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Australia's NBN: Will Fiber Get Voted Out?

Light Reading
News Analysis
Light Reading
8/28/2013
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Barring a miracle or an especially ingenious "October surprise," Australia’s government-backed NBN is about to get a makeover.

With a comfortable lead in the polls, the conservative opposition looks set to cruise into office with a promise to dump the Rudd government's fiber-centric project in favor of a copper/VDSL alternative.

It has costed its plan at A$20.4 billion (US$18.4 billion), well below the current scheme's official costing of A$38 billion ($33.8 billion).

In its current form, the NBN is aimed at bringing fiber to 93 percent of all homes and small businesses, using wireless or satellite for the remainder. The alternative plan from the Liberal-National coalition would reduce that to just 22 percent, with the other 71 percent serviced by fiber-to-the-node (FTTN) plus copper.

David Kennedy, Ovum's Asia-Pacific research director, describes the coalition plan as realistic and "not that different" from the VDSL being deployed in many European markets.

As well as the lower price, the coalition's pitch is helped by the delays and controversies that have beset the NBN, which is now two years behind its original schedule.

However, its biggest problem is that it has been a political project from the start.

When he ran in 2007, candidate Kevin Rudd promised a relatively modest A$15 billion ($13.3 billion) next-gen network, backed by A$4.7 billion ($4.1 billion) in government funds.

Post-election that all changed. In short order, Telstra Corp. Ltd. (ASX: TLS; NZK: TLS) and the government butted heads over the cost, Telstra was ejected from the project but, with no other carrier willing to take its place, Rudd's team went back to the drawing board and came up with the current grand scheme. A new state-funded company, NBN Co Ltd. , was to be formed to build and operate the wholesale network. Telstra was allowed back in as a retailer, but would have to shutter its copper and cable TV access networks.

Today, four years into the project, NBN Co says it has passed just 220,000 homes with fiber -- a fraction of the total target of 12.2 million homes and businesses.

No-one seems to take this figure seriously. Tony Brown, senior analyst at Informa Telecoms & Media, says "probably 30 percent" are not connected to the network.

In the original corporate plan, issued in December 2010, NBN Co. expected to pass 1.3 million homes by June 2013, with 500,000 users signed. It revised that last year to 341,000, but has since conceded that even that target was beyond its reach.

The problem goes back to the formation of NBN Co. Having made an end-run around Telstra, it has been forced to build this enormous new network as a greenfield operator without the expertise and resources of the incumbent.

This might have worked in the tightly packed neighborhoods of Hong Kong and South Korea, where challengers have overtaken incumbents, but not anywhere else.

Brown says that when formally established in June 2009 NBN Co. had "a logo and Mike Quigley" -- referring to the CEO and former Alcatel-Lucent (NYSE: ALU) COO. "It expected within four years to build a network to 1.47 million homes. That's a ridiculous target."

At peak rollout period in 2016 it was forecasting connections would reach 30,000 a week, or 6,000 a day. Not even the Singapore NBN tried to do that.

It didn't help that most of this took place during a mining boom, which drew semi-skilled labor to remote locations on A$100k+ salaries. Brown estimates NBN Co. was paying wages as much as 40 percent below the market rate, leading to a series of disputes with sub-contractors.

Even with the much-reduced fiber rollout, NBN 2.0 still poses some thorny challenges for the incoming government.

The biggest of these will be to renegotiate the government's 2011 deal with Telstra and its shareholders. The coalition has one carrot to offer, which is to abandon the current plan to turn off the Telstra fiber-coax cable TV and data network.

But it has the tricky task of coming to terms with Telstra over the copper access network, which is supposed to be deactivated 18 months after the NBN is switched on.

Malcolm Turnbull, the opposition communications spokesman and the likely new communications minister, says he doesn't need to pay another cent to Telstra for the copper network. Right now Telstra is getting compensation payment of around A$1,500 ($1,335) per household for deactivation.

Ovum's Kennedy says there will need to be an agreement on the price of the sub-loop -- the line between the customer premises and the node -- to compensate for the loss of shutdown payments.

When it comes to building the network, the coalition is giving itself more options. Kennedy thinks Telstra is likely to be brought in as a major contractor, citing some work on the transport network it had already done for NBN.

The coalition plan also calls for the exploration of public-private partnerships with other telecom operators.

But it could take some time. Besides the renegotiations of terms, a number of the senior political appointees at NBN will have to be replaced. Plus, the coalition is planning four separate inquiries into the NBN project.

"It could take up to a year before they start building again," predicts Brown.

— Robert Clark, contributing editor, special to Light Reading

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R Clark
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R Clark,
User Rank: Blogger
9/3/2013 | 3:46:16 AM
Re: Just something you guys should know....
Impressive number, but just about unreachable for Australia with a small workforce and trying to build out in multiple locations across a huge area.  NBN Co has had huge trouble getting subcontractors to do the last mile work. It's paid them very low rates, has had a lot of disputes, with quite a few just walking off - in one case removijng the fibre they'd just laid.

I think nothing wrong with a government tipping money into essential infrastructure, but you need to make sure it's executed properly. A new government monopoly without the active support of the biggest player in the market seems like the ideal formula for failure.

R Clark
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R Clark,
User Rank: Blogger
9/3/2013 | 3:34:10 AM
Re: A bad year
To be fair, we have shamed outselves at rugby as well.
brookseven
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brookseven,
User Rank: Light Sabre
8/29/2013 | 9:53:54 AM
Re: Just something you guys should know....
Carol.

I completely disagree with your "poor carriers" commentary.  They do not judge investments on IF they will make a profit on them.  ALL carrier investments (or essentially ALL) make profits.  The question is HOW FAST does a carrier make a profit on the investment.

Nobody ever said that FiOS was not going to be profitable.  What they kept saying is that there were more investments that had faster ROI.

Small carriers are different in some ways here.  But the budgets at AT&T and Verizon are limited by a timeframe on the ROI not the fact of an ROI.

 

seven

 
mendyk
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mendyk,
User Rank: Light Sabre
8/29/2013 | 9:25:52 AM
Re: Just something you guys should know....
Hi, Carol -- How is building out two networks lunacy? That's basically what most markets have now -- one telco and one cable. They aren't both FTTP yet, but that's probably just a matter of time.
Carol Wilson
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Carol Wilson,
User Rank: Blogger
8/29/2013 | 8:57:55 AM
Re: Just something you guys should know....
I'd agree that U.S. carriers are not likely to accept open access at this stage but I'd disagree that allowing private commercial interests to completely drive telecom is the best policy, even if it's what the U.S. has long since adopted. US private companies are driven by the quarter-to-quarter investment mentality of Wall Street, which leaves little room for the long-range planning required to do telecom right. That's largely why today's telecom industry finds itself in the current bind of having to invest heavily to prepare their networks for a tsunami of wireless data traffic without being certain how they will monetize that investment and earn a proper return when most of the value in mobile broadband is being ascribed to the devices and the applications.

And yes, not only is the US stuck with high broadband prices but also with 30% of the country still lacking real broadband. 

And Google's "innovation" is to overbuild current networks with FTTP that is, at least in some part, subsidized by the favored city in which they are building. 

The Australian approach may not be the model I made it out to be - although it may not be as bad as some politicians are saying - but an open access approach is the much more logical model going forward. And building TWO competing FTTP networks, as is now proposed in Austin, is sheer lunacy. 
Carol Wilson
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Carol Wilson,
User Rank: Blogger
8/29/2013 | 8:51:13 AM
Re: Just something you guys should know....
Wow - I was unaware of the copper wiring difference in Australia and will check out the Web site below. Thanks for bringing it to my attention. 
L33Tpraetorian
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L33Tpraetorian,
User Rank: Light Beer
8/29/2013 | 8:48:37 AM
Re: Just something you guys should know....
It is a TERRIBLE idea, don't buy into the coalitions bullshit. If FTTN could have been done, it wouldve been done by now, yet telstra declined in 2004, and i quote Ziggy S:

"Telstra is not interested in pursuing VDSL. We are not trialling VDSL. We see fibre to the premises as the most likely technology to support very high speed access services of the future,"

http://www.zdnet.com/telstra-vdsl-no-thanks-1139167116/

Why do you think they did this? Could it because they knew that the copper rolled out in the UK, US and other nations that implemented FTTN was 24 AWG (0.5mm). Where as the copper in our existing infrastructure (by Telstra's own submission to the ACCC) is a majority of 26 AWG wire (0.4mm) in urban area's and 0.32mm in CBD's.

Why does it matter? Due to the skin effect in AC transmission systems, the thinner a wire is the more attenuation it has (the more signal drops off). Because of this thinner wire WE CANT get the speeds the libs have been quoting. Vectoring only works up to 400m and even then this is assuming you have no joins or any other sources of interferance.

FTTN is a stupid way to go given what we've seen in NZ, France, Singapore, the Netherlands and more. I've tried to raise as much awareness as i can. I created a website:

http://savethenbn.com/


Homepage: Applications facilitated by fast reliable net

Technology: Brief overview of terms and implementations

Economics: The TRUE costs associated with implementations and economic benefits.

Political: Who benefits out of each scheme, why FTTN CANNOT possibly work.

It's more then a 5min read but it's well worth it.
186k
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186k,
User Rank: Moderator
8/29/2013 | 5:00:15 AM
Re: Just something you guys should know....
Yes Carol, I did read your article the other day referring to NBN and thought that's hardly a model to aspire to. There is one area of industry privatisation that is pretty much universally regarded as positive and that is telecoms and the state backed NBN seemed to be a real throw back to another less effective era in telecoms

It makes my head hurt thinking about how hard they've made it for themselves in Australia and I still don't quite get the logic of Telstra closing networks down


ps your "open access" approach might be all well and good and might in theory offer the greatest net benefit to society but there is absolutely no way that the US fixed players are going to surrender their de facto xDSL/cable duopoly voluntarily - never. The US missed it's chance for something similar to the local loop unbundling we have in Europe and it looks like the country is now stuck (aside from Google fibre areas) with some of the highest broadband charges on the planet

 
mendyk
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mendyk,
User Rank: Light Sabre
8/28/2013 | 11:12:08 AM
Re: Just something you guys should know....
Advocates of small government are now doing the happy I-told-you-so dance.
PaulERainford
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PaulERainford,
User Rank: Light Sabre
8/28/2013 | 11:03:24 AM
A bad year
First they can't win a Test Match and now this. Not a good year for the Aussies. Shame.
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