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What the NBN will mean for Telstra’s stranglehold

The Coalition’s broadband plan is more expensive and less efficient than was promised. So is Labor’s.

While everybody is focusing on the engineering of the National Broadband Network and getting the most efficient technological mix of fibre, coaxial cable and (ahem) copper, there has been little debate about the competition implications of a switch away from Labor’s pure fibre-to-the-premise (FTTP) model.

The NBN Co’s strategic review, released yesterday, shows the existing corporate plan is unrealistic and the rollout is a mess, with total costs likely to blow out to $73 billion, completion pushed back to 2023-24 and the return on investment more likely to be 2.5% than 7%.

But the cost of the Coalition’s preferred hybrid NBN — with a mix of technologies (called hybrid fibre-coaxial, or HFC) and FTTP (e.g. greenfields developments), fibre-to-the-basement (apartment blocks) and fibre-to-the-node (FFTN, most everywhere else) — has also blown out from $29 billion to $41 billion. Most of us won’t get our promised fast broadband until 2019-20, and it sets store in unproven G.Fast technology to get faster speeds from copper by taking background noise out of the wire.

So the strategic review is a sensible reset of hopelessly over-optimistic expectations that had set in on both sides of politics.

The other great purpose of the NBN, of course, was to address the competitive flaw in the telecommunications industry, by establishing a wholesale-only infrastructure provider and decommissioning Telstra’s monopoly fixed-line network.  Telstra and other retailers would compete to provide services via the NBN’s fibre network. Until the NBN was announced, Telstra was effectively holding the government to ransom: blocking investment in fast broadband unless it could retain its monopoly.

The decision to build a wholesale-only NBN is now common ground:  the first thing Malcolm Turnbull did when he took over the communications portfolio in 2010 was to reverse the Coalition’s opposition to any structural separation of Telstra, in a victory over the “Minchinites”. The commitment remains; NBN is legally prevented from offering retail services, and Turnbull’s office insists a hybrid NBN will in fact finally achieve separation four years earlier than would have occurred under Labor.

But in the telco industry there are doubts, not explored in the strategic review, about whether such a hybrid NBN is as well-suited to a wholesale-only model. These are quite technical — for example, whether the DSL technology at the node cabinets is operated by NBN Co on a wholesale basis or whether the internet service providers (ISPs) have to invest in the equipment (meaning only the larger ISPs will do this and so reduce entry to new players).

The FTTN technology also only allows a household customer to use one ISP (assuming there is only one copper line for a premise), unlike the fibre-to-the-home, which allows for multiple ISPs. The strategic review has no discussion on how competition will be supported by the HFC network operations.

Then there are questions about whether a hybrid NBN, including copper, when it is eventually finished, will be as saleable to investors as a pure fibre FTTP network.

The government has invested some $15 billion in NBN Co already and has promised to its commitment will not exceed $29.5 billion. That money is allowed to be off-budget because it is capital invested in an expectation that there will be a return to the government, as required by the public sector accounting rules set down by the International Monetary Fund (IMF) here.

The IMF’s “Government Finance Statistics”, applied here by the Australian Bureau of Statistics, stipulate that government bodies must be intended to make a return to be classified as so-called “non-financial corporations”. Of course they don’t have to actually deliver a profit in any given year — they might make losses for two decades — but there must be an intention to profit.

If it was obvious that the government was calling an entity a business purely as a device, the ABS would challenge Treasury. That has never happened, says former finance department deputy secretary Stephen Bartos, executive director of ACIL Tasman, because in practice the agencies consult in advance.

There is no requirement that the entity be held for sale. Turnbull batted away questions about the eventual sale of the NBN at yesterday’s press conference, scoffing it would be a matter for Australia’s youngest federal MP, 23 year-old Coalition backbencher Wyatt Roy, when he becomes prime minister.

Roy had better start working on his pitch, because a part-copper network may be a tough sell.

  • 1
    Posted Friday, 13 December 2013 at 1:28 pm | Permalink

    This NBN will be nothing more than a dog’s breakfast

  • 2
    Posted Friday, 13 December 2013 at 1:44 pm | Permalink

    Don’t let Conroy touch anything. It looks like he’s shaken Turnbull’s hand.

  • 3
    Posted Friday, 13 December 2013 at 2:20 pm | Permalink

    The NBN Co’s strategic review, released yesterday, shows the existing corporate plan is unrealistic and the rollout is a mess, with total costs likely to blow out to $73 billion

    Actually, the review appears to pluck this figure out of thin air and then come up with even more fanciful claims for how it’s “hybrid mish-mash” will do the job better cheaper etc etc.
    Utter rubbish and I expected better of you Paddy.

    Sortius does a far better summary of the train wreck here.


  • 4
    Posted Friday, 13 December 2013 at 2:26 pm | Permalink

    Mr Manning;the confected horrors expressed by Mr Turnbull are a disgrace. Doesnt anyone remember that after he was beaten by one vote by abbot for the leadership; it was as if the top dog was peeing on the former top dog by giving him the job of “wrecking the NBN”. Turnbull has not only wrecked it for its original architects, (and the companies and mum and dad businesses that required secure contracts to borrow money to invest in equipment to keep the rollout going; but has done a good enough job as to make it unworkable for everybody.
    I would suggest that his employer, Mr Murdoch will be pleased that he has destroyed any competition for his foxtel; while the rest of australia including doctors, educators, businesses locally and overseas firms who would have been able to set up here; will curse him every time they even look at a phone or computer.

  • 5
    Chris Hartwell
    Posted Friday, 13 December 2013 at 2:58 pm | Permalink

    Saddening, as the increased speeds for home users was just a side effect. The real wins would have been realised in telehealth, education delivery, faster recovery in the event of cyclone/flood..

  • 6
    Bill Hilliger
    Posted Friday, 13 December 2013 at 2:59 pm | Permalink

    Yep Australia is open for business under the current government - antiquated telephony business. The Telstra pit in front of my house is nearly always full of water, and other cr*p the telephone crackles most of the time; internet outages are common. Is there room for improvement? You betcha! Will it happen under this gummint? China will be a fully fledged democracy before that happens.

  • 7
    Posted Friday, 13 December 2013 at 3:28 pm | Permalink

    All this cr*p from Turdbull just means that we will have to wait for the return of the next Labor government to get our promised FTTP NBN. By then it will cost billions more, and (you guessed it) that will be Labor’s fault as well!!
    This bloody LNP government is a total disaster. Everything they touch just makes things worse. Thank the gods I am pure - didn’t vote for them at the last election! Those who did, should hang their collective heads in shame.

  • 8
    zut alors
    Posted Friday, 13 December 2013 at 3:56 pm | Permalink

    Yes siree, let’s skimp on a quality NBN and go for third rate so we can save a few billion stretched over five budgets.

    We’re going to need those extra funds to pay for lifetime mental care for asylum seekers and those currently rotting in detention centres.

    A perfect example of the fiscal genius of the Coalition at work.

  • 9
    Gene Roddenberry
    Posted Friday, 13 December 2013 at 7:11 pm | Permalink

    well this is certainly very interesting. thanks.

  • 10
    Posted Saturday, 14 December 2013 at 12:23 am | Permalink

    The LNP should make their official slogan ‘Penny wise, Pound foolish’

  • 11
    Pandora's Box
    Posted Saturday, 14 December 2013 at 2:10 pm | Permalink

    So the strategic review is a sensible reset.”

    That is exactly what they want you to think. The review, made by Turnbull’s mates, double the cost of FTTP with no explanation how they concluded this. Just before the election, the NBN said it is on track (no financial blow out), 3 months later we find out it is going to cost twice as planned. Hmmm

    Most NBN minded people knew that the Coalition 29Bn was a lie. At some time they had to show the more realistic number and that what they did.
    Note that this does not include the cost of future deal with Optus/Telstra. Anyway, showing their own 40Bn (blaming Labor for the difference) next to Labor 80Bn, makes it somehow look better. At the same time the rising of FTTN costs creata a (false) feeling that the report is independant. And btw, the NBN name is not valid anymore as 30% of the nation will not enjoy it.
    Very sad day in Australian history.

  • 12
    zut alors
    Posted Saturday, 14 December 2013 at 3:24 pm | Permalink

    Pandora’s Box, the Turnbull NBN will be known as the National Botched Network.

  • 13
    Posted Saturday, 14 December 2013 at 3:41 pm | Permalink

    Zut I think the Non Broadband Network or the Claytons Regional Arsehat Paylotsfornothing network,(CRAP), would be just as apt.

  • 14
    Posted Saturday, 14 December 2013 at 10:29 pm | Permalink

    fibre to the PREMISES not the premise. A premise is an assumption used to put a theoreticl argumetn or concept.

  • 15
    Posted Sunday, 15 December 2013 at 3:36 am | Permalink

    With LNP’s broadband exposed for the dog it is and over 1100 negative comments lambasting Turnbull’s latest pack of lies, it’s got to makes you wonder when the coalition will finally concede the inadequacies of their plan and complete the only workable solution. Labours original plan.

  • 16
    Posted Sunday, 15 December 2013 at 1:40 pm | Permalink

    There are no ADSL ports available in my area, admittedly 125kms from Sydney CBD - no prospect of NBN nor even FraudBand within cooee and my wireless USB is subject to weather, congestion, railway traffic and various unspecified gremlins.
    Thanks Bullturn - BTW I have an op-shop purchased (10 cents)copy of your “The Spycatcher Trial”. How cheaply you have sold your principles “for a mess (sic!) of potage”.
    Unlike revenge, it is not a dish best eaten cold.

  • 17
    d gray
    Posted Sunday, 15 December 2013 at 7:42 pm | Permalink

    Double Disolution election ,WA Senate re election & Liberal polls will see Abbott out soon .

  • 18
    Posted Wednesday, 18 December 2013 at 11:04 pm | Permalink

    ..Meanwhile Australia blunders on under Telstra’s internet-dis-service monopoly.

    How is it that as of August 2013 Teltra is reporting a increase of profits to 12% ($3.8 Billion), receives $399 Million of taxpayer dollars, and engages in infrastructure business-projects all over Asia, … but Australians who live more than 100km from the coast(and not in Canberra) receive a rural-internet and mobile service that is experientially inferior to Russia or Thailand ??

    … answer is on the ASX perhaps ??…

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