Analysis of NBN 2.0
Two competing NBN offerings
In analysing the new NBN plan, as it has been at least partly unveiled by the government, the politics are a major factor; and depending on what side of the fence they occupy the reporters either follow the lead of the Minister in criticising the previous government, or, if their allegiance is to the other side, highlight the back-flips of the current government regarding their ‘faster and cheaper’ pre-election promise.
We now have two competing NBN plans:
- The new plan from this government, based on a mixed technology solution, at the cost of $41 billion; and
- The original FttH plan – the previous CEO of NBN Co, Mike Quigley, and the Labor Opposition have both indicated that they can do the superior job for $43 billion.
According to the latest timetable, the time difference between the two is only three years.
I am sure that both sides can buy consultants to prove their point and dismiss the other. It is sad but I have become very sceptical about any NBN reports and reviews coming from politicians.
Staying bipartisan, I sincerely hope that the government can actually execute its multi-technology plan because, if not, we will have again wasted three years.
And if they fail to deliver the Opposition will have a powerful weapon going into the next election.
The multi-technology NBN
An FttH rollout, while more difficult to start up (but which phase has now largely ended), provides a ubiquitous and uniform infrastructure for the whole country, essential for the further development of the digital economy. In contrast, the new plan amounts to something of a ‘dog’s breakfast’. First of all there is the ongoing FttH rollout – most likely initially the most successful part of the project, which for the time being will be the only element of the new plan that will be rolled out on time and on target. It will therefore see the least delays and the best quality, now that all of the start-up problems have been largely overcome.
The next element of the plan is the FttN rollout. This will depend on a range of potential issues – first of all, the already widely debated quality of the copper network. While more than half of the copper network will be bypassed by other technologies, this does not mean that those largely scattered copper problem areas can therefore simply be bypassed by FttH or HFC.
Apart from the question of the quality of the existing copper there are issues with the upgrade technology that has been selected. This will require the installation of some 60,000 street cabinets. To start with, let’s hope that development applications and community support is forthcoming. As yet there is no FttN cabinet design for the Australian environment; nor are cooling, space and fire issues fully under control. Certainly many issues will need to be addressed basically on the run.
The VDSL vectoring and G.Fast technologies are still in their infancy – Australia will be one of the key guinea pigs globally, and again a range of issues will no doubt crop up.
And then there is the HFC network. This has already largely been written off by the two operators, Telstra and Optus – for more than a decade they have shown little interest in using this technology for high-speed broadband delivery. Investments in this network have been very low or non-existent and, again, the question of the quality of the network is a serious issue. The new plan basically calls for a total overhaul of the current networks and basically what it will deliver is an HFC network that is as good as new, and in principle it can deliver FttH quality. However this will depend on how the network is configured, as this is a shared technology and the more people using it, the lower the quality gets.
Design and rollout problems
Despite the abovementioned challenges the technology will not be the major problem. The ones earmarked to be used in the mix can all be optimised and can do the job, at least until the next level of services call for the next step, which will inevitably mean FttH. But in all reality that could take 5 to 10 years.
It is in the execution of this mixed technology solution that I foresee problems.
It is quite possible that there will be areas within a suburb or town where there is a perfect quality copper plus an excellent HFC network, and where fibre is rolled out; and there will be areas where the copper is poor, there is no HFC, and where it also falls outside the current FttH footprint.
So one can’t simply select a suburb or town and use one of the above technologies – it is possible that many areas will have to be serviced by three different technologies. This in itself will be a logistical nightmare. Just think about how to design such a network – street by street, house by house – and what would be involved in getting the design right. It will be impossible to know all of this upfront; so again design and developments will take place on the go, as the quality of significant parts of the infrastructure will only become clear once work is commenced.
Execution will depend on how quickly the plan can be rolled out, without too many delays and too many problems (cost blowouts).
And, even if there are not any delays, this more complex plan will only be delivered three years earlier than the FttH plan. FttH, however, is – as everybody, including the Minister, agrees – by far the best future-proof technology. It will last for the next 25-50 years. Is three years going to make that much difference if the alternative model will eventually have to be upgraded anyway?
Contracts, negotiations and regulations
Before all of the above issues can be addressed the legal and regulatory foundations of the new plan will need to be scrutinised, as basically all elements need to be reviewed. The copper network is still owned by Telstra and, as such, falls outside the $11 billion binding contract between the government and Telstra. Also, the contracts with Telstra and Optus regarding the HFC network need be shredded and new arrangements will need to be negotiated.
Next – the structural separation and wholesale arrangements that have now, after nearly three years, been finalised. All of the changes will have an effect on these legal arrangements. Very little can happen until all that has been sorted out; and, according to the review, none of these negotiations can be started before NBN Co’s corporate plan has been updated, due by July 2014.
At the same time the companies involved will have to make a judgement regarding the feasibility of the new plan. If the plan runs into problems the next government could possibly move back to a full FttH rollout.
As mentioned, in the end this is all about the execution. We have seen it is very easy to make a lot of political noise, especially when in Opposition, but it is a totally different story when you are in government and will be judged on the delivery. As the majority of Australians preferred the initial plan, the government will continue to have an uphill battle convincing the electorate that their plan is a good alternative. In reality – apart from the ongoing FttH rollout – very little of the new plan will be in place by the next election.
The new plan could prove to be far harder to implement, and it could attract significantly more problems than the FttH plan. It could easily take a similar start-up period as the FttH plan (ie, three years).
In the meantime FttH infrastructure prices are still falling and its technology picture will only improve – unlike the current plan, which will only increase in price with the ongoing ageing of the underlying infrastructure used.
Current FttH plan requires simplification
As BuddeComm has analysed on numerous occasions the current FttH plan could be significantly simplified if we start to adopt FttH rollout plans similar to the ones deployed by Google in the USA and Reggefiber in the Netherlands. Rollouts in Japan, Korea and France are all considerably less complex than the one in Australia. Simon Hackett (now an NBN Co board member) has also provided examples of where the FttH plan can be simplified.
Despite the multi-technology approach this should still be a major focus of attention – simplifying the current complex vertically-integrated model. Now would be the right time to address that issue. The question, however, will be whether that option would still be available for review in 2016. In ensuring delivery of the government’s promise of FttN rather than FttH this option looks liked being overlooked, and could well be a lost opportunity, since by the time of the next review we might have gone too far down the track of the complex vertical-integration model.
So on to the next review in 2016?
The good thing is that the FttH rollout will continue into 2015, which will give the government some breathing space to get its house in order. As mentioned, for the next two years the FttH will remain the major technology to be rolled out. If we get, let’s say, 20% penetration of Australian premises by 2016 it will be interesting to see what the media reports will be at that time compared with the developments surrounding FttN and HFC connections, which by that time will only have just started to ramp up. There could well be a similar outcry by the Opposition at that time, lamenting delays and cost blowouts.
For the entire duration of this project it will remain ‘under construction’ and so it should be. There will always be new technological developments, innovations and lessons learned. Based on the experiences of the plan that is now in front of us a review around 2016 could well be the next step. I would not be surprised if by that time the decision is made to roll out more FttH if the cost of upgrading the copper and HFC networks is going to be revealed as greater than projected.
Still missing – a national vision
Again the whole debate has reverted to politics and technology. This time there is no mention of the reason the government believes we need an NBN; and no mention of the fact that Australia’s low level of productivity is leading to an economic crisis now the mining boom is fading away and we desperately need new digital infrastructure to achieve digital productivity and innovations to create new (modern) jobs.
As we speak tens of thousands of jobs are being lost in the old and ageing industries. Mining investments are drying up and the NBN could be used as a spearhead to move the economy in new directions.
Not one word has been uttered about these critical economic and social issues in an investment plan worth $41 billion. The government has, however, set up a commission to investigate the cost benefits of the NBN.
If we were to judge the NBN from a social and economic perspective the question would be: what sort of NBN is needed that will assist the Australian economy and the Australian society to move forward?
If these issues had been addressed in the NBN plan the uninformed discussion about speeds would cease. Modern society needs a ubiquitous digital infrastructure with enough capacity to cater for the millions of new services, innovations and activities that are happening around us.
The NBN should be positioned by the government as an infrastructure platform that allows our companies to be at the forefront of economic innovation, offering them a stage from which they can develop new products and services for a global market ….. in that respect the NBN is all about new high value jobs.
On the consumer side – once again it is not about speed. It is about catering for the dozens of devices in the home that will be connected to broadband. The NBN is as much about facilitating the mobile and wireless developments as it is about the fixed network itself. The growth in services that need to be accessed from the cloud, as well the millions of M2M sensors and devices, requires a synchronous robust network, one that has enough capacity, is secure and protects privacy.
If we had politicians with that level of vision we could have asked our engineers to deliver us an NBN that could do all of that. And if that had been done they most certainly would not have come up with a network that had very different levels of quality, capacity, robustness, security, etc.
Furthermore, if we want to deliver the new upcoming services to all Australians – that is, e-health, e-education, and other government services – we all need to be able to access them. If some technologies are going to be unable to do this it would mean that those services can’t be offered on a ubiquitous basis and they will therefore either not be developed or they will only be made available to the lucky few that have access to them via that element of the NBN that has the capacity and the quality to deliver such service – the 26% of the population on FttH.
In the end the inability to offer such ubiquitous services could well be the major loss to come out of this new plan. Here I think the next review will be important as we will slowly come to the realisation that we can’t run our economy at the present low level of productivity; that we need to save significant costs in the economy, healthcare, education etc; and that e-services are going to be critical for the delivery of new jobs and the maintenance of the standard of living that we are accustomed to in Australia.
Let me say again that I hope that the government can deliver on its promises, and that the quality of their multi-technology network will deliver the infrastructure needed for digital productivity across the nation. I do sincerely hope this because, if they have got it wrong, it will be our country and our prosperity that will suffer. And that is far more important than the ego of a politician, or that of your analyst.
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