Conroy’s incompetence sets Telstra up for another taxpayer funded bonanza
At yesterday’s hearing of the Joint Standing Committee on the NBN, the NBN Co chief executive Michael Quigley was unapologetic about the NBN Co’s failure to seek the right to use any part of the Telstra copper customer access network so that it had the option to deploy a fibre to the node (FTTN) network design in the future as a means of cutting the spiralling costs of the fibre to the home (FTTH) network design to which it is currently committed.
To recap: the gigantic cost of the NBN is a consequence of the decision to build an entirely new customer access FTTH network. Were the network being built in an economically rational way, the fibre would extend to the furthest economically viable and technically necessary point in the network and no further. As very high speeds are able to be delivered over copper if the distance between the end of the fibre and the customer premises is reasonably short, a fibre to the node, or fibre to the curb network design can deliver the required outcome in terms of bandwidth speed but at a fraction, at least half, of the cost of a fibre to the home build. As Alcatel-Lucent notes in a 2007 Technology White Paper “But the economics of FTTN are hard to resist, given cost points that can be 50% or less than those of PON.” (meaning the Passive Optical Network of FTTH)
Under the terms of the Telstra/NBN deal being currently negotiated, the NBN will pay Telstra about $9billion in net present after tax value terms in return for it decommissioning (and thereby rendering valueless) its copper customer access network.
However, as the deal is currently contemplated, if NBN Co, or a future government, were to redesign the NBN so as to build a fibre to the node network at least in part, the NBN Co would be required to negotiate with Telstra to use a part of the copper customer access network it has already paid Telstra to decommission. More billions out the door.
At the hearing Mr Quigley acknowledged that if the NBN Co wished to use a part of the copper customer access network it would have to renegotiate with Telstra. He said that he had not sought to acquire the right to use a portion of the Telstra copper because the Government had not told him to do so, and in any event, it would be complex. No doubt, many of us thought as we listened to him, it was simpler to drop a few more billion of taxpayers’ money.
It is quite incredible, mind boggling really, that a Government would pay a private company $9 billion to decommission a network asset but not reserve for itself, as part of the deal, the right to use as much of that network as it chose.
But that’s the real world – and unless there is a change of direction on the part of the Government, the Telstra/NBN deal will not simply deliver Telstra a $9 billion windfall but in addition set Telstra up to receive more billions when inevitably a future Government, Liberal or Labor, seeks to redesign the network topography in a way that reduces the crippling capital cost of the fibre to the home design without compromising the promise of universal very fast broadband.
Mr Quigley’s testimony yesterday leaves the ball in Senator Conroy’s court. Is he going to give NBN Co a direction to act in a commercially rational way and reserve the right to use some or all of the copper network it is paying Telstra to junk? Or is it going to continue to set Telstra up for another big pay day when, inevitably, a more rational, cost effective approach to network design is undertaken?
22 Responses to “Conroy’s incompetence sets Telstra up for another taxpayer funded bonanza”
Or maybe reserving access to the copper network instead of just decommissioning it would cost more than 9 billion and since the government doesn’t plan to use it it doesn’t see the need to waste billions making sure they leave the Liberals room to water down the NBN.
I’m just thankful that the Liberals couldn’t deliver on any of their broadband plans while in power, because Australia, particularly country Australia, deserves more than they planned to deliver.
Rodd
Malcolm,
You are certainly hinting from your recent statements and questioning that a future Coalition Government has moved beyond a “12Mbps is enough” policy to seriously examining an FTTN plan. While certainly far behind FTTP, at least it’s a step in the right direction. It took the ALP 3 years to go from FTTN to FTTP, so maybe there’s hope for you yet!
Before you go down that road, read this:
http://www.theage.com.au/news/business/leapfrog-fttn-and-howard-goes-to-top-of-the-class/2007/05/15/1178995155898.html
That said…..
Interesting that you have quoted a 4-year-old document from A-L in relation to the cost-benefits of FTTN and FTTP, rather than a newer document from the same company. I read a great paper from them a while back, which described FTTN as a low-cost, short-term solution and FTTP as the undeniable future technology. Unfortunately, I can’t find a link to it right now.
I also note in the document you linked to, that A-L make it clear that FTTP in open greenfields is undeniably the preferable solution. Given that, can we assume that you would continue the ALP’s FTTP policy for greenfields should you come to power?
I’d also like to call you on your statements at the enquiry, that in Korea you saw new multi-dwelling units with what you described as FTTN or FTTB system, implying that it would be a cheaper and more suitable solution than FTTP.
You mentioned in your example that they were running fibre to the building, then “cat 5″ cable to each unit. Let’s get something absolutely clear: This is not FTTN or FTTB as would be implemented here, at least as a cost-saving measure. FTTB with “cat 5″ (Actually “cat5e”) has essentially the same capability as FTTP, that is 1Gbps, and is no cheaper to deploy than an FTTP connection.
Our buildings have twisted pairs installed, not “cat 5″ cable. So installing FTTN or FTTB here, with twisted pairs going the rest of the way would not achieve anything like the capability of FTTP.
If we were to do FTTN or FTTB using cat5, it would save basically nothing over FTTP. Because the twisted pairs would need to be replaced with cat5(e) instead of fibre.
While I can ignore the dubious claim of ’spiraling’ costs, I must disagree with your main point, that of a possible future taxpayer funded bonanza for Telstra. Such a claim rests on the assumption that NBNCo will make an iron clad agreement for payment on the copper network regardless of time and extent of decommissioning. As a businessman you would be well aware of the undesirability of such a contract. And as a politician with a stated intention to destroy the NBN in it’s current form you would be doubly aware of the folly of doing so. Now despite your recent criticism of Mr Quiqley I’m sure you wouldn’t suspect him of such professional incompetence.
And of course, as the terms of any agreement with Telstra have not been released, your argument rests on very shaky ground. In fact it could be claimed that it nothing more than FUD – speculation based on a very unlikely scenario.
As I understand Telstra will be paid as Telstra customers are transferred to the NBN. There will be no instant transfer of the billions stated.
Jamie Benaud, I hope you are not trying to give readers the impression that there is a major difference between the CAT-5 cable taking up where fibre leaves off in Korean buildings, and the twisted pair cable found in Australian houses.
For the benefit of anyone confused by the distinction, CAT-5 just is a specification of twisted pair cable, pretty much plain vanilla, but with certain standards to rate it up to 100 megabits per second (or 350 if it’s CAT-5e) up to 100m distance. For the uninitiated, you make cAT-5 sound like coax or something.
The twisted pair cabling to most Australian houses is not made to that standard, but will feed houses very fast, probably faster than most devices on the web can feed them, and almost certainly a lot faster than the international links between Australia and the outside world will be able to feed them until they are upgraded (not part of the NBN project as far as I’m aware).
No one is suggesting that the existing copper network be frozen for all time and upgrades banned. If FTTN came to town, there would be demand for upgrades to the last mile to take full advantage of it. Where and when that demand reaches a threshold, it would then happen.
It already happened for 30 per cent of Australia in the cities, because the high capacity feed was within reach so it was affordable to go the last mile with HFC. The same thing would happen elsewhere, once a fibre-capable exchange comes to town and raises the bar.
Correction: CAT-5e is rated up to gigabit (1000 megabits per second), not 350 Mbps as I wrote above.
The point stands: if the demand is there for a faster connection to the home, providers will compete to provide it cheaply. If the demand is there for something else, such as wireless, providers will compete to provide that.
If the demand is not there, then the taxpayer does not really want FTTH as much as he thinks he does when he believes someone else is footing the bill.
Malcolm
Your plan lacks any detail and you’re fighting the wrong battle.
The copper is dead. Whether today or 15 years from now, it’s dead. It will either corrode and be replaced or be superseded.
So your ‘plan’ and I use that term loosely, because let’s face it, the Liberal communications policy document is something a teenager with a couple of hours of googling could have knocked together for a class they didn’t care about.
Anyhow, your ‘plan’ ultimately comes down to not a choice of IF Australia should get fibre, but WHEN, and from WHOM.
That’s it. That’s the crux of it.
Blah blah private enterprise blah blah billions.
Your home state of NSW alone has $50bn budgeted for roads over the next 10 years. Victoria, another $50bn. They account for roughly half the nation’s adult population, so let’s be fair and say the rest of the state’s combined have another $50bn lined up.
Makes the cost of the NBN look rather a bargain, doesn’t it. Even the most exaggerated sound bytes haven’t yet matched the combined national road budget for the next 10 years. The most generous estimates put it at around a 6th of the cost.
Let’s say it costs the 43bn originally budgeted and not the 26bn of the revised forecast.
The TOTAL cost to connect the ENTIRE nation in 10 years to a network who’s core delivery cables will last 50 years, will cost less than a third of the road budget over the same time frame.
Road budgets are ongoing. We can expect another 150bn for the next 10 years, and the next and the next and the next with no end ever in sight.
At least once the NBN’s laid, it’s done AND it makes a direct return which should cover whatever repairs are needed.
Now, on to your statement about cheaper and faster. Your last government totally botched the sale of Telstra. You ignored repeated warnings to separate the entity and worse, ran adverts misleading a huge number of Australians about their investment in Telstra. It was borderline fraud. Anyone with a clue should have figured out that a company with saturation profits, in a recently opened up competitive environment had only one direction to go. Down. Where else were the new players going to win customers from?
Immigration?!
So, how are we expected to believe that you, as a part of that government, have any greater ability than the completely incompetent communications ministers before you?
Remember Alston? Famous for the “internet is for porn” line.
Fact is, the Liberal party give the communications portfolio to people they don’t want getting in the way. It’s the political equivalent of a post in Siberia.
You’re only getting attention now, because Labor actually take communications and infrastructure seriously.
Ironically, you should thank Conroy for bringing the spotlight to a previously dull job.
The university town of Armadale now has NBN.
On Ten late news, a uni student seem pretty happy that he can now watch YouTube and video chat with his mates.
I guess that must enhance productivity than doing research on Wikipedia, which runs fine on ADSL2.
LOL.
B Chan please do not be so negative as to be unable to identify the magical and absolutely fantastic properties of the NBN.
Armidale will, within the next few weeks become the Medical, Financial, Educational, Business and Communication capital of the World with Australia soon-after developing into a Megatropolis to rule the Universe.
Now back to the real world. The Optic Fibre NBN is a good idea. Will the financial and technological return outweigh the cost is the debate. It is not beyond the bounds of possibility that this NBN project could be the greatest foul-up in the history of Australia and the Labor Party.
On the other side if Senator Conroy can make his dream a success, and remain within budget he will be remembered as Australia’s greatest builder. Let’s wait and see.
@Syd Lawrence Take it easy… but Armidale becoming the medical, financial capital of the world in weeks? Tas has had NBN for quite a while and it’s still, well, the stunningly beautiful Tas that we love, and nothing spectacularly different. LOL.
Speaking of that, since the trial roll out in Tas in the middle of last year, it’s been almost a year, perhaps someone should do a survey and assess the influence of NBN on the productivity in those areas.
B Chan I am sure you realised that I was speaking in jest when I inferred the marvellous and miraculous transformation of Armidale and Australia by the NBN.
With due respect to Malcolm, I think the NBN delivery would have much the same result for Australia as the (at times) proposed Australia Republic debate. Sounds good, gives a warm and fuzzy feeling but in reality does not deliver much.
@Syd Lawrence Of course it’s just a bit of joking around on the Armidale issue.
NBN hasn’t been there for more than a week so what it might become is anyone’s guess.
But more seriously, Tas does have had NBN for a while, so I’m wondering if anybody has looked at the influence of NBN in that region.
I mean, at the time of the trial roll out, did they expect to see any benefit in 1, 3 and 5 years’ time? If so, have the targets been met? If not, why not? If 1 year is still too soon, what’s the 2- or 3-year target?
We are still talking about whether the NBN will be the best thing ever or the biggest waste ever. But real data is starting to come out to answer the question. Can someone, the government or the opposition or others, go collect and analyze them?
B Chan your questions are important and they are exactly what all Australians should be concerned about.
Cost to customers will be vital for the consumer and because the NBN Co delivers Tasmanian RSP’s the facility free of charge at the moment, the final cost is unknown.
All should be concerned about project cost escalation and a final cost of over 100 billion should not surprise. Without Telstra involvement it may be more.
The physical problems to roll-out to 6000 premises a day for seven years can be imagined. The task of finding the qualified technicians almost impossible.
As to the return to the Australian taxpayer, who knows. One thing is certain the optic fibre will not have the operational life of the copper cable.
Another opinion about NBN: I think the investment in infrastructure isn’t well matched by investment in eduction.
I rather that they won’t spend the whole 50Bn, but build a somewhat slower version at 45Bn and use the remaining 5Bn to train some world class IT professionals.
Myne you’re a cock!
@James
I’m doing more than implying that Cat5 is very different to twisted pair, I’m outright saying it. Because it comprises a group of twisted pairs does not make it the same as a single twisted pair. The capability differences between the two cable types is absolutely enormous.
They are using Cat5e in SK, which as you later stated, can supply 1Gbps. In other words, the same as fibre (as implemented for the NBN).
The twisted pairs that exist in Australia, running from basement up to apartments, cannot carry anything like 1Gbps. Or even 100Mbps for that matter. Even using VDSL2, the limit for a single twisted pair over 100m is about 50Mbps, assuming the copper is in good nic.
The point I am making, is that Malcolm cannot use the FTTB-Cat5e situation in SK to claim that’s a better/cheaper option for here. We don’t have Cat5e running from basement to apartment (or into houses), so to implement the SK solution in existing Australian apartment blocks or suburbs would be barely (if at all) cheaper than the FTTP plan.
If he is proposing that we replace the NBN FTTP plan with “FTTB/FTTN with Cat5e to each house or apartment”, then fine, I’ll back that. Let’s see the cost savings.
The NBN debate has been intense, interesting and in most cases informative but the exciting part is yet to come.
We see the Labor Government under siege on all fronts and under severe domination in every department except the NBN. A successful roll-out of the NBN is vital for the Labor Party to have any hope of remaining in Office after the next election and we can expect a do or die effort from Senator Conroy to deliver the proposed NBN network, as promised to all Australians.
It remains to be seen if it is possible for him to deliver his promise within time and on budget but we can be sure Labor will move Heaven and Earth to save themselves and retain Government. Malcolm Turnbull is correct to point out the cost benefit doubts of the NBN while at the same time acknowledging that the NBN would be advantageous but costly.
Welcome to the NBN, Armidale! Here’s the sting in the tail for the rest of New England, and the bush in general.
Outside the NBN fibre coverage area, Telstra will only keep the existing copper network going until July 2022.
If mobile phones don’t work well at your place, this means that eventually, you’ll be forced to use the NBN’s satellites to make your telephone calls!
Earlier this month, NBN signed contracts with Optus and IPStar worth around $300 million, for broadband over their geosynchronous satellites.
The problem with the geosynchronous satellites is that they are so far away, that it takes about half a second for your voice to reach the other person.
That means your phone calls in the NBN future will sound much worse than they do now over copper. They won’t even meet ITU standards.
That is, if your satellite connection is working at all. (And if it isn’t, and you don’t have mobile reception, how are you supposed to ring for technical support?)
Will the NBN’s satellites really be adequate for emergency communications (ie will they work when there are bushfires and smoke in southern Australia, wind/rain in the north)?
The NBN is planning to spend $1billion for their “long term” satellite launch in 2015. They are planning geosynchronous satellites, just like the current ones. No amount of money will make them good for telephone calls.
What the NBN Co should be doing is putting their satellites in “low-earth” or “medium-earth” orbits closers to the ground. Voice will sound much better this way, and you’ll also be able to do things like video conferencing.
Of course, assuming you are committed to spending $50bill, the proper thing to do would be to deliver fibre to everyone who currently has copper. If it was possible to lay copper in the past, why not fibre now? Fibre costs much less per km in the bush than it does in Sydney or Canberra (where everything is under concrete or asphalt) Or failing that, terrestrial wireless at least.
ben 10 oyunları…
ben 10 oyunları…
@Jason,
It’s not quite true to say that the copper outside the fibre footprint will be switched off in 2022. It is guaranteed to stay until then, after which it’s need to remain will be reviewed. If the review finds it’s still needed, then it will be retained.
It’s also not quite true to say that the 7% outside the fibre footprint will have to rely on satellite. 4% of those will have fixed-wireless connections, not satellite. Of the 3% on satellite, I’d wager that a very high proportion don’t have access to copper now.
That said, I would hope that the copper connections for those outside the fibre footprint will be either retained until a suitable alternative comes along, or replaced with fibre eventually. In my submission to the NBN parliamentary inquiry, I proposed that any additional profit of NBN Co (over the projected 7% return) should be directed to extending the fibre footprint.
The problem with LEO (low earth orbit) satellites, is that they can only cover a small portion of the earth, meaning that more satellites would be required to cover Australia. The speed of service over them is also slowed by the need to hand off signals when a different satellite comes into view. Globalstar have just begun launching their next-generation LEO satellite system, and it only offers a maximum 256kbps data speeds. This is a fraction of the 12Mbps data speeds that the NBN satellites will provide. So while LEO sats have a latency advantage, they have a massive speed disadvantage.
Paradise…
Vacation…
I am amused that Quigley has defended his incompetent planning of the Telstra negotiation by deferring to “not having been instructed by the government”. This guy is pulling a $2M/yr salary for being “one of the best in the business”, and yet he seems to lack a) initiative, or b) awareness of the market or his surroundings.