NBN: Debunking Turnbull with Alan Jones - VI

Commenting on: Turnbull to Alan Jones, 15-Jul-2013

So we’re replacing almost all of the copper and the only reason you don’t replace that last couple of hundred metres is because that is about three-quarters of the cost.
And a huge amount of disruption.

Confusing/Conflating multiple items:

• the relative cost of a single part of the whole project reflects the TOTAL difference.
• The actual cost difference: Copper is only 10% cheaper to buy, 5 times more expensive to run, brings in just 40% of the revenue.

• Speaking as if Govt still owns the entire network & assets. Turnbull was a Minister in Govt that sold it all.

• Emphasise "huge disruption", Not just A Bad Thing, but The Worst Thing You Can Imagine.

1. If, and only if you, you already own all the assets, then you can compare the incremental costs of upgrading the existing asset to replacing it with a new asset. When you have to buy or build those
assets & holes in the ground/civil works, the economics are completely different.

Turnbull constantly holds up Overseas Telcos as the shining example to follow, but all of them own the copper and access they'll use, while NBN Co is starting from scratch. Turnbull likes to pretend that 200-250,000 kilometres of 10-pair distribution copper he needs are free. Only if he Compulsorily Acquires them: if he Nationalises Telstra's copper against their will.

2. The ACTUAL choice is "do we buy & rent assets from Telstra for a time and pay for Fibre NOW or LATER"?

• The Fibre makes many times more money, it's better to earn that more earlier than later.
• Why must the Government protect an asset it sold?
• And not just any Govt, but one Turnbull was in and a Minister of.
• What is profitable about paying Telstra rent on old, decrepit assets for an extended period, when you fully intend to replace them later?

3. One small part of the project, replacing 3km of distribution network with Fibre (if you already own that copper), is one-quarter the cost.
When you add-in everything, the price difference is ONLY 10%, then you're intending to throw it away (and waste half of what you spent) AND you're also forcing $500-$1000 (twice the money you saved) directly onto Customers, without warning them or offering them the option of an identical (NTD) service on the same terms.


4. "Disturbance" is a deception as well. Most of the Telstra lead-ins will be reused. NO DIGGING NEEDED.

These days, cables are installed in conduits which are placed with horizontal boring, NOT digging trenches - that's exactly what Telstra did in 1994 when it rolled out HFC Cable. It disturbed very little.


5. Turnbull was a minister in the Government that SOLD the Assets, knew that an NBN was required and the _only_ way there was via the Telstra assets they'd sold, knew that over the previous 10+ years the Telecomms market in Australia had failed multiple times (HFC Cable, ADSL1 pricing, ADSL2 rollout (so sharing), no mobile roaming between operators) AND he's on record as advising 'Telstra would be worth a lot more if it was structurally separated BEFORE being sold'.

To quote Turnbull in this same interview... "we wouldn't be starting from here".
This is his lawyer joke to illustrate:

"can you give me directions to Dublin?
  And the barman says well if I were you I wouldn’t be starting from here."
" So we wouldn’t be starting from here either.
 "So the first thing we’re going to do is assess in a hard headed objective way how much it is really going to cost in dollars and years to complete this project on the current specifications.""

• the point of the last sentence is "hard headed" and "objective way".
• Implies he really looked at the numbers & finances, while he hasn't published the financial forecasts he's done and quotes at us.

• where is the mention of taking a profitable business with 7% RoI and turning it into a guaranteed $10 billion loss that will destroy the entire $30 billion investment as well?

NBN: Debunking Turnbull with Alan Jones - V

Commenting on: Turnbull to Alan Jones, 15-Jul-2013

But the point is when you are making decisions
 in times of uncertainty
 as you are particularly with technology,
 you have to preserve as much flexibility and options – and hence,
‘optionality’
 – and that’s what business people do.

Reframes 3 things:

• we are in UNCERTAIN times. correct response is to be cautious and batten down the hatches.

• Technology is in rapid flux, demand is uncertain, great to potential to misstep and waste money, implies 'in huge amounts'.

• Turnbull  'knows business' and is speaking 'as a business person'. sane, rational, logical, Just dollars & cents.

1. Only Real Consumer Choice is offered by Fibre:

• guaranteed speeds, not by lottery
• Demand can be met with Supply
• Opposite of "one size fits all", choice of access rate to meet needs and needs.
• Tiered pricing with Fibre is both equitable AND profitable.
• Pay for what you want: Trade time for Dollars, your choice.
• High-end see decreasing per-Mbps as a bargaining. Entry-level get a CHEAP service.

2. Fibre is Robin Hood Economics: Top 25% high-demand users subside the other 75%. Rich help Poor.

• On-going profits, generated solely by high-end consumers, pays for everyone to get lower costs

3. The Telecommunications business has Real Choice and new offerings with Fibre, not VDSL.

• They open up the options, flexibility to offer MANY brand new services
• and they can choose, on a per-line basis, to upgrade transceivers from 10Mbps to 1,000,000Mbps
• or connect people locally or offer business services, like redundant links and symmetrical speeds,
• or allow people to truly work from home, with full HD-videoconf, and secure networks,
• or allow people to run servers from home, for new businesses or just backing up data.

4. Turnbull either is an informed, experienced, competent business person spinning tales and deliberately pulling the wool over people's eyes OR he is a complete sham: uninformed, incompetent and inexperienced.

Turnbull hasn't released a Business Plan, or the 30 years of financial forecasts he prepared. Only a 'policy' which a disguised & hidden $10-$20 billion Blackhole, a guaranteed Financial Disaster, resulting in the largest single the Government will ever face: writing off the entire $30 billion investment.

NBN: Debunking Turnbull with Alan Jones - IV

Commenting on: Turnbull to Alan Jones, 15-Jul-2013

Because you see this is not like building a bridge.
Some people will say, this is like building the Harbour Bridge and we wouldn’t build the Harbour Bridge with one lane.
Well you wouldn’t.
But a telecommunications network evolves.
And it is built up and expanded every year so that you’ve got that luxury that you can invest no more money today to meet the demand of today and the foreseeable future; and then in 10 years’ time you can make another investment and another investment.
And so you can add to it incrementally.

Conflating "whole network" with Customer Access Network.

Telco Networks are in two broad parts, the "edge", or Customer Access Network that connects to individual homes and premises, and the "core", where the real high-speed, high-reliability switching and transmission is done. Core networks were upgraded to fibre in the 1980's. Telstra migrated to pure digital network then and since have moved to a pure Internet network.

Core networks are very different to the far-flung, low-speed, high-maintenance Customer Access Network.

1. Yes the internal core networks are continually upgraded, evolve and undergo incremental change. because they were designed for that.

2. The Customer Access Network is built to a 1925 specification for subscriber (pulse) dialling phones at 4kHz. Getting radio-over-lousy-copper to work, xDSL, is temporarily covering up the
problem.

• The Copper CAN was never designed for incremental upgrade.
• There are some spare copper pairs included when the cables are permanently fixed/installed, that's it. There is very little extra capacity built into the Customer Access Network that could be used for "incremental" upgrades. 

3. The only Customer Access Network technology that offers incremental upgrades for data, not telephone (4kHz) is Fibre. Right now, you can start with 10-12Mbps and go right past 1,000,000Mbps. All you have to do is change the the transceiver. Cheap, quick, easy.

NBN: Debunking Turnbull with Alan Jones - III

Comment on:Turnbull to Alan Jones, 15-Jul-2013

Well Malcolm that may be good for today and the next 10 years but what about 20 years’ or 30 years’ time? 

These two outrageous statements by Turnbull need addressing:

 1. We don’t know what the demand is 20 or 30 years’ time from now and if you think you do you are kidding yourself.

 2. More importantly, if we are going to invest in infrastructure to deal with the demands of 20 years’ time surely we should do it closer to that date, when we will be buying the technology of 20 years’ time. Which will no doubt be better and more efficient and have capacities we don’t have today.

Responses:

1. Reframing as "we don't know the future", so can't plan for it.

If you'd asked me about Apple and Microsoft in early 2007, pre-iPhone, whatever I'd said would have been wrong. Turnbull ignores the words of Apple: The best way to predict the future is to invent it.

All we can say about sticking with "business as usual" Copper & xDSL is that it is very close to its technical limits, each evolution costing more and delivering less. It's a good technology, for 1925 when it was specified. It's time to embrace the future.

2. pseudo-financial babble, a corruption of Net Present Value argument: withhold investment for as long as possible.

That's sheer bunk. It takes 10 years for anything to get out of the Labs, and then fewer than 1 in 10 "great ideas" turn in products, and then only a few get taken up.

We know the very cheap, very high-speed networks in 10 years will be Fibre, not Wireless not exploiting old "category 2" phone cable. Because that's what's in production now, or in the Lab.s

3. There's an implicit assumption in "we" that a) there's is an average user and b) we ALL share the same usage pattern and ALL want the same services at the same time.

That's bunk as well. The top 1% of users consume 10% of download, while the bottom 50% (half) consumer just 6.4% (six point four): an exponential distribution.

Broadband has a very wide spectrum of users and demand. A "one size fits all" service, like ADSL

Part of the change in broadband takeup from 2009, is Business/Government have increased services bought from ISP's from 28% of users to 48-49%. Instead of leasing very expensive ($8,500/mth for 10Mbps) services from Telstra, small and large business are figuring out how to use ISP services in their networks.

The NBN is about Business and all it's profits are generated by the top 25% high-demand users. The rest of us, the other 75%, get a Free Ride, either NBN services at cost, or heavily subsidised.

NBN: Debunking Turnbull with Alan Jones - II

Commenting on: Turnbull to Alan Jones, 15-Jul-2013

which is not taking fibre into every house and not disturbing
everybody’s garden and not drilling holes in everybody’s walls but
taking the fibre further into the field so that it’s within a couple of
hundred metres from everybody’s home.
That’s fibre to the node.
 And we say that is the best approach

Framing "Disturbance" (synonym is "disruption") as an Issue.

Creating FUD, Fear Uncertainty and Doubt, where there should be none.

very technical/legalistic use of wording. Your services (phone and ADSL) will be deeply disrupted for days, not the rockery or paint work won't be disturbed.

This conflating of meanings & deliberate deception/misleading is classic Barristering...

a. Why is it so important for the Government to preserve the assets of a private company sold by the Coalition, with Turnbull in the Ministry, in 2006?

b. Fibre will get installed sometime, even Turnbull says that. Why is it better to put that off for as long as possible? Turnbull plans on wasting half his FTTN investment and in 10-20 years time, the major costs of Fibre, the civil works, won't have changed. Waiting saves nothing, only wastes time, money and opportunity.

c. Getting VDSL2 on is 1. expensive & disruptive to customer and 2. means a $300-$500 technician visit. Somebody climbing into your roof or under the floor to install a Central splitter. How is this NOT disturbance?

d. People are signing up for THREE, not ONE, 'disturbances':

• Those 68,000 nodes 'at the end of the street' with big green boxes, 3 sets of holes (electricity, copper to pillar, fibre) AND getting your splitter.
• Pulling OUT those 68,000 nodes, or worse yet, installing 1.25 million nodes for G.fast and pulling them out
• Finally installing the permanent fix: Fibre

NBN: Debunking Turnbull with Alan Jones. - I

Commenting on: Turnbull to Alan Jones, 15-Jul-2013

Well what I mean by optionality is that when you’re in a time of rapid technological change, you don’t want to put all your eggs into one technological basket any earlier than you need to.

Reframing: "its a time of rapid technological change".

No. it isn't, not now. We had that explosion between 1965 and 1985 in fixed lines.

While in fixed transmission technologies, all the work is on Fibre, the other broadscale technologies are

• 3G/4G wireless and WiFi. still trying to get to 1Gbps
• Radio over 4KHZ "Cat 2" phone cable, struggling with 100Mbps and trying for 200-300Mbps (G.fast)
• Fibre is commodity pricing for 1Gbps, volume pricing for 10Gbps, and in production at 100Gbps times 96 DWDM is you need/want (9.6Tbps) - 10,000 times faster than 1Gbps, now.

For Fibre, the Customer Access Network was being actively discussed/researched thirty years ago. I remember reading a stream of research papers around 1983.

For backhaul and long-distance (especially undersea international), the argument was over 25 years ago.
In Australia in 1987, IIRC, the first Fibre Optic link (SYD-CBR-MEL, 'the golden triangle') was put in service. It paid for itself in under 6 months. That same fibre is still in service. Fibre cables last.

The first international fibre cable to Australia was around that time as well.
We very quickly, in ~5 years, went from undersea coax and Intelsat IV & V satellites, to fibre only.''

Only in the mind of Turnbull is there any "rapid technological change" in the Customer Access Network.

• Every Telco in the world has been aware of the inevitable change coming for the last 30-40 years. Telstra in the early 1990's under Frank Blount planned to have a full Fibre CAN in 2010. Under the Howard Govt, this didn't happen.

Incumbent Telcos who OWN the copper, networks, systems and access into houses are looking for ways to protect their current assets and extend the life of their copper. This is the only area where there is any "rapid change". The problem is, each evolution is more complex and expensive is absolute terms, and delivers a smaller incremental advance.

• ADSL1 took 4KHZ cat-2 phone cable from 28/56Kbps to 1.5Mbps over 5km and 8Mbps at 2,400m
• ADSL2 took 8Mbps at 2400m to 24Mbps at 800m.
• At 3,200m, the Australian average distance, ADSL1 is still the fastest connection at 4-5Mbps.
• VDSL2 took 24Mbps to 50Mbps at 400m
• VDSL2 Vectoring will improve 50Mbps to 100Mbps at 200-300m.
• G.fast with full vectoring will deliver 200Mbps over 100-200m, if it works properly.

Even if your own the copper, G.fast is only 30% cheaper, at best, than installing Fibre from scratch.

Each evolution of DSL over cat-2 costs twice the previous technology at time of introduction and yields smaller and smaller increases.

In a world of PC's and mobile computing counting sales in billions, volumes for Telcos, millions, are small. Special Telco electronics don't constitute volume production, they are expensive to make and attract a premium because of their small niche and design for difficult environmental conditions

NBN: Debunking Turnbull interview with Alan Jones.

Comment on: Turnbull with Alan Jones, 15-Jul-2013

Other related pieces

• Optionality: Rapid technological change is finished. Fibre won 30 years ago.

• The Disturbance Bogeyman: Your rockery might be ruined! FTTN means 3 massive disruptions, plus you get Fibre connected later, anyway. Modern installs don't dig trenches.

• "We don't know the Future": Fibre became old hat 30 years ago. There is no future Amazing New Wunderkind Technology whose magic touch will somehow be instant, fast and free.

• "Incremental Upgrades": The Core network is continuously upgraded, the Customer Access Network, the part the NBN replaces, has never been "incrementally upgraded".

• "In Times of Uncertainty, .. that's what Business People do": Turnbull pretends he's offered a Business Plan when he's done nothing like it: withheld 25 of 30 years of financial forecasts and omitted all key investment data, like Break-even time, ROI and Downside Risk. A complete sham.

• Disruption and reusing assets you don't own or control, for free. The most bizarre logic you'll ever see. Somehow it's good business to preserve and upgrade somebody else's assets. They sold the house (Telstra) when they owned it, now want to pay for a complete renovation and move back in, and pay rent at the upgraded price! In what fantasy world is this "good business"??

The Turnbull Copper/Node Plan may be good for today and the next 10 years but what about 20 years’ or 30 years’ time?

1. How do Telecomms and very other infrastructure business plan? They have to invest and build ahead of time so capacity is there when needed.

They do forecasts, which naturally have a range of probabilities...
Based on averaging demand from large numbers of unique consumers and their historical preferences & consumption.

• We have very good data from the ABS on the growth in demand for Download Data: it's been growing at 60%/year for average download volume.
• Upload, not so much.
•  Even at 30%/year growth in the NBN Co Plan, it's impressive demand growth we'll be seeing.coming.

Why Turnbull has to a) insist 3.5% real growth all that's possible and b) why he has never heard of sustained high-growth rates in Oz Telecomms?

He can't look, won't look because he knows the facts already... High growth for next 25 years. [that's a good stress-test modelling for the Copper/Node plan]

2. NPV applies to the whole of the accounts: CapEx, Opex, Revenue, financial costs (Interest, depcr, ...), Profit, full loan repayment and Return on Investment (implies 'we paid back the loan').

Applying NPV solely to the Cost side is wrong. They're covering up a $10 billion loss, and intending to not pay their largest Creditor, Telstra, $8 billion on already agreed contracts and NOTHING for the use of the copper for 20 years.

Mal-economics, where fantasy becomes Reality and all your Financial Dreams come True!

3. The truth about Data Networking is a exceedingly wide demand: exponential distribution.
Top 1% consume 75-times more data than the average of the bottom 50%.
And the bottom 25% average 500-1000 times less than the top users.
The network profits are generated by the top-end users, NOT the bottom 25%-50%.

The "speed fiends" pay for everyone else. When people are allowed real choice, they assign a very high utility value to the time they save through faster access rates.

Commentary

I've realised that Turnbull is so hard to criticise for lying, dissembling and misdirection because it is so basic and so dense: he buries us so completely in B/S, that refuting any of it is long and tedious, which loses the audience, meanwhile the Reality Distortion Field has skipped on to more outrageous B/S.

If something is correct, it's turned upside-down to mean "bad", if something is incorrect it's touted as gospel.

The "spaces between" is where most of his worst, most egregious deceptions & withholdings are made.
It's what he doesn't say that forms the basis of his biggest lies: he left out 25 of 30 years of financial forecasts and nobody noticed!

Like the "Coalition NBN Plan": They shred a real Business Plan but never present one of their own.

They present a few partial cost models and snippets from a fully worked model they never reveal. Nor any of their input assumptions.

Would Turnbull submit that "proposal" to a BANK and get a second look?
No!, so why give it to us, the voters?

LNP provide: No revenues, np full costs (CapEx, Opex, Financing/Investment), no profits, no loan repayments, no major creditor (Telstra) payments either and no ROI, just a massive and compounding loss.
No Risk Analysis, contingencies & mitigations or any range of outcomes.

He's a master of phrasing concepts "simply and obviously" - and with upside-down logic, or "double-speak": what's good is bad, what's wrong is right.

To refute Turnbull's lies requires time and detail : which will just see people's eye's glaze over. He knows this and plays on it.
Eg: "My numbers haven't been questioned in 4 months."

Turnbull also adapts:

• he doesn't just respond to previous criticisms ("building a harbour bridge",
• he adapts he argument to audience, Jones and Kohler get different lines
• he drops old arguments (no more "$50 modem" and "more affordable" is rare)
• and new arguments. He's now picked up on asbestos pits and how they can leave them alone.

Which nicely ignores "we will replace copper with fibre down the track", so the poor state either means higher maintenance and constant remediation or much higher costs later when its degraded more.

He phrases negatives as positives, but how unusual is that?
the Telstra network is a deplorable state, only 30% of it will be usable.

So instead of a reasonable "holly scintillating poop, batman! That'll be terrible for VDSL/FTTN!"
we get something like:
 "VDSL/FTTN  is wonderful because we can use it 'as in' and disturb your rockery". Never mind he doesn't own or control the asset and his plan doesn't include paying the owners, Telstra, a cent for it.

I'm thinking the most telling thing is the absence of Business Leaders standing behind Turnbull and supporting his views, applauding his initiatives to save money (avoid investment) and they aren't standing shoulder-to-shoulder chanting "only 25 megabits, no more".

Anyone in charge of a current business, wholesale or retail, goods or services, knows that their future profitability is tied to a solid, reliable and universal broadband network, so their customers can interact and shop on-line with them.

NBN: Numbers from the Turnbull Copper/Node Plan

The Coalition doesn't have an "NBN Policy" for a Government expenditure program, neither does the ALP. The NBN is vitally different: it's a business and investment.

Treating the NBN as a normal policy is wholly misleading. It's a business, pure and simple.
Money is being borrowed to invest, meaning it must both break-even and pay-back, in full, and go onto make a Return on Investment (ROI).

Investments also carry risk, the taxpayer must also be prepared to pick-up the multi-billion dollar tab if things go.

NBN: Unanswered business questions of the Turnbull Node Plan

My current list of business, not technical, questions about the Turnbull Node Plan.
There are some questions about implementation details and things like "Traffic Class" that arise because they're on the NBN Co rate card.

From what Turnbull has published, we know, more than merely infer, that Turnbull did indeed prepare a full Business Plan, out to 2040 at least. A reasonable Business Plan would include the replacement of the Node (FTTN) network as described multiple times in the Coalition documents.

This is at least a $4 billion charge to the full project, referred to by the Coalition "CapEx Reuse", normally this would be classified as "deliberate waste".

This is, by my calculation, the whole of the CapEx saving achieved by the Turnbull Node Plan, the $17 billion claimed is impossible, even if the full Telstra payments are swapped to OpEx in a "rent, not buy" deal - leaving the original contracted "PSAA" payments of around $7.5 billion still to be paid later. This point was raised directly with Turnbull's office very early on and has never been explained.

The Parliamentary Budget Office, PBO, has sufficient capability and time to evaluate a full spreadsheet model of the Turnbull Node Plan (if supplied electronically) and to extract the financial/marketing assumptions and refer them to experts in DCBDE (Department of Communications, Broadband etc), NBN Co or external Telcos like Telstra and Optus, or the many experts & consultants in the field.

It doesn't take long, a day or two, for real domain experts to assess given assumptions, like traffic growth and market demand. Interest rates and A$ exchange rates are well within the expertise of the PBO. A panel assessment of the Turnbull Node Plan would allow PBO to quickly create a credible range of estimates. There are good techniques, such as "Delphi", to apply these estimates.

Outstanding Questions on Coalition Business Plan:

First, a competently assembled Policy with adequate supporting documents would have included the full Business Plan to 2040. If the Coalition has intended to clearly annunciate its Plan, for its communication to be be complete and clear and for its assumptions to be open and transparent, it would have gone about things very differently. Instead, that Master Magician, Turnbull has engaged in misdirection, distraction, obfuscating, deflecting, confusing & conflating, attacking, inverting positives ($110 ARPU is "bad") and drowning all an sundry is masses of superfluous and irrelevant detail.

This is why the PBO cannot examine the Coalition NBN Policy and would need a huge amount of expensive, external consultant time ($250,000-$500,000) to properly assess the Coalition documents: they are not designed to convey pertinent information, but to prevent exactly that.

That the Coalition haven't submitted their full Business Plan to 2040, and that they've deliberately withheld critical and necessary headline figures, like ROI and pay-back period, speaks volumes in the political world. It's as close as it gets to a flat-out admission of deliberate action.

They are presenting a Plan that will fail, they know will fail, is designed to fail and will complete Turnbull's commission to "Destroy the NBN" by sending it bankrupt.

As Turnbull has started to state frequently now, "nobody has challenged my figures in 4 months".
Which raises the question:

Why has the Mainstream Media not asked and had answered all these questions in the last 4 months?

• What's the CapEx, in their model, of the FTTN component to 2016 & 2019?
• What is the CapEx, in their model, of the "90% premises to 50Mbps" upgrade between 2016 and 2019?
• Is this upgrade via Vectoring, increased nodes (shorter distances), a combination or something different?

• What interest rate is assumed in their model? per year, if it is modelled as changing.
• what cumulative total, by year, is borrowed in their model?
• If NBN Co is not cash-flow positive in any year, how will they fund that?

• What is the assumed project life of the FTTN component?
• Do they assume a "straight-line" depreciation in their model?
• What is the ROI, in their model, of the FTTN component?
• Does that include the "50% Capex _not_ Reused"? [pg 14 of "Policy Background"]
• What's the break-even period in their model?

• The new "Statement of Expectations" to NBN Co include non-commercial directives about prioritising rollout to "poor service" areas and "Cost-effectively as possible".
• In their model, is there an extra cost for the prioritisation?
• When will the Coalition more precisely define for NBN Co the meaning of "Cost-effective" in this context?

• What are the OpEx payments to Telstra, in their model, of the FTTN?
• How are they modelled to change over time?

• Is the FTTN component a "pure digital" network or Telephony with ADSL2/VDSL2 on top?
• Does the Coalition FTTN model follow the UK model of ADSL2/VDSL2 only in the nodes and telephony routed back to existing exchanges?
• Does their model allow for service disruptions for telephony and ADSL to consumer on cutover to Nodes?
• Under the FTTN model, will consumer ADSL2 services continue to operate normally after cutover to a Node? Allowing for a disconnect/reconnect?
• What is the maximum service outage planned for in their FTTN modelling?

• What does the figure of "8,968,000" on pg 7 of the Plan (finish of rollout 2019) refer to?
• premises "covered", passed, ports built or something else?

• If the 8.968M figure is premises passed or ports built, why is that number so specific?
• Does that imply the FTTN rollout will only occur in the major urban areas?

• The Coalition Plan states that by 2016, both at least 25Mbps 'by late 2016" will be available "to every household and business" and that ~65% (5.829M premises) of the FTTN rollout is expected to be completed by 2016-17. If there are currently 2.5M premises covered by HFC and 3.139M premises not to be covered by FTTN by "late 2016", how will, in their model, the 639,000 premises later to be included in the FTTN footprint be connected with 25Mbps?

• Does the FTTN component in their model assume compensation payments to owners of DSLAMs with residual-values, ie not fully depreciated?
• Does the Coalition model treat cutting the copper back to the exchange as different to offering an alternative broadband service, Fibre or Wireless? If so, on what legal advice?

• Will the Coalition offer a VDSL2 "NTD" on the same terms as Fibre and Fixed Wireless?
• If so, will there be any NBN Co charge to customers or retailers?
• If not, who will pay for the provision, installation and testing of a VDSL2 "NTD" for a customer?

• In their model, what are the initial FTTN AVC charges per month?
•  In their model, what are the AVC charges for HFC, Vectored VDSL2, ADSL2 and VDSL2 services?
• Does the Coalition modelling to 2016 include income from the 35% non-FTTN connected premises?
• In their model, what are the AVC charges for FTTN & HFC in the period 2016-2019?

• Does the Coalition model for the FTTN component include the 10% decrease, in real terms, "over the next 10 years"?
• Is that date in 2013, 2014 or 2016? Is it 1-Jan, 30-Jul or "late in the year" (up to 31-Dec)?
• Does that 10% decrease apply across all FTTN and HFC AVC services,including Vectored VDSL2?
• Does the one AVC wholesale price reduction apply to all NBN Co services, Fibre, Fixed Wireless and Satellite, or just the FTTN/HFC components?
• What are the long-term AVC charge reductions modelled by the Coalition, to 2040?
• How does this "10%" compare to the already stipulated ACCC AVC price reductions and the price reduction curves published by NBN Co on 19th April, 2013?
• Does the Coalition model follow the existing CVC price reduction
• curve, starting at 120GB/mth/avg download, already published by NBN Co?
• If not, what is the reduction plan and trigger volume for FTTN component and whole NBN Co traffic?
• - What is the average consumer data download volume (GB/mth) included in the Coalition model for both the FTTN component and the full NBN for all years out to 2040?

• In their model, what proportion of FTTN services have a telephony service?
• What are the wholesale charges for Telephony to Retailers in their model?
• Is this solely a line access charge, or are there other charges (time, distance, ...)?
• Is this charge, like Fibre and Wireless included in a standard service with a rebate for non-use?
• Will telephony traffic from Nodes use the same TC1 [traffic class 1] switching network as Fibre?
• Will customers be able to access TC1 telephony services from their in-premises equipment, or forced to use TC4, normal data, VoIP services?

• Will the Coalition FTTN and HFC networks allow customers access to the full range of NBN Co layer 2 bitstream services?
• direct IP (IP over Ethernet), not soley PPPoE used by ADSL2.
• multicast at TC2 or TC3.
• TC1 services
• multiple "QinQ" VLAN services at customer premise

• Does the Coalition modelling to 2019 include loss of NBN Co traffic across all delivery networks due to local competition & price under-cutting by them?
• Does the Coalition policy demand national players like Telstra and Optus charge a single national price?
• Require them, if they choose to undercut NBN Co pricing under the "ACCC price is a cap" change, to offer the lower prices everywhere they can offer the same service?
• How is this policy on "price cap" not the major Risk factor identified in the 2010 NBN Co Corporate Plan, "Cherry Picking"?

Sources:

NBN Co:
http://www.nbnco.com.au/assets/documents/nbn-co-corporate-plan-6-aug-2012.pdf
http://nbnco.com.au/assets/media-releases/2013/report-to-parliamentary-joint-committee.pdf


Coalition Papers:
http://www.malcolmturnbull.com.au/assets/Coalition_NBN_policy_-_Background_Paper.pdf
http://lpa.webcontent.s3.amazonaws.com/NBN/The%20Coalition\U2019s%20Plan%20for%20Fast%20Broadband%20and%20an%20Affordable%20NBN.pdf

NBN: Lateline questions asked

From Lateline interview. Mr Albanese vs Mr Turnbull on NBN, Mon 12-Aug-2013

EMMA ALBERICI, PRESENTER: Here is our NBN debate with the Deputy PM and Communications Minister Anthony Albanese, and the Opposition's Communications spokesman, Malcolm Turnbull.
Gentlemen, welcome.

EMMA ALBERICI: I'd like us to cover three broad areas tonight.
The various costs of your NBN - respective NBN - policies,
the time frame which you expect to be able to deliver those in, and
the technologies which will be afforded by your various incarnations of the NBN.

EMMA ALBERICI: Let me start with you, Mr Albanese, and specifically with one of the key issues, that is: you want to take fibre directly to people's homes.
Mr Turnbull on the other hand thinks it's best to take it to the street corner, the so called nodes.
Tell us first of all, why is it important to take fibre all the way to people's homes?

EMMA ALBERICI: We'll get a chance to discuss all of those.
Mr Turnbull, why do you say your fibre to the node, to the street corner is better?

EMMA ALBERICI: Are you saying it can deliver the same thing?

EMMA ALBERICI: And I think it's fair to say they're doing that because that's what they can afford. Let's go to the next point.

EMMA ALBERICI: Let's talk about how much the various policies are going to cost.
Anthony Albanese, is the government still confident that it can connect fibre to 8.5 million premises by 2021 for the sum total of $37.4 billion?

EMMA ALBERICI: You said 100

EMMA ALBERICI: No, I'm talking about - let's take this one at a time.

EMMA ALBERICI: We'll talk to Malcolm Turnbull about his plan. Can we talk about yours?

EMMA ALBERICI: No, I want to talk about yours.
Will you commit to be able to deliver by 2021 8.5 million premises

EMMA ALBERICI: ... with fibre for $37.4 billion sum total?

EMMA ALBERICI: OK. We'll move on.

EMMA ALBERICI: Ok so you're sticking by those figures.
Now, Malcolm Turnbull, you say Labor's project will in fact cost $94 billion to complete and that yours will be $29.5 billion on the other hand.
Now, where do those figures come from, considering you've had no access to the NBN Co accounts or to its commercial agreements?

EMMA ALBERICI: Can answer my direct question, which is, where do you get the $94 billion from first of all?

EMMA ALBERICI: The revenues?

EMMA ALBERICI: But we're talking about the cost.

EMMA ALBERICI: You've said their project will cost $94 billion.
Which is different to revenue.

EMMA ALBERICI: Let's not confuse the issues here.
It's already confusing enough.

EMMA ALBERICI: Isn't the cost just what it costs to build the net work?

EMMA ALBERICI: No but I'd like to.
Because it was on the front page of many newspapers, it was trumpeted by yourself on your blog that this instead of costing 37-odd billion was going to cost 94 billion.
And curious to know where you get those figures.

EMMA ALBERICI: Mr Albanese, are they wrong?

EMMA ALBERICI: You reject the $94 billion figure?

EMMA ALBERICI: Can we get to that - no we're not talking about what it's going to cost ...

EMMA ALBERICI: You're talking about revenue and my question was about the cost of construction.
We need to be comparing apples with apples if we're going to have coherent debate.
Let me continue.
Mr Turnbull, how can the coalition claim to be able to deliver an NBN faster and cheaper without the cost benefit analysis that you claim the government didn't do itself in the first place?

EMMA ALBERICI: Is it still going to be cheaper given what's already under way and the contracts that have already been signed and do your figures also take account of the fact that you will be having to pay Telstra, presumably, to maintain that extra copper?

EMMA ALBERICI: Mr Albanese, let me put something to you.
Because you recently said that connection to Labor's NBN was free.
But households will be charged to access it, won't they?

EMMA ALBERICI: The connection is free?

EMMA ALBERICI: It's accessible but it's not free?

EMMA ALBERICI: Is that for the full 100 megabits per second or ...

EMMA ALBERICI: 1,000, sorry.

EMMA ALBERICI: Will you be releasing it before the election?

EMMA ALBERICI: Do you have reason to believe they have received it?

EMMA ALBERICI: When you say final business plan, how is that different to the final business plan that was presented in December 2010.
Plans are normally done beforehand, aren't they, not during a project?

EMMA ALBERICI: So it's to June 30?

EMMA ALBERICI: And we're now August 12.
Haven't received it yet?

EMMA ALBERICI: Have you got a date for receiving it?

EMMA ALBERICI: Let me make a point, Mr Turnbull, because I think I understand where the discrepancy lies here, and that is that under your plan, fibre won't be going all the way to the home.

EMMA ALBERICI: How much will it cost if a household does want to upgrade at some point in the future to be able to access fibre directly to their home?

EMMA ALBERICI: Will they also allow the 1,000 megabits?
The one gigabit?

EMMA ALBERICI: Sorry, who's going to be paying $20,000 a month?

EMMA ALBERICI: I think we're getting a little too technical for the purposes of this discussion because ...

EMMA ALBERICI: I don't want to talk about pipes.

EMMA ALBERICI: For the average household?

EMMA ALBERICI: Mr Albanese, do you actually know much a household would have to spend to access 1,000 megabits, one gigabit?

EMMA ALBERICI: Do you have an estimate?

EMMA ALBERICI: Well what's the wholesale price for one gigabit?

EMMA ALBERICI: Are you going to answer my question, first of all? Sorry.

EMMA ALBERICI: Doesn't that exist in your plans, an indication of what that will cost?

EMMA ALBERICI: Let me put it this way:
 is it fair to say that the fundamental difference between the two parties' policies is that Labor wants to socialise the infrastructure and the Coalition prefers a user pays system?

EMMA ALBERICI: A final comment, Mr Albanese.
Tell us why do Australian households actually need one gigabit?

EMMA ALBERICI: But one gigabit?

EMMA ALBERICI: You talk a lot about other countries, Mr Turnbull, but I would point out that the Nordic countries are pioneers and in fact just in the last few months, Sweden, the Swedish Government announced that its aim was to have 90 per cent of households by 2020 with fibre to the premises.

EMMA ALBERICI: A very brief final word, Anthony Albanese?

EMMA ALBERICI: We have to wrap it there, unfortunately.
I thank you both so much for coming in this evening.

NBN: summary reasons for Full Fibre

Abstract: The full Fibre NBN redefines the Internet in Australia and already shows signs of running far, far ahead of the conservation forecasts in the NBN Co Plan. It's a bonanza to business and consumers alike. It's necessary to underpin continued Productivity Growth and national competitiveness here. See Summary at the end for detail.

The Labor full Fibre National Broadband Network fixes a whole slew of problems with Broadband that were either created or ignored by the Howard government. Ironically, Howard came to power in 1996, the year most people view as when "The Internet" broke out commercially.

In 2001, Telstra's core business, Telephony had peaked and was in decline - displaced by mobile phones and Internet. Telstra was heading to being a distressed asset when Sol Trujillo took over in 2005, and within weeks he was telling Howard and his senior ministers this and the fix: an NBN.

Trujillo was right, from the T2 high in 1999 at $7.40, the Telstra share price fell to $2.60-$2.80 in early 2011. Howard's deliberate inaction cost shareholder tens of billions. Since the NBN deal, they're back over $5 - a $30 billion increase in valuation so far. That alone makes the NBN worthwhile.

Turnbull has said he approached "Telstra", code for Howard et al, pre-2000 telling them that breaking Telstra into a Retailer and Wholesaler, structural separation, would unlock shareholder value and break the deadlock with the Regulator, the ACCC. This was obvious at the time and proven in 2011.

Turnbull's "reasonable assumptions" in modelling are wrong or ignore the most important factors.

Turnbull wrongly argues that telecommunications in Australia has never seen long-term strong growth:

We said they’re not going to be able to increase their ARPU at nine per cent real every year for ten years because there’s absolutely no precedent for that in the history of telecommunications, at least in this country, ...

O.T.C., where I worked in the 1980's, increased revenues and profits a hundred-fold over 25 years by partly passing on "Moore's Law" speed/cost benefits and decreasing real charges for international phone calls every year. In the realm of the Internet, since 2000 the ABS has tracked Download Volumes. Award ("Test of Time") winning A/Prof Matthew Roughan of Adelaide Uni tracks this data: it's grown at 70%/year, doubling ever 1.3 years. He forecasts Australian downloads to pass 1 Exabyte/mth by 2016. (1 ExaB = 1,000 PetaB = 1,000,000 TerraB = 1,000,000,000 GigaB)

The raw demand underlying Internet use in Australia is growing strongly, as it has for over a decade.

What OTC, and not Telstra management, understood is that people love to talk, this creates high Demand Price Elasticity: drop the price 5% and increase sales 10+%. For nothing, the seller makes 5% more profit. OTC also understood marketing, product innovation and the power of advertising.

On top of insatiable demand and Price Elasticity, there's also strong pent-up demand caused by effectively capped access speeds since 2004 (ADSL2). The national average monthly download is 30GB, while for NBN users, it's 45GB.

But it gets better: Internet users are exponentially distributed, not the usual "Normal" distribution.
Sandvine report for the USA that 1% of users consume 10% of Downloads (more for Uploads).
50% of users account for just 6.4% of total Downloads.

Turnbull, partly correctly, claims "most consumers don't need really high speed". True, but the highest-value consumers, worth 10-100 times more, do have an unmet need for speed.

The average Download of the top 1% is 300GB/mth, while the low 50% average 3.6GB.
70% of consumers download less than the average 30GB/mth.

The economics of the Internet is driven by the high-end consumers, this is why take-up of 100Mbps NBN Co services, 31%, is running well ahead of forecast, 18%. That number corresponds to half the download data. Those 1% who download 300GB/mth could do that with a 1Mbps, running 24/7.

Consumers, especially small Business and Professionals, value their time. 15GB/day takes around an hour at 100/40 Mbps. This is the driver for 1Gbps. As soon as it's released, expect a 10% uptake.

"Tiered Access Rates" are the biggest commercial innovation in the NBN Co plan - they haven't been available in Australia like this before [ADSL1's 256/512/1000/1500 kbps don't compare].

They allow the business to sell the exact same physical equipment for (wholesale) prices ranging from $24/mth (12/1Mbps) to $150/mth (1000/400). Not only does the business make more revenue and accelerating profits, but the customers are happy because perceive they are getting great value for money. Customers value products differently to producers. A 100/40Mbps service doesn't cost the $150+/mth eight 12/1Mbps would cost, but $38. A 1000/400 service costs just $150/mth, not $380/mth.

NBN Co is both not "leaving money on the table" by reducing the Consumer Surplus, but also meeting real demand from the higher access rates by the majority consumers of data, not the 'average' or low-end consumers.

Conversely, the low-end consumers benefit from everything the high-end consumers pay, download and access charges:  the NBN Co plan recognises the Price Elasticity in the market and built-in are 19%/year decreases in the cost of download and faster decreases in consumer access charges.

The profits of the NBN are generated almost entirely by high-end consumers.
It isn't a case of "pensioners and low-income earners subside the Rich", but exactly the opposite:

The NBN is the high-spending 30% subsidising the rest: high-income earners using high-speed services pay for everyone else.

Access Rate also allows Retailers to identify Premium Customers, whom they can "upsell" or charge higher rates for Volume. None of this has been possible with the ADSL single-price services.

On top of this the "$110 APRU" is a windfall for ISP's/Retailers. With no extra effort they'll triple Revenues, and increase Profits by 5-10 times. Imagine how much better they'll do if they try.

The NBN is about Business, not domestic consumers and retail customers: that's small business and single-operator micro-businesses too.

With cheap, fast, guaranteed low-latency services more consumers will do more on-line business and consumer more on-line products. This is what's driven the spectacular collapse of "print media" and the "eTailers" threatening Bricks-and-Mortar retailers. Next we'll see entertainment change: in the USA, Netflix accounts for 30% of night-time Internet traffic. It's displacing TV, both Cable and Free to Air.

Could it get better? Yes...

NBN Co supports 4 "Traffic Classes" - packets that get priority over others. This allows services like Voice-over-IP (phone) and Video Streaming to operate flawlessly, without getting caught up in the usual nigh-time congestion. Retailers can charge a little more for better service.

But priority data isn't because NBN Co's network gets congeted: it's there to help the ISP's and Retailers. They can pay for a lot less capacity and still meet service targets for real-time services, like voice and video-streaming.

Then there's what could be the secret weapon, that no other country has: Multicast.


This is aimed directly at wide-scale broadcast of scheduled video. The ISP/Retailer sends just one stream of a channel, at say 5Mbps, down to the NBN Point of Interconnect. The NBN switching equipment then amplifies that channel, sending the same bits to potentially 100,000 services.

It costs just $5/mth extra in User Access Charges to start. The ISP/Retailer, for the standard fee, gets to send 200 channels down the wire, whether just one or 100,000 people are watching. This changes the rules of broadcasting.

Nowhere else in the world is national multicast being tried, it puts us in the box seat to develop new media, content and content-billing schemes.

The NBN Co plan, as already demonstrated by actual revenues and take-up rates, is conservative, it understates the real growth and revenue potential. The current ARPU of $38, while an aberration due to ramp-up and closer to $35, is years ahead of the Plan.

The NBN Co is already showing signs of being wildly successful, of becoming the new standard for "Rivers of Gold".

All this, the Coalition is hell bent on destroying. Dealing with the deliberate deceptions and obscuring of facts is another task.

Summary

The full Fibre NBN:

• Addresses the inaction of the Howard Government in not starting a National Broadband Network when it first became apparent in 2002 and was demand by Sol Trujillo in 2005.

• Corrects the deliberate market foul-up by Howard in not Structurally Separating Telstra.
• This policy resulted in the market failure where no commercial was prepared to invest in a new Broadband network. They'd already seen multiple infrastructure disasters: 1993 HFC Cable ($4 billion wiped out), 4 Mobile phone networks overbuilding one another and the ADSL debacle: every operator must install it's own DSLAMs in every exchange.

• Has already added over $30 billion to Telstra's valuation, probably well over $60 billion when done.

• Introduced "tiered pricing" that reduces Consumer Surplus, increases both wholesale and retail revenues and gives customers a great deal.
• Removing the "single-price" model of ADSL line charging allows retailers to identify the Premium Users, the top 30% how contribute most of the profit, and better market to them.
• The $110 ARPU will be a gold-mine for ISP's/Retailers: with no effort, they get to triple their Revenues and increase Profits considerably more.

• Leverage Price Elasticity by dropping both Access and Volume Charges ~20%/year, stimulating demand and increasing profits.
• The high-end consumers generate the profits and pay for the rest of us.

• Providing Traffic Priorities so ISP's/Retailers can decrease their costs further and still guarantee service levels where it matters.

• Provides multicast, that will allow new, higher definition or higher feature Video streaming or gaming, while allowing low-cost content providers to enter the field or sports associations (eg AFL) to live broadcast multi-view, high-quality game feeds for many games.

• The full Fibre NBN is a bonanza to almost every Business in the country. It will drive sales, the same way we've seen eTailers, News & Content, it will lower their costs and drive Profits.

• The NBN Co Plan is conservative, actual results are years ahead of forecasts.
• If even historical growth rates are sustained, the NBN will be a new standard in "Rivers of Gold".

• A National Broadband Network is solely about business and necessary for sustained Productivity Growth underpinning our National competitiveness. We can choose to be a mine and quarry with no value-add or use our world-beating skills in innovation to become and stay competitive in the Information Age.

NBN: The Turnbull Node Plan isn't just a Financial Disaster, can only make BIG losses

Turnbull has stopped talking about 'more affordable' because he doesn't want to draw attention to it.
The Coalition modelling required a price be used for line access (AVC), and phone services, BUT they've never declared them.

I've written a more complete list of Coalition wholesale pricing questions that Retailers need for Business Planning. I've approached the Internet Industry Association (no answer yet) and a senior Turnbull staffer (reply was invective and abuse).

More Affordable = Less Revenue = Less Profit.

My calculations, based on assumption as my attempts to gain the basis used by Turnbull et al have been rebuffed.

• FTTN charges will $16/port/month, same as ULLS charge ($192/yr)
• Real growth is limited to 3.5%, presumably by dropping CVC/Volume charges quickly and from a single AVC charge, not tiered as with current plans.
• 30GB Avg/mth = $3/mth in ARPU @ 10c/GB
• Total DSL ARPU:
• =  ($16 + $3) *12 = $192 + $36
• = $228/year

• The Coalition is expecting to pay Telstra NOTHING, even the 'PSAA' payment ($11B) is not included (pg 12 of Coalition NBN Plan)
•  a more reasonable Telstra charge would be 50% of current ULLS fee, $8/mth or $96/year
• places a value of $1000 on asset (@10% ROI, the value Telstra uses for these assets)
• Doesn't allow for 2.5% inflation or "cost of money", interest rate.

• For $900 CapEx and $90 maint/yr, with ZERO payments to Telstra.
• Interest = 6% of $900 = $54
• Maintenance = $90
• Depreciation = $45 (20yrs, straight-line)
• = $189 Expense/Yr
• = $39 Gross Margin/yr/line [EBITDA] ($228 - $189)

 This EBITDA, $39, won't cover $96 for Telstra ULLS charge, nor interest on the already contracted 'PSAA' payment. [The Coalition's estimated value of the 'PSAA' payment is $1,500. I use a lower value.]

•  If $1100 'PSAA' payment accepted, @ 6% interest = $66/year
•  Coalition budgeted to get the lines etc FOR FREE.
• No 'PSAA' payment
• No rental charge
• This is unbelievable.

Only by omitting Depreciation ($45), a cardinal sin in commercial profit/loss accounting, can the Coalition even pay the Interest on 'PSAA' and become "Cash Flow Positive".

Coalition's FTTN has to pay Income Tax as well... at 30%.

• Tax = $12 (rounded up)
• Surplus = $27 surplus, assuming Telstra get nothing but a smile
• That's 40 years to pay out the loan. Twice the depreciation period

 The Coalition needs to be paying off the Capital, from "cash flow" (surplus) after Tax!

• You'd expect no more than 15 years, so there's 5 years for the surplus to generate any Return.
• For last 5 years, Investor Return will be:
•  =  $54 (interest saved) + $27 surplus - $18 (30% of $54 interest deduction, no longer claimed)
•  = $63
• = $315 (*5 yrs) on $900 over 20 years.
• = 1.75% ROI, if they pay Telstra nothing,  as planned.

Otherwise, the Gross Margin is an Operating Loss:

• = $39 - $96
• = -$57/year/line
• = $511M Loss per year
• = $10.2B over 20 years, and they still have to pay Telstra the 'PSAA' of ~$1100.
• 'PSAA' = $8 Billion for 75% of current PSAA on active lines.

• Total FTTN Losses over 20 years:
• $10.2B + $8 B
• = $18.2 billion loss

Note: I've not included growth in CVC charges as the Coalition specifically limit this to 3.5%/year. Starting at $3/mth, over 20 years this reaches $6/month.

Calculating Coalition AVC for FTTN

Why $16 for AVC charge for FTTN ports?

The Coalition EBITDA ARPU  for 2014 is $21.19 in 2012 dollars [pg31 of Background doc]
vs $29.60 for current plan [pg 21 of Background doc]

Assume same $3/mth CVC charges for FTTN and FTTP
and 75% FTTN, 25% FTTP. Minimum AVC charge for all other services (12/1) is $24/mth

• $21.19 ARPU = AVC + CVC ($3)
• = $18.19 AVC
• = 0.75 * FTTN-AVC + (0.25 * $24 FTTP)
• FTTN-AVC = ($18.19 - (.025 * $24) ÷ 0.75
• = ($18.18 - $8)  ÷ 0.75
• = $10.18  ÷ 0.75
• = $13.50

• For 85% available ports active:
• = $13.50  ÷ 0.85
• = $16/mth/active-line FTTN AVC

• It's unlikely that a price lower than current ULLS would be offered to Retailers.

• Why did I choose 75% FTTN in 2014, when that may not be the case?
• To be generous.. 50% FTTN and $18 average AVC is at best $12/mth
• The Coalition Revenue would then only be ($12 + $3) * 12 = $180...

• Similarly, I chose $24 as FTTP-AVC, as it was the lowest, most generous value.

Sources:

Coalition NBN Plan:

pg 12

NBN Co will seek permanent access to Telstra’s copper between premises and concentration points such as pillars, cabinets or exchanges. Telstra has publicly stated the copper has minimal economic value, leading us to anticipate cost-effective access will be attainable.

Coalition Background doc.

p21.

Pg 21: NBN Co Corporate Plan

p31.

Pg 31. Coalition forecasts, without Interest, Depreciation etc