A new report from the Broadband Stakeholders Group in the UK prepared by Analysys Mason has confirmed the extreme sensitivity of the costs of mass broadband rollouts to various changes in their technology configurations.
It should be required reading for those in the NBN policy debate who are wildly throwing around their wishlists such as “hey why don’t we just go FTTH” or “hey why don’t we separate the network owner and reduce its ROI to reflect its low risk."
The report found that a national UK fibre-to-the-cabinet rollout – similar to what is being undertaken in New Zealand - would cost about £5.1b (that’s about A$10.95b). By contrast, a complete fibre-to-the-home rollout would cost £28.8b (A$61.83b).
That’s one very solid differential – indeed over five-fold – which suggests that the FTTH brigade might need to go back to their drawing boards and start writing some cost-benefit analyses on their pet cause.
Now to place those figures in a more meaningful context, it’s worth dividing them by the number of households in the UK, currently around 24m. A fibre-to-the-cabinet rollout would cost about A$456 per UK household – a fibre-to-the-home rollout about A$2576 per household.
Of course, all households aren’t equal. The UK is a considerably denser place overall than Australia, but at the same time it is less urbanised. So while the outputs aren’t directly applicable to Australia, they are not wildly off the mark either.
The report concludes, unsurprisingly, that deployment costs will be relatively constant across higher density areas. “This implies that, if a commercial case for deployment exists, the market should be able to deliver to approximately two thirds of the UK population. However, the costs of deploying in more sparsely populated areas will be significantly higher, making the commercial deployment to the last third of UK households much more difficult,” the report says.
The report also finds that the largest single cost component is the civil infrastructure - the cost of deploying and installing the fibre in new or existing ducts - and suggests that these high civil infrastructure costs could be significantly reduced by the re-use of existing telecommunications ducts; the sharing of alternative infrastructure owned by other utilities, such as water companies; and the use of overhead fibre distribution in some areas. This is highly relevant and suggests that NBN bids that show direct recourse to the use of existing assets, perhaps via partnerships with utilities, will prove considerably more cost-effective.
Another extremely interesting if unsurprising finding: Each technology option has a high proportion of fixed costs that are incurred regardless of how many users take the service. This means that the cost per home connected and therefore the commercial viability of the service is highly dependent on the level of take-up. This is very significant in the Australian context – there are still some who hold that full-node cutover should be resisted so that existing DSLAM investments be preserved. Likewise there are some who don’t seem to understand that the Australian NBN will NOT be a monopoly and will be competing against existing non-CAN alternatives such as wireless broadband and possibly HFC for custom.
TAKE-UP ISSUES: Affordability is another issue here: with the government’s desire to both earn a return on its contribution and and achieve a large 98% reach target, it’s obvious that the potentially large number of loss-making customers on this net (perhaps as many as a third) will need to be cross-subsidised by urban customers. This is good for take-up in rural areas, but potentially will depress takeup in those areas where the most profits and economies of scale ought to be extracted.
Of course, there is no such inconvenient truth in the current regime where unbundled network elements are deaveraged to remove this subsidy and the whole broadband enterprise is still largely underwritten by the direct and indirect subsidies of voice.
Just to put these UK findings in context, they are not the output of a lobby group in the business of flogging cabinets or ducts. The Broadband Stakeholders Group is an advisory body to the UK government with a decidedly “industry” focus, it includes telecoms operators, manufacturers, investors, ISPs, broadcasters, new media companies, mobile operators, content producers and rights holders, as well as government departments as participants.
As always, the numbers will be open to debate. But given that the closest we have ever come to a proper costing of NBN in the Australian context is a bullet point on a Telstra powerpoint presentation, it’s yet another valuable contribution to an Australian debate that, years on, is still characterised more by posturing and polemic than recourse to real hard cost quotations and end market research.
by Grahame Lynch
