Labor to take FTTH to 39% of NBN

Posted on: Monday, 13th June 2016

The Australian Labor Party has revealed its hotly-awaited NBN election policy: a re-worked multi-technology mix with up to two million more households connected via FTTP than in the Coalition’s model, retaining the use of the Optus and Telstra HFC networks. The ALP has pledged to spend an extra A$3.4 billion in capex for the extra FTTP, following through on its earlier promises to roll out more fibre if elected, with a completion date of 30 June 2022. Government equity contributions would not be increased, meaning that the incremental funding would be drawn from additional debt; the entire total funding cost would also be hard-capped at A$57 billion, taking priority over the two million premise FTTP target if necessary.

Labor has also said that the model will save A$1.2 billion in opex out to build completion, and push the base internal rate of return to 2040 up to 3.9% from 2.7%. That last point will likely draw even more attention to NBN’s capacity-based pricing and underlying business model, which have become an increasingly public area of concern for key telco industry stakeholders. However, at least from opposition, the ALP has stopped short of diving into that vexed issue; its NBN election policy is focused almost solely on the access technology debate, with the party promising only that wholesale pricing will be “the same or lower” if it takes government and that it will monitor connectivity virtual circuit charges.

The current Coalition NBN policy would see about 20% of Australian homes and businesses connected with FTTP, with the rest using either FTTN, HFC, satellite or fixed wireless, and a total funding range of A$46-56 billion. The ALP policy – checked and tested by the Parliamentary Budget Office, and by an unnamed independent accounting firm – aims for around 39% FTTP coverage with a higher total price range of A$49-57 billion (with the high-end figure being a strict cap). The cost differential for the extra two million premises ties back to the difference in cost per premise for FTTP and FTTN in NBN’s most recent corporate plan, just over A$2,000, with the ALP also expecting FTTP costs to come down over time.

“One of the big mistakes Malcolm Turnbull made on this was he underestimated the cost of FTTN. In his strategic review, he thought that FTTN would be A$600 per house; the truth is it’s [almost] triple that, it’s gone up to A$1,600. The cost of the copper version of the NBN’s gone up, while we’re now seeing the cost of the fibre version of the NBN going down,” shadow communications minister Jason Clare told CommsDay in Western Sydney near Penrith, where he launched the policy alongside federal opposition leader Bill Shorten. “We’ve modelled this very conservatively at A$3,700. As you know, from the trials that were done in Ballarat last year – and NBN admitted this in evidence to an NBN committee only a couple of months ago – they’ve now got that down to around A$3,200-A$3,250. In the model that’s part of these documents, we’re assuming a 19% improvement on that price over time; very conservative, again, because look at what Chorus has done in New Zealand, something like 29% over twelve months.”

“The other point just to make on costs, [to be] very, very clear: to do what we are doing, the capex cost is high, about A$3.4 billion. But the opex cost, the cost of running this system, is less, about A$1.2 billion. Why is that? Because you don’t have the cost of fixing the old copper, and you also don’t have the electricity costs that come with running 30,000 nodes. Those 30,000 nodes that Malcolm Turnbull wants to build all around the country will cost, when they’re all set up, A$60 million a year to run. So you save on the operational costs.”

Labor also plans to phase out FTTN construction as the current pipeline of construction work is completed, making way for its additional FTTP; it has pledged to honour existing contracts and supply agreements, renegotiating or repurposing them as necessary and possible for the access technology change. “I don’t want people to think that if we win the election, we just click our fingers and all the nodes disappear. Malcolm Turnbull’s invested A$15 billion of taxpayers’ money in this second-rate version of the NBN over the last two and a half to three years, including rolling out FTTN; there are about 1.3 million homes at the moment where construction is underway on FTTN. So where we can, we stop FTTN and we roll out FTTP,” said Clare. In addition, Labor has said that the a government under Shorten would commission Infrastructure Australia “to manage the development of a plan that outlines how and when the parts of Australia left with Mr Turnbull’s second-rate NBN should be transitioned to FTTP.”

Clare added that many of the premises that would be connected with FTTP rather than FTTN under the ALP policy would be in “outer suburban parts of Australia, but also in regional Australia as well,” partly because Labor would stick to the current plan of using HFC with next-generation DOCSIS technology in major metro areas.

“One of the decisions we’ve made in putting this policy together is to keep the using the HFC network, the Foxtel network for want of a better description, that runs the street of about 3-4 million homes around Sydney, Brisbane and Melbourne as well as a few other parts of Australia,” he said.

“We’ve made the decision to keep that and upgrade it, as the government’s proposing to do, because when you weigh up that vs the copper version of the NBN, it is better than the copper version. Also, because Malcolm Turnbull has signed Telstra about the upgrade of that, they’ve invested millions of dollars into it. None of it’s been switched on yet; they promised 2.61 million homes would be connected to this HFC network by the end of the year, and none have been switched on yet, but the first one gets switched on soon… it’s one of the reasons we believe that the government’s slower, second-rate version of the NBN is not going to meet its deadline of December 2020; it’s going to blow out to Jun 2022.”

Labor has also committed to further exploring the potential of fibre to the distribution point, although the technology – still at a relatively early stage of maturity – does not form a definite part of its election policy.

STAYS AWAY FROM CVC: Clare said that the higher quality of service from greater proportion of FTTP under the new Labor model would increase revenues. “And the internal rate of return, the money back to taxpayers, goes up under this model from a minimum of 2.7 to 3.9%, because people are getting a better service,” he added.

That may, however, not wholly reassure senior telco industry stakeholders – such as MyNetFone CEO Rene Sugo, serial entrepreneur Bevan Slattery and most recently Optus corporate and regulatory affairs VP David Epstein – who have voiced concerns about NBN’s underlying business model and the way it extracts revenues from its RSP customers. Epstein, for instance, has suggested that even under the averaging model recently proposed for the capacity-based CVC charging structure, RSPs could pay a margin penalty for offering better tiers of NBN services than rivals at common price points – and that the relatively high CVC pricing could make it difficult to meet customers’ expectations of high speed services.

“Wholesale prices on the NBN will be the same or lower under a Shorten Labor Government as under the Liberals,” Clare’s office told CommsDay. “NBN Co’s wholesale prices are regulated by the Australian Competition and Consumer Commission under NBN Co’s Special Access Undertaking, approved in November 2013. Labor’s plan assumes that NBN Co’s wholesale prices will decrease in real terms, per the SAU.”

“Labor will monitor CVC charges in government to ensure the correct balance is struck between encouraging internet use and achieving the long term rate of return on taxpayer equity invested in this critical infrastructure project.”

COALITION RIDICULES LABOR: Communications minister Mitch Fifield attacked the new policy yesterday, describing the cost projections as a fantasy. “The last time the NBN looked at how much it would cost to do Labor’s FTTP rollout, NBN found it would cost around $30 billion more and would take six to eight years longer,” Fifield said. “Now Labor are out today saying that there will be little additional cost and that Labor’s roll out will be finished at roughly the same time – it’s a magic pudding! “Shortennomics” strikes again.”

“Consumers aren’t willing to pay for Labor’s high-price NBN. Four out of five users are purchasing NBN plans with speeds of 25Mbps or less. Labor’s FTTP network costs $4,400 per premise to connect to the NBN. In contrast, the Coalition’s FTTN network costs $2,300 per premise, and Hybrid-Fibre-Coax technology costs $1,800 per premise.”

Petroc Wilton

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