Monthly Archives: August 2012
Huawei has used a submission to the parliamentary joint committee on intelligence and security reforms to call for any telecommunications security changes to be applied in a non-discriminatory way. In particular, the equipment vendor raised concerns that proposed regulatory changes could target vendors from specific countries.
Huawei was controversially banned from participating in tenders for the NBN on security grounds.
However, the federal government has never explained in detail the reasons for the ban.
Perhaps not surprisingly, Huawei expressed its concern that the government can use the proposed reforms as a way of excluding particular vendors with little or no benefit for security outcomes. “We believe it is essential that any specific requirements imposed are objectively justified, vendor neutral and give affected industry players a genuine opportunity to understand and address specific concerns,” the company said in its response to the discussion paper. “We believe the principle of non-discrimination should be clearly set out in any legislative reforms.”
Huawei also noted that a non-discriminatory approach to regulation would provide Australia with access to the latest technologies and increase competition, innovation and investment. It said this was the only approach that could be rationally enforced, given the complexity of the global supply chain, and also pointed out that it would “support Australia’s trade commitments, obligations and relationships.”
“The complex and globally interconnected nature of today’s telecommunications mean that there is a limit to the effectiveness of domestic regulation since much network traffic will be vulnerable to access outside Australia. Accordingly, a broader strategy to work towards “end-to-end” security outcomes is needed,” Huawei noted.
The vendor also warned against taking a heavy-handed approach to reform, calling for any obligation on carriers to be based on what is reasonable and proportionate in the circumstances. And it said it should not be a requirement that major business decisions or network designs be provided to the government. “As the discussion paper notes, there are already relevant enforcement mechanisms and national security provisions in the Telecommunications Act. In our view, only incremental changes to the enforcement mechanisms in the telco act are required,” the company said.
One of the most frustrating aspects to the debate about future directions for Australia’s broadband infrastructure is the complete obsession with headline download and upload speeds that many people will never use at economic price points, to the detriment of any discussion about other key aspects of the Internet experience such as latency, which affects pretty much every Internet user, no matter how modest their needs.
Roundtrip latency—exacerbated by the increasingly inefficient dimensions of TCP communications and the physical distances those communications traverse—is an important determinant of the quality of one\’s Internet experience. This is especially the case for real-time applications such as voice, gaming and financial trading.
Given the economic value of comms to the financial trading sector, it is unsurprisingly at the vanguard of doing something about latency. Fibre optic connections between the two American financial centres of Chicago and New York City typically operate at latencies of between 13 and 15 milliseconds. This isn’t good enough for some traders.
Contrary to popular opinion, fibre optic cables actually slow down communications to about two thirds of the actual speed of light in a vacuum such as space due to imperfections in the glass. By contrast, wireless signals travel much closer to the genuine speed of light. Hence two microwave networks—one operated by Epsilon Networks, the other by McKay Brothers—are serving this need by deploying links between Illinois and NY that operate at latencies of as low as 8 milliseconds. 5 milliseconds might not seem like much of a difference but the graph here illustrates the economic value of timeliness in trading.
Of course, wireless communications suffer from weather and attenuation issues not faced by fibre. But as pointed out in Wired magazine, “If your link is only 99 percent reliable, you don’t make money 1 percent of the time; if it’s slower than the competition, you don’t make money 100 percent of the time.”
There are many positive developments occurring in Australia that will serve to improve the local Internet experience. Probably the most significant is the construction of multiple data centres, diffused across population bases such as Perth, Melbourne and Brisbane in addition to the traditional international data offload and upload points in Sydney.
Yesterday’s announcement by Rackspace that it has launched an Australian data centre is another big step in the right direction. Even the controversial decision for the NBN to deploy 121 points of interconnect instead of the preferred 14 has its end user benefits—it again potentially shortens the physical distance, and, thus, latency of Internet communications outside of capital cities.
More can be done.
When one looks around the international comms scene there are two significant omissions in Australia’s infrastructure—the poor use of the waters around and the skies above our sizable island nation to facilitate better communications.
The sea distances between Perth, Adelaide and Melbourne & Brisbane and Cairns respectively are smaller than the road distances—and, thus, the implied routes of extant terrestrial trunks with the potentially superior latencies of undersea alternatives.
Many other countries with large seaboards use underwater festoon cables to connect their coastal cities. Notable examples include Italy, China, the east coast of Canada and Venezuela. Seas have a nice advantage over terrestrial rights-of-way: they don’t charge rent and are cheaper to deploy in.
A new southern cable branching to the population points of Western Australia, South Australia and Victoria could also form a key middle leg of a greater Asia-Australia-Americas route which would provide important redundancy for global Internet users. Both the redundancy and latency advantages could prove key selling points in mounting a business case for such a cable.
The other omission? There is no reason why a subsidised, welfarist program akin to that of the NBN but less costly shouldn’t make use of barely used hundreds upon thousands of class licensed or cheap megahertz to provide high speed point to point wireless broadband on an ad hoc needs basis to rural and remote Australians with genuinely high-end bandwidth requirements. Surely this would be superior to the market crap-shoot that is NBN Co’s limited speed LTE deployment.
Contrary to the demonisation of wireless by some, which posits giant towers in every cul-de-sac compelled to carry the nation’s entire Internet traffic down one 20MHz carrier, there is actually an enormous abundance of spectrum that is fit for purpose for sporadic islands of high-end demand. It is notable that one operator which leverages this opportunity, BigAir, is one of the fastest growing in the sector.
But I am a mere commentator: there are many entrepreneurs and innovators who no doubt have identified other superior ideas that could improve the quality of the Australian internet with minimal expense and risk.
MORE NUANCE? It’s time we had a more nuanced discussion about Australia’s broadband infrastructure. Often when I am in conversation about this topic with members of Australia’s telecom chattering classes, the discussion is always ultimately hijacked by a request that I affirm my support for the all-fibre, all-sparkling new NBN, as is, without qualification and as a marker of my digital savvy.
Such discussions are ultimately a pointless exercise: the NBN debate has become little more than a public test of religious affirmation about the desirability of a specific last mile access medium and the associated conflation that one must support it or be an enemy of the future.
This belies the reality that the NBN, as proposed now by Messrs. Quigley and Conroy, is a highly heterogeneous network which employs at least five distinct access media to my eyes: FTTH GPON, FTTH P2P, LTE, an interim leased lower speed satellite service and a long term higher speed satellite service.
A change of government and we could add a sixth type to that equation: FTTN.
Add to this the fact that there are now twice as many wireless subscriptions to the Internet over GSM, WCDMA, HSPA+, LTE and other untethered technologies as there are for fixed comms, and the Australian Internet and PSTN is an increasingly heterogeneous beast, not less of one. Try finding acknowledgement of that in what passes for “broadband expert opinion” in this country.
Witness this week’s debate about the allegedly high maintenance costs of FTTN compared to FTTH, sparked by BIS Schrapnel and fanned by business commentator Alan Kohler. Under the current NBN plan, the most expensive part of the copper network—that in rural and remote Australia—will be retained and funded by industry levies amounting to nearly $300m annually—nearly half the alleged cost of maintaining the entire national copper network today.
And of course, under FTTN, the most fault prone parts of the copper network—the bundles of copper that feed into exchanges, not individual access lines—would be replaced by fibre.
Given the big cost unknown of the NBN is the state of the Telstra ducts into which it wishes to deploy fibre anyway—some of which are potentially unusable without costly remediation— the biggest omission in this debate is hard data about the actual costs of real plans that appear to be guaranteed funding with no recourse to budget limits or opportunity cost.
You wouldn’t know it from the confident assertions and purported “fact checking” obsessions of some, mind you. For example, one looked long and hard this week for much reporting of the Motion Picture Expert Group’s breakthrough in compression technology which will reduce the bandwidth requirements for video transmission in half.
This presumably has some relevance to a debate about a $40 billion national infrastructure designed primarily to distribute video but you wouldn’t know it reading what passes for broadband expert opinion in this country.
CommsDay Melbourne Congress returns to the Langham Hotel, Southbank on Tuesday 9 and Wednesday 10 October. This year\’s event boasts an extremely strong lineup of industry thought leaders, sourced from operators, technology suppliers, industry associations and government. Delegates will gear from executives from all top four operators (Telstra, Optus, Vodafone and iiNet) as well as NBN Co. Major topics for discussion include telco customer service, broadband futures, wireless technology and the future of policy and regulation.
TUESDAY 9 OCTOBER
9am Shadow communications minister Malcolm Turnbull (TBC)
9.25am Alcatel-Lucent researcher and author Alison Cerra \”Identity Shift: Where Identity Meets Technology in the Networked-Community Age\”
9.50am Telstra Wholesale exec director, sales Glenn Osborne
10.15am Optus MD Customer Vicki Brady
10.40 REFRESHMENTS sponsored by Overture Networks
MORNING SESSION sponsored by Brocade
11.00 Telstra CTO Hugh Bradlow
11.25 NextDC CEO Craig Scroggie
11.50 Ovum analyst David Kennedy “The End of Voice?”
12.10 Servcorp COO Marcus Moufarrige
“The Subscription Economy”
12.30 Brocade speaker TBC
12.55 Lunch sponsored by Telstra Wholesale
1.55 FTTH Council AP VP & Senko Advanced Components R&D director Bernard Lee
2.15 OzHub chairman Matt Healy
BILLING, OSS & CUSTOMER SERVICE FOCUS
sponsored by Symbio Networks
2.35 Symbio CEO Rene Sugo
3.00 Oracle speaker TBC
3.20 Afternoon tea sponsored by Overture Networks
REGULATORY & POLICY FOCUS
3.35 Norton Rose partners Nick Abrahams & Martyn Taylor
“The Impact of the Convergence Review”
3.55 Independent Telecom Adjudicator Rob Nicholls
4.15 Telecommunications Industry Ombudsman Simon Cohen
4.35 ACCAN CEO Teresa Corbin
4.55 THE GREAT DEBATE: Optus vice president, corporate and regulatory affairs David Epstein, Internode founder Simon Hackett, telecom analyst Kevin Morgan and more
5.25 Cocktails sponsored by NEXTDC
* Participation of Malcolm Turnbull & Ed Husic
to be confirmed closer to event
WEDNESDAY 10 OCTOBER
9am Federal ALP MP Ed Husic (TBC)
9.25 Comms Alliance CEO John Stanton
9.50am ACMA deputy chairman Richard Bean
10.15 NBN Co head of product management and industry relations Jim Hassell
10.40 Market Clarity analyst Shara Evans “Demographics of the 1st NBN rollout areas”
11.00 REFRESHMENTS sponsored by Overture Networks
11.20 iiNet CTO John Lindsay
11.40 Optus MD Wholesale & Satellite Rob Parcell
12.00 IBES executive director Kate Cornick
12.20 Australia Post GM telecom products and services Maha Krishnapillai
12.40 Qualcomm VP SE Asia and Pacific John Stefanac
1.00 Lunch sponsored by Qualcomm
WIRELESS & MOBILE BROADBAND FOCUS
sponsored by Broadcast Australia
1.45 Broadcast Australia strategy & corporate development
director Brett Savill “Snapshot from the Big Apple: update on the world’s largest DAS project in the NY Subway”
2.05 Cambium Networks VP Asia sales & marketing Roy Wittert “Fixed Wireless: Competitor or Complement to Mobile Broadband?”
2.25 Polyfone CEO Paul Wallace \”Ethernet over wireless\”
2.45 Overture Networks Asia Pacific MD Graeme Bellis
3.05 The Billing Bureau MD David Werdiger
3.25 Afternoon tea sponsored by Overture
CLOSING PLENARY: APPLYING POLICY TO PRACTICE
3.35 Vodafone GM Industry Strategy and Public Policy Matthew Lobb “Competition issues in the telecom sector”
3.55 Enex TestLab MD Matt Tett “Internet Regulation – a decade of content filter testing”
4.15 Cisco GM government affairs & policy Tim Fawcett
“The Telework Revolution”
DOWNLOAD A BROCHURE FOR THE EVENT HERE
REGISTER ONLINE HERE
Shadow communications minister Malcolm Turnbull has divulged more detail on the Federal coalition’s NBN strategy should it win the next federal election, suggesting that its FTTN approach could be cheaper than FTTP by a ratio of three or four to one.
Speaking at an American Chamber of Commerce lunch in Sydney in the wake of a decidedly mixed reception to NBN Co’s revised corporate plan, Turnbull addressed a number of key points – including the role for infrastructure competition – and some of the early concerns raised regarding the coalition’s proposed methodology.
“If you want to get an insight into the approach that we’ll be taking, and I’ll be taking as the minister, just ask yourself what a rational businessperson would do,” he said. “We are committed to completing the NBN. We know we cannot turn the clock back… so our task is to complete the job in a cost-effective manner… the approach we’ll take is very, very close to that which British Telecom has taken. We will bring fibre further into the field, we will connect it to the legacy copper infrastructure such that the length of the copper is short enough to enable very high speeds to be delivered, both in terms of upload and download, over that copper. If you want to look at an example, BT offers… 76Mbps down, and 19Mbps up.”
“That’s the same approach that AT&T took in the US… and it’s a proven one. How much does that save? Well, in high-wage economies – and there is no economy that is more a high-wage economy than ours – the cost differential of FTTN and FTTP is between three and four to one,” continued Turnbull. “So the savings are very, very substantial… now, that means that we can say confidently that we can deliver very fast broadband to all Australians much sooner… and at a much lower cost to the taxpayer, and therefore more affordably to customers.”
RESTORE COMPETITION: In contrast to the current NBN, Turnbull said that a coalition government would promote infrastructure competition, including from fixed wireless in metro as well as rural areas. “We will, as far as we can, unpick all of the barriers to competition. The NBN Co is a throwback to the economics of the 1950s, in the sense that you have a government-owned business where the government uses legislation and regulation to prevent people competing with it,” he said. “Ideally, we’d love it if Optus rescinded its deal! But I suspect now that they’ve got their deal and are happily banking the money, that might be a bit hard. But the more competition the better.”
The shadow minister also told one questioner that he’d prioritise the infrastructure required to get fixed-line connectivity to regional areas. “As you know, the NBN is proposing to only do FTTP to communities of 1,000 premises or more – and there are a lot of country towns that have fewer than 1,000 premises,” he said. “Those towns, under their approach, would get fixed wireless; under our approach, I think many of those communities would be very viable in terms of FTTN. The fibre comes to the existing exchange, and maybe you’d create a couple more mini-exchanges.”
Some aspects of the network plan would remain the same. While reiterating his commitment to structural separation of retail and carriage networks, Turnbull said that while a coalition government would not want to own the NBN indefinitely, it would likely do so for “the forseeable future.” And he noted that while the coalition would have handled certain aspects of the NBN very differently – including the satellite and fixed wireless components, which he suggested could have been better contracted out to existing companies – they might no longer have that option “because of the monolithic control-freak culture of NBN Co.”
Turnbull was, however, quite confident that a coalition government would be able to negotiate access to Telstra’s copper. “Telstra has a vested interest in the network being rolled out sooner rather than later, because they get paid as premises are decommissioned… and that would mean the net present value of those payments will be higher,” he said. “So I don’t anticipate any difficulties in achieving that; in a [FTTP] NBN world, their copper has no value at all. In an NBN/VDSL framework, the copper has some value to the NBN Co.”
ANSWERS CRITICS: Turnbull also answered some of the early concerns that have been raised about the coalition’s FTTN plan – including arguments that the copper network is an old and degraded asset, and that to incrementally upgrade to FTTP at a later stage would be cost-prohibitive.
“People say the copper network’s degraded; well, in some parts of the copper network that’s true, and in some areas you may decide to do FTTP,” he told CommsDay. “You’ve got to weigh up that maintenance component. Talking to BT and AT&T, what they’ve done; in most parts of the network, the copper’s been fine, but in most parts of the network where there’ve been problems with the copper, it’s been cost-effective for them to upgrade it. And certainly AT&T’s done that, they’ve made a program of that.”
“I’m not being dogmatic about this, this is not ‘one technology right, one technology wrong’,” he added. “Of course I understand that FTTP gives you the greatest potential bandwidth. But it’s a question of whether that is worth the very substantial additional cost and time… you’re talking about getting FTTP a decade or more away [under the current government plan].”
“One of the interesting things is that… the [network] devices enable you to provide connectivity both to VDSL and GPON. BT is doing this in the UK. So if you are in a position where you have several hundred premises and you have one or two people – they might be businesses in an otherwise residential area – that want to have a lot of bandwidth, you’re in a position to provision them with fibre. So you’ve got the flexibility, as you roll out these networks, to upgrade them to fibre progressively as and when demand requires.”
But having pledged to do a full cost-benefit analysis on the NBN if the coalition takes government, is Turnbull concerned that that could cause further delays? “It’s not going to create any delay. We will get moving; I think Australians have had enough of delay,” he said. “We will accelerate the rollout of the NBN, but we will do that as the same time as we do a proper cost-benefit analysis. I’m very confident that the analysis will find a technologically-agnostic approach is the most sensible one.”
The relaxed manner of the senior management team at yesterday’s Telstra annual results briefing should give competitors pause for thought.
This is a team that have come through a prolonged row with the government that had massive question marks hanging over the company, and they can’t disguise their quiet delight in the result. It’s an outcome that suggests Telstra’s dominance will continue, certainly for the immediate future.
It was, as David Thodey noted with obvious relief, only nine months ago that they took the $11 billion (post tax net value) deal to shareholders.Now it’s all settled and, as Thodey said, has \”delivered greater certainty so we can get on with doing what we enjoy, serving customers.’
Given the implication that Thodey and his team hadn’t enjoyed the three year stoush with the government, they acquitted themselves remarkably well.The cash value of the deal must lie close to $18 billion and will grow with side deals like the voice only migration payments.
A $321 million instalment, in part for the migration information campaign, is already in the bank despite the fact that any mass migration from copper to fibre is years rather than months away.A further $100 million to fund the retraining of Telstra staff is also on its way.All Telstra have to do is tell the government what they are being retrained for.
And whilst the initial intent of a standalone government owned FTTH network was to freeze Telstra out, it’s becoming increasingly obvious that Telstra is very much centre stage to the fortunes of the NBN.Given the NBN’s distributed 121 POI architecture, which looks more like a POP layout suited to the dial up era, Telstra is uniquely placed.
Though no–one would be so insensitive as to point it out, over 90% of the POIs will be in Telstra exchanges and only Telstra has the national backhaul to reach all of them. Clearly, the battles of the last decade over access are far from over. Telstra is also very much at the heart of the rollout as it commissions the transit network that will help ease some of the pain NBN Co is feeling, particularly in the greenfields market.Thodey announced Telstra was spending more to accelerate the transit network build as part of an additional $1.2 billion in capex, although the major share of that will go on its 4G network.
This should see the transit network largely competed in two rather than three years, locking in lease payments for up to thirty years.
It was against the background of this more than satisfactory deal that Thodey could tell his good news story, a slight increase in overall profit and extremely strong growth in mobiles, where Telstra added 1.6 million new customers and sold 375,000 4G devices.Bundled services grew by 24% and must be proving to be nice little earners given the sting that lies in some of the 1980’s era STD charges they contain.
But it was the relaxed style, rather than the detail of the presentation, that carried the real message.Even the largest yet annual decline in PSTN earnings, a fall of 10%, wasn’t a cause for angst. Nor were the demonstrable problems of Sensis which suffered a 22.1% fall in print earnings that was only partially offset by 4.5% growth in its digital products. Falls in both segments are now viewed as inevitable and whilst Telstra is still intent on stemming the losses the real energies are going into the growth areas such as mobile and network application services.
In other years, news that the rivers of gold from PSTN and Sensis were set to become a trickle would have sent the share price into a spin. True the shares did fall nearly 2% after the announcement but as analysts were quick to point out that has more to do with recent retreat from Telstra as a safe haven in an increasingly bullish market, rather than with the actual results.
A retreat from the $4–plus high of a few weeks ago was inevitable given the strength of the prolonged rally in the Telstra share price which has lifted it from its all time low of around $2.60 two years ago.
There’s little danger though in light of the growth, especially in mobile voice and broadband and IP based platforms, that the share price will tank again.Because even despite the PSTN and Sensis woes, as Thodey pointed out, these two segments continue to generate significant margins.
Given the NBN Co’s rollout timetable the PSTN margins will endure, although the future for Sensis is clearly a problem. In an age when many can competently design a website and execute digital marketing strategies Sensis may prove to be too pricey and inflexible in its new offerings.
But such problems hardly put a dent in the quiet optimism that Telstra now seem to have.There was no gloating over the NBN deal, and there was really not much said about it, but there’s little question that the bags of cash it guarantees really have unlocked a new era.Competitors ought to be wary.
NBN Co will move back to a model where it connects fibre to every house or apartment at the same time as it rolls fibre down the street – the so-called “build drop” method of customer connections. However, unlike in the past, it will not seek permission from every household before bringing fibre to the building – customers will have to specifically opt-out if they don\’t want the fibre.
NBN Co trialled a two-stage “demand drop” build for some of the second-release sites, where fibre is first run in the designated rollout area and then connections are added to homes once orders have been made for connections. It is still currently using the demand-drop model, but a spokesperson confirmed to CommsDay that it will make the rollout changes soon.
NBN Co CEO Mike Quigley said the move to a build-drop rollout would mean accelerated capital expenditure but would be more efficient over the long term. Speaking at the launch of NBN Co\’s latest corporate plan, he also said that it would require more consultation from the company.
“One of the things that we have had to take into account of the additional costs of executing all this is a much greater level of communication with the general public,” he said, adding that the company anticipated that most households would see that the connection is not costing them anything and would be welcomed.
When it first moved to the demand-drop build for second-release sites last year, NBN Co noted that it stepped around the need to obtain written consent from property owners. However, a spokesperson told CommsDay that the company will be able to attach fibre to the outside of the building without specific consent.
The NBN Co spokesperson said property owners will be given notification and then have a set period in which to opt out if they choose. It is covered by the same rights that telcos and utilities now have in gaining access to property, the spokesperson said.
As a result, NBN Co set out in its current corporate plan that it expected 90% of brownfields single dwellings to be connected, with the remaining 10% either opting out or vacant homes. It stated that build-drops from the street to the premises was the most effective way to minimise mobilisation/de-mobilisation costs and was, in part, a consequence of the greater certainty in uptake due to the commencement of the Telstra and Optus agreements.
NBN Co also noted that due to the changes, incremental costs have been embedded in the new plan for the notification process and access to premises for the installation of the lead-in from street to the building.
As well as greater consultation with households, the report highlighted the need for greater engagement with multi-dwelling groups such as body corporates – something it did not address in the earlier corporate plan.
The new plan incorporates a provision for increased costs relating to the design and cabling of all end-user units inside apartment blocks. NBN Co will build the local network inside MDUs and said it will need to have a higher degree of engagement with body corporate entities and undertake site surveys ahead of time, incurring the detailed design and installation costs for the internal cabling.
“This process is now anticipated to increase costs, on average, above the cost of connecting an SDU, and will be compounded by the diversity in MDU designs, the low number of end-user premises per MDU location (average 9 units per MDU building, excluding duplexes) and the age of these MDUs (lack of riser infrastructure),” it noted.
The new plan also stated that public interest premises such as schools, hospitals, universities and aged care facilities will be specifically consulted in order to provide appropriate connection solutions.
Communications minister Stephen Conroy has had a rough year. He has been suffering from chronic knee pain and recently suffered a bout of pneumonia.
Admirably, he hasn’t let these issues affect his work rate as a minister, still making good on his commitments despite obvious personal discomfort. Of course, things haven’t been too flash on the political front for the government either and as the number 4 ranking member of that government, Conroy wouldn’t be finding much on the work front to cheer him up from his health issues.
In this context, it wasn’t surprising then to see him go on the attack from the onset of yesterday’s NBN corporate plan press conference. Although he could have chosen to focus on the reformist impulses behind the NBN he, instead, decided to attack those he saw as misrepresenting the facts about it.
Various entities including Malcolm Turnbull, Henry Ergas and the Australian Financial Review all copped a serve: some of the criticisms fair, others such as that of Ergas not so fair. Ergas’ early 2009 calculations of a $120-$200 overall retail ARPU were based on an NBN earning a 15% ROI and a preservation of existing retail margins. It is noteworthy that NBN Co itself predicts its own wholesale ARPUs to eventually hit $100 at around the same time it hopes to pay for itself. It is also noteworthy that retailers will be taking margins hits in their NBN offers compared to DSL services based on unbundled copper, just as the previous NBN corporate plan forecasted.
The accompanying press release also made its own inaccurate comments, suggesting that the NBN’s total capital expenditure was still much less than the $43 billion originally announced in 2009. But that original figure was never framed as just the capital spend: it was described as the amount to be “invested” in the network by government and the private sector. The total investment requirement for the NBN from government and private sector-sourced equity and debt as of yesterday? $44.1b. This is not “significantly less than the $43 billion originally announced.”
The fact that the actual corporate plan itself wasn’t released until 30 minutes into the press conference gave the act away—also many of its key metrics were published on page 76 of the actual document! What did the government choose to highlight yesterday? A slight and meaningless revision of the internal return rate by 0.1% over 30 years.
What did it bury? Let’s see: a revised forecast which sees nearly 80% less connections to the NBN by June 2013 than it predicted a mere 20 months ago. A blowout of 8% or $3.2 billion in peak funding requirements. A blowout of over 10% or $2.9 billion in the government equity requirement. And the fact that with nearly $3 billion spent to date, the company will only collect $120m in revenues next financial year and won’t crack $1 billion a year until FY2016.
Rob Oakeshott is right: there isn’t really a great desire for informed scrutiny of the government over the NBN even as its shareholder minister attacks others for their allegedly misinformed scrutiny.
Much of the new corporate plan is structured around the assumption that a greater percentage of NBN users will subscribe to the higher speed (100Mbps and more) services than was originally thought to be the case. There are two justifications for this: one of the experience of the large percentage of early adopters who are subscribing to the higher speed service, the other is the planned migration of nearly 500,000 Optus customers from a 100Mbps DOCSIS 3 HFC network to the NBN.
I’m not sure either justification holds up: how many of the Optus customers have actually elected to pay a premium for top tier service on HFC as opposed to being a passive party to a network upgrade? And do early adopters who are motivated to take an NBN subscription from day one really reflect the broad mass of users who will only take to the NBN when their copper is switched off?
NBN Co seems to have a foot in both camps. Its speed demand projections posit that by 2028 about 40% of its users will remain on the entry level 12/1Mbps plans and about the same—40% or so—will be taking 250Mbps, 500Mbps and 1Gbps services. Only 20% will elect to be on 25Mbps, 50Mbps and 100Mbps services.
This is a curious demand dichotomy if one thinks through its implications on the types of mass market applications, content and services envisaged for the NBN-enabled digital economy.
Despite earlier talk that there had been second thoughts about the contentious Connectivity Virtual Circuit charge, essentially a usage charge designed to pump up ARPUs from averaged and loss-leading access fees, it looks here to stay. NBN Co is offering the sweetener of a CVC charge waiver until customer numbers in each fibre area reach 30,000: elegant given the large impost it levies on RSPs at the early point of the NBN transition when they also must wear legacy copper charges. That said, NBN Co was keen to point out its $20 Mb CVC charge was less than Telstra’s equivalent $33 charge for its existing resold wholesale DSL service. Of course, Telstra aggregates these charges at six state POIs, compared to the 121 envisaged by the NBN.
The elephant in the room yesterday at NBN Co’s corporate headquarters was the pending Federal election in 2013, which many senior members of the government expect to lose. If the government sees out its full term, the FY projections for the NBN suggest that there may only be a couple of hundred thousand premises or so connected to the network by election day.
By that stage, the government will have ploughed the best part of $10 billion into the network. Rightly or wrongly, the project is set up for caricature as another pink batts or school halls scandal.
The peak years for NBN construction at the moment appear to be 2015 and 2016—that is when the bulk of the spend is projected to occur.
I suspect the politics of popular support for such spend, especially as interest bills begin to bite into the surplus or deficit, might have changed, for the negative, by then. As much as many in the industry genuinely want Abbott and co to change their minds and support the NBN in its current incarnation, I’m not even sure the ALP will be so enthusiastic by that stage.
I note the words Julia Gillard used this week to attack what she described as over-investment in power capacity by utilities.
“One quarter of all retail electricity costs – more than $500 a year for a typical family – is spent to meet the costs of peak events that last for less than two days each year in total… It’s like building a ten lane freeway – but with two lanes that are only used or needed for one long weekend. It’s a very good thing that more Australians can afford air conditioners to cool their families on our hottest days… It’s a very bad thing that the supply side response to this is so deeply costly and inefficient, and it’s a clear argument for reform to go further…My challenge, to industry, regulators and state governments, is this: your job now is to ensure that you respond to this with efficient investments. Investment which gets the balance right between affordability and reliability….”
Substitute the words “broadband” for “electricity” and “computers” for “air conditioners” here and it is easy to see the attack lines that will be used against any politician presiding over the current NBN plan over the next few years as it reaches peak spend ahead of meaningful uptake.
Even the most ardent NBN advocates agree that the network is way over-provisioned for current demand and is built with the requirements of the next three to four decades in mind. As iiNet posited on its own corporate blog last week, some 3% of total users likely account for 50% of bandwidth demand. NBN advocacy often seems to confuse the difference between an average and a median (indeed, yesterday’s corporate plan does so in relation to data usage): something a politician who wants to win 50.1% of the two party preferred vote and see a contentious project through should never do.
Get ready for NBN scaleback no matter what happens in terms of government, especially given the bulk of the overall NBN cross subsidy (plus the proposed TUSMA funding) goes to rusted-on voters in safe regional and rural seats—unless Julia Gillard is suffering from massive cognitive dissonance, her own rhetoric on power costs is a sign of where the NBN debate is heading.
With Pacific Fibre’s trans-Pacific cable plan collapsing, sources say plans are underway for a new undersea telecom cable connecting Perth with Jakarta and
Australian telecom entrepreneurs Ted Pretty and Bevan Slattery are believed to be behind a new venture called Australia Indonesia Singapore Cable, in association with the major submarine cable installation firm TE Subcom.
Pretty and Slattery are both board members at NextDC but the cable venture is understood to be completely independent of that firm. Both men have strong track records: Slattery conceived the PPC-1 cable between Sydney and Guam which is now owned by TPG, while Pretty is a former Telstra group MD who now chairs two venture capital firms and the ANZ unit of Tech Mahindra.
CommsDay attempted to contact Slattery for comment yesterday but he was travelling to the London Olympics and unreachable.
CommsDay understands that the AISC venture is talking to potential Indonesian partners and filed an application for a carrier license with the Australian Communications and Media Authority last week.
There are already two proposed cables on the same route: one backed by Leightons, the other by Huawei Marine. Slattery and Pretty are believed to be working on the premise that both these cables are unlikely to proceed.
Although Western Australia-Singapore is traditionally an extremely thin route compared to the hundreds of gigabits utilised between Sydney and the United States there are good reasons to believe this will change. The giant Square Kilometre Array radio telescope planned for the Australian outback will generate tremendous amounts of data for transmission to international researchers, while both Singapore and Hong Kong are developing as significant regional hubs for content delivery and cloud computing and are set to rival the US West Coast as major global centres for traffic hand-off. The US is also losing attraction as a landing place for new cables due to the possible introduction of a 15.7% universal service levy on all systems that traverse American territory.