Taxpayers give money to the Government because they have to, not in direct exchange for anything.

Government expenditures are gifts, untied to any revenue. There is NO backing transaction.

For Government, identifying the national/community benefits that accrue from their expenditure programs is important. It allows them to quantifiably assess the economic desirability and performance of different means of giving away money in their budget.

Government have costs, but there are rarely identifiable, linked benefits. For on-budget Government expenditure, "Cost Benefit" Analyses are very important to maximise the social and economic impact of the limited resources/money available.

But Investments ARE NOT A COST.
Investments, by definition, make a return on equity.
The COST is ZERO.
Any cost:benefit ratio is therefore infinite (divide by zero = infinity).
There is NO need for the Coalition to run a Cost Benefit Analysis on NBN Co: we already know the answer, and it cannot be better.

There is a GOOD, well-known method for businesses to compare different investments, the ratio of returns, not costs, to equity invested.
This is the "Rate of Return" or IRR. It presumes Net Present Value discounts on the value of money.

Turnbull and the whole Coalition KNOW that CBA's are irrelevant for NBN Co, it's an investment.
What matters is the Rate of Return, payback period and Maximum Downside Risk. There are financial methods to assess risk. These are built into loans as "premium" above base rates. In market trading, volatility and "risk" are nominally measured by "beta".

What everyone learned from the sub-prime Mortgage collapse that led to the GFC, is that NOBODY in business has an infallible method to estimate Risk OR to insure against Risk. But you have to take your best shot and allow the investors to decide if they'll accept the risk, it's estimated likelihood and maximum, or not.

The Coalition KNOW that a CBA for NBN Co is irrelevant and misleading. The correct way to compare investment proposals is IRR, yet Turnbull has not provided one.

Why has NO MSM reporter, especially BUSINESS & Economics reporters picked up on any of this?

It's basic accounting, economics and Maths.

Point 3. Acquiring Telstra Copper

Turnbull was in the Howard Ministry that sold Telstra, with no attempt at Structural Separation.

He KNOWS that the Government does NOT control, own or have any claim to the 215-250,000 km of distribution copper that he wants from Telstra, for nothing for his plan to work.

Even at a massive discount of $5,000/km, there's over $1 billion, more likely Telstra would value the last 800m of its network at $15-$20 billion, based on $45/year line rental, pro-rata from the $16.22/mth ULLS fee.

Yet, when asked about this "drop dead" project risk, and one that is only mentioned in passing in the Turnbull documents, Turnbull has remained tight-lipped on the question, only ever asserting "They will" in response to questions on the topic.

This is THE most important question he has to answer, yet NOBODY pushed him on an answer.
This is not "hard journalism", but passive, soft and weak.

Conclusion

I contend that the treatment of the NBN by the MSM since 09-Apr-2013 when the Coalition released the Turnbull documents, shows they are credulous, lazy and "soft" reporters.

Credulous because NOBODY challenged Turnbull on his costs or claims of "$94 billion" for the current NBN, they took these numbers at face value. The word "claimed" does NOT appear in any of the side-by-side comparisons of the NBN plans. The lack of critical thinking shows up by NOBODY noticing a) only on-budget costs are important, b) 25 years of financial forecasts were deliberately left out and c) there's a potential $50 billion downside that's never been mentioned, let alone discussed.

Lazy because NOBODY asked Turnbull about the critical Business of his NBN proposal, nor how he would raise a cent. There's been no sanity checks of the Turnbull proposals, nor any serious questioning and challenging of the outrageous and ever-inflating "$100 billion" estimate for full Fibre.

Soft because even when the best business reporter, Alan Kohler, went up against Turnbull, NOTHING about the business plan, financing, risks and downside was asked.

Where is the hard questioning over the drop-dead issue of acquiring Telstra's distribution copper? Do they plan to nationalise the asset with a compulsory acquisition? That's a pretty hot news topic right there.

Where is ANY questioning about charges, revenue, profitability, rate of return, payback period or maximum downside?

When my questions to Turnbull's staff were reported by the MSM, the real issues (charges, revenue, profitability) were ignored, they focussed on the "person within the bubble" and that they'd behaved badly.

BTW, there were widespread reports of Turnbull "apologising". I was never offered any apology or even contacted. Although I've raised this with multiple journalists, this has never been reported in the MSM.

Where is the basic fact gathering and fact checking in the Australian Media?? It seems completely absent.

NBN: Cost Benefit Analyses and NBN 'Reviews'

There's an issue on the costs of the NBN that's simple, profound and has been completely ignored.
The current on-Budget cost of the NBN, pre-2033, is only $12.5 billion in interest charges.

Rob Burgess wrote a piece today, mentioning Conroy didn't allow a Cost Benefit Analysis, and finishing with:

The all-fibre NBN is a precious baby that looks likely to be thrown out with the Labor bathwater. That’s not just a pity. It’s an historic opportunity – to be truly ahead of the world for once – lost forever. 

Paul Budde wrote on avoiding preconceived or biased outcomes of any 'reviews' of the NBN. Paul doesn't offer opinion or reporting 'news', his organisation is "The largest telecommunications research site on the internet". He & his company are globally significant Telecomms researchers and analysts.

Not surprising, his 10 points on setting review guidelines is wide-ranging, focusing on Business, Economics and Costs & Benefits, not the technology:

While costs are important the overall economic and social issues are far more so.

 The 2009 Ergas/Robson report to the Productivity Commission Roundtable, also submitted to the Senate Enquiry,  "The social losses from inefficient infrastructure projects: Recent Australian experience", focussed on CBA's for the NBN and rail investment. Their bottom-up modelling estimated retail pricing 3-4 times higher than the $50 entry-level plans currently being offered:

"(range of) $125 per month and $225 per month... most likely estimate of $170 per month, unit costs in metropolitan areas are of $133 per month, while those in non-metropolitan areas are just under $380".

But there was another egregious error in this analysis that I approached Prof Ergas about, and while he was very helpful, did not have time to address.

The only cost that is significant with the current NBN investment funding is the on-budget expenditures. These are only interest payments, with the Government currently able to borrow at 2.5%, a record low, the projected total, $30.4 billion, reached in 2018 and being paid down between 2023 and 2033.

Summed over time, without discounting for inflation, total interest payments are $12.5 billion by 2033.
BUT, the project has an annualised Rate of Return of 7% by 2040. It's not a cost, but a revenue item.

For anyone to claim that the cost of the NBN to government is other than the interest is absurd, foolish and ignorant in the extreme. The $30.5 billion government equity, $37.4 billion CapEx and $44.1 billion maximum funding are nothing to do with the Federal Budget.

This leads to two problems:

• Turnbull has failed to disclose the break-even period or IRR of his FTTN proposal, presumably because it's only bad news. My modelling is that the Turnbull FTTN makes a $10 billion loss, and after 20 years, lands the taxpayer with a $15 billion interest bill and a $30 billion on-budget charge to pay-off the loans.

• Calling for a Cost Benefit Analysis of the NBN as a revenue-making proposition defies logic: an investment is, by definition, not a cost.
• The 'cost' to the Government is ZERO, hence any CBA must find an infinite Cost to Benefit ratio. That's as good as it gets.

Prof Ergas, Turnbull and Rob Burgess have all made the same simple, fundamental error, it's like they never did 1st year Accounting: they've confused the separate accounts of NBN Co with the Federal Government.

If you've ever owned a rental property or financed an income-producing asset, say a truck or shares, you know the Maths. You raise money for a deposit (equity), then find a lender to finance the remainder of the asset, being careful that your repayments are covered by the income (revenues - expenses) generated by the asset. If like the vast majority of businesses, it follows the plan and survives and thrives, then when the loan is due, it's repaid and the owners walk-away with a tidy profit and/or ownership of the asset.

The Funding, Capital Expenditure and Cashflow of the business are all separate from the principals. If you borrowed for the equity, then your books only show those costs.

This is done thousands of times a month in Australia. It's not a secret sauce or unknown to any of the players.

At worst for the NBN, a Cost Benefit analysis can be done on the total interest paid by the Government until 2033, the planned break-even. As mentioned, this is $12.5 billion at 2.5%, not discounted for inflation.

There are already identifiable, linked (as in provable causal relationship) Benefits from the NBN: the increased value to Telstra shareholders.

TLS shares bottomed pre-SSU (Structural Separation Undertaking) at $2.55 and reached $5.15 recently before the shares went ex-dividend. That's a provable $2.60 gain of 12.4 billion Telstra shares: or a $32.3 billion benefit already. The TLS price was in long-term decline since 2007 with over 100% of profits being distributed as dividends, an unsustainable and desperate measure by the Board.

The NBN investment, can already show a 258% benefit just as the mass-rollout phase starts. It's not complete and rather than being a lemon, has already becoming the exemplar of Government projects.

Which raises the question: just what are the Coalition hiding by not disclosing 25 years of their financial forecasts for their FTTN NBN?

NBN: Fibre-on-Demand, at best $7,500/premises, more like $45,000/premises

Peter Martin tweeted that the ALP's claim of $5,000 to connect Fibre-on-Demand was "Mostly False".

I disagree and tweeted a short calculation. I find it surprising that the ALP has never made this argument:

$5000 is way low
NBN Co charge ~$110,000/km for "extensions".
800m = $88,000
At 26 prem/km, 20 per leg.
10 >400m
= $9000 ea

Here's how I came up with those figures.

Key Assumptions

The expectation is that the same rules as "Fibre Extensions" will be applied by NBN Co to "Fibre on Demand". Either a group of subscribers split the up-front cost between them, or one lead customer pays for the extension in full and then is given a rebate by NBN Co for every additional subscriber that connects using that cable. It's unclear to me just how costs are calculated for 2nd and subsequent customers, and if any rebates apply.

It's unclear whether for Fibre on Demand NBN Co would follow the Fibre Extension policy of full cost recovery from the first customer/group. This has major cost implications for NBN Co, and as a commercially viable business, they can't enter this to make a loss. They could assume a minimum connection percentage for all nodes and charge standard connection fees, or run a strict "cost-recovery" model.

Background

ZDnet, May 2013, reported the first "Fibre Extension" had been completed:

NBN Co CEO Mike Quigley said at the time that it would be "very expensive" to deliver; one estimate that a business owner in South Australia received quoted that 1.3 kilometres of fibre would cost him AU$150,000.

$150,000 for 1.3 km is $115,384. There is too much uncertainty in both denominator and divisor to use this figure. A more reasonable figure is the rounded down: $110,000/km.

There's another figure needed, the number of premises per kilometre in Australia. Broadband Communities [Pg 22, "Advantage Fiber"] cite,  per km of paved road 26/km versus 24/km in the USA.

The 2012 NBN Co Corporate Plan says there are 148,000 route kilometres and 208,000 km of Fibre passing 12.2M premises, with 8.5M active. This gives raw numbers of 58 & 82 premises/km.

How to calculate the number of households that a single run of Fibre from a node, by NBN Co, could share? The figure lies between 26 and 58 premises/km, but probably 26-29 premises/km.

Reconciling the two numbers shows the routing and access density differences between wire and road networks. Roads need to observe geographical barriers and to provide lots of redundant interconnects in a 'mesh': you don't want to be forced into driving to/from a hub on every trip. There are also strong traffic management issues to avoid congestion at central hubs: road vehicles are different to Telecomms networks.

Copper distribution networks do follow road networks, at least in urban areas which serve the majority of subscribers. There are two problems:

• For underground copper cables, separate runs are needed down each side of the street to minimise cross-street trenches and the chance of conduit collapsing under traffic.
• Aerial cable, under power-lines, can easily cross the road with road-side poles, or
• with backyard poles, as in Canberra, houses on two sides are easily served.
• Distribution Areas are a hub-and-spoke layout/topology. "All roads lead to Rome", or all wires lead back to a central pillar.
• Sets of 10-pair cables are run from the pillar at the centre of each DA. Multiple cables travel the same route, allowing for damage and additional demand.

For an access network, the wire-distance from premises to an exchange is always longer than direct "crows-fly" distances because of the many shared trunks, 'splits' and hub-and-spoke Distribution Areas. The total covered distance by the conduits is far less than the mesh road network, but the total distance covered by all pairs is far greater.

It's reasonable for one-off, on-demand installs to be run down each side of the street, reducing the 58 premises/km by half, to 29 prem/km. This is "within the ballpark" of the BC-mag figure of 26hh/km.

Turnbull has indicated somewhere, but not in any formal document, that his VDSL2/FTTN network will initially have an 800m cable-run limit. No statement has been made about how the 400m maximum effective range of VDSL2 Vectoring will be dealt with: either four times as many nodes are needed or the 75% of customers outside 400m won't have Vectoring.

I posit that NO customers closer than 400m will consider Fibre-on-Demand. Those who win the "VDSL2 Node Jackpot" won't be motivated to pay a considerable sum, both upfront and we can presume in additional rental charges as per BT Openreach, for a marginal increase in access rate and NO increase in Busy Hour sustained throughput.

VDSL2, without Vectoring, will provide reasonable accesses rates up to 400m. With the limits of the Node electronics and uplinks, it's very unlikely that much more than 100Mbps will be offered with Fibre-on-Demand. Offering 1Gbps, when the uplink is that speed, is an invitation to Retailers and NBN Co to be savaged, rightly, by the ACCC for "false or deceptive advertising". Subscribers expect sustained throughput to be near the advertised access rate. 1Gbps Fibre-from-the-Node will fail miserably to give reasonable sustained throughput at peak hours due to Contention & Congestion within the Node and it's uplink.

We know from the 19-Apr NBN Co data that the trial Fibre installs cost $4,000 on top of the $1,100 for the lead-in. This is consistent with the $110,000/km figure, giving 27 premises/km.

We also know from the 19-Apr NBN Co data that 31% of consumers select 100Mbps services when it is offered at a higher rate.

Calculation

• NBN Co will charge roughly pro-rata for distance for each 800m run, plus a connection/upgrade fee for the Node.

• Prudent Financial management says NBN Co will only install short fibre runs after a firm order is placed. A minimum number of premises, no fewer than 4, might be set, otherwise "full cost to first connection".

• Good engineering practice dictates running a single cable along the entire run of copper from the Node to the end of the leg. This minimises later costs, pipe & pit overfilling and follows the Statement of Expectations on "upgrading to FTTP".

• Cables will conform to the NBN Co standard: bundles of 12 ribbons of 12-fibres (min 144 fibres in a bundle).

The cost of 800m leg: $110,000 * 0.8 = $88,000

Add node connection/upgrade costs = $95,000/leg + per-premises lead-in of $1100.

Per 800m leg, the maximum number of subscribers is 21 at 27 premises/km.

Only those outside the "magic circle" of 400m will ever seek a "Fibre on Demand" upgrade: 10 subscribers maximum per leg.

The current NBN Co "take-up rate" expected for Fibre is 70% of premises passed will become active subscribers.

The maximum take-up,  on this basis, of Fibre-on-Demand would be 7.5 subscribers per leg.

A minimum shared connection cost, for all 7 signing up is:

= $95,000 ÷ 7
= $13,571 + $1,100 lead
= ~$14,500/subscriber

The very best, and rare, scenario will be a two-sides of the street being served.
Still $6,500 + $1,100 = $7,600, minimum.

What is more likely is that only 25%-30% of active subscribers, as shown by the real-world data on take-up of 100Mbps services, will take-up Fibre-on-Demand.

That's at best  2 (1.9-2.25) subscribers per 800m leg, or $45,000/subscriber, 1100 hours of take-home average wages plus $3,600/year in interest at 8%.

For a service that cannot guarantee 1Gbps, why would any subscriber be that desperate for 100-250Mbps?

"NBN Lite" won't happen, but has served its purpose: took the NBN off the Election agenda

Update: Sortius did a better piece, and both pieces on NoFibs.



To win the NBN Debate, Turnbull, the Earl of Wentworth, only needed to convince the media that he had an NBN Plan that was acceptable to the great unwashed and was roughly the same as the Real NBN.

To support this, he had to cast serious doubt on the NBN Co budget and ability to execute, and to confuse/conflate the critical questions so media never asked them:

• Lifetime on-budget spending of both Proposals.
• Lifetime Rate of Return from Equity
• Pay-back Period of Government Equity
• Downside Risks

Turnbull succeeded on 10-April when Alan Kohler announced "How Turnbull Saved the NBN" summed up as:

Malcolm Turnbull, with the help of the polls, has turned the Liberals into an NBN party. His plan isn't perfect, but it's better than dismantling the whole thing, ...

After that, the mainstream media assumed that line and all "analyses" uncritically accepted the unverified, unchecked Coalition figures as truth.

The ALP failed to counter this strategy, even under Conroy. Noticeably, they failed to ask Turnbull the central questions above and have the media, and so the electorate, question the fate of an NBN under the Coalition. It's now too late for them to put the fate of the NBN back on the election agenda.

The only thing we can believe in everything that Turnbull has said and written is that they will commission three "reviews", to report within 60 days.

These will be headed by hand-picked high-profile Liberals, exactly as Peter Costello was brought in for Campbell Newman of Queensland's "Commission of Audit" (CoA).

Just like Newman's CoA, the three NBN "reviews" will produce NO surprises. They are designed to:

• Underscore and 'prove' the "Worst Government Ever" rhetoric.
• All intentional economic destruction resulting from Liberal actions will be blamed on Labor, and
• as things get worse, even dire, the Liberals will trumpet "Labor put you in this hole, aren't you glad we're saving you! We came along in the nick of time!"
• "Demonstrate" a complete failure of Governance under Labor.
• Assign blame and considerable opprobrium to the individual Labor actors.
• Following Slipper and Pauline Hansen, expect to see legal action against individuals.
• Reinforce the "Great Big Useless White Elephant" view.
• Make "official" the unsubstantiated claims "Will cost over $100 billion to finish", and
• Concoct an 'official' "Cost Benefit Analysis" that 'proves'
• a Fibre NBN is not "Cost Effective"
• that the only NBN build that can provide an economic benefit is based on existing HFC & phone-line copper assets, with small amounts of "remediation", and
• that as these assets are in private hands, that the NBN can only be built "Cost Effectively" by the private sector.

Turnbull can then be the Ultimate Wise Business Investor and "save us from a $100 billion disaster", by liquidating NBN Co and giving away it's assets to the private sector. He might run supply and construction contracts to completion, or invoke "force majeur" clauses, or just wind-up the company, leaving the creditors to duke it out [Telstra wins]

Telstra and Optus, as the major creditors, would trade their future contract payments "at a substantial discount", for the NBN Co assets. Optus may take a one-time payment from Telstra.

Telstra will abide by its Structural Separation Undertaking and keep NBN Co as a separate, but controlled, entity.

The ACCC won't have much to say because the legislation & regulations controlling it and the Telecommunications sector in particular, will be changed "to support consumer choice and diversity of suppliers, creating real competition".

Meaning, Telstra will once again control both the wholesale and retail markets and

Welcome to the Brave New World, brought to you by the Earl of Wentworth.

Does Turnbull, or anyone in the Liberal Party, regret this deliberate destruction of National assets.
Will they have any pangs or twinges of conscience over deliberately destroying Australian National Productivity and making Australian business internationally uncompetitive for the next 50 years.

No! He's a gun for hire and has "won the argument" as he was asked to do. The consequences are for others to suffer.