Sorry Stilgherrian, you’re wrong on a key point

April 8, 2009 — 14 Comments

Stilgherrian is perhaps one of Australia’s best tech writers, and I enjoy his Crikey columns, but we’ll disagree on a quote today:

Yes, $43 billion is expensive. As Duncan Riley calculated, that?¢‚Ǩ‚Ñ¢s around $5000 per household. But we?¢‚Ǩ‚Ñ¢re creating brand new infrastructure to completely replace a copper network that was built across more than half a century. This is an investment on similar time scale.

The problem with that statement is two fold. One, we’re not replacing the copper network. Telstra owns the copper network, and I haven’t heard that they’re about to rip it out. It still does a fine job at delivering my ADSL 2+

Second, we’re not creating brand new infrastructure: in large parts of capital cities, we’re duplicating it, because Telstra and to a lesser extent Optus (and a couple of bit players around the place) already have fibre in the ground. The point may be one of semantics: the NBN cables will be “new,” but the context is one that suggests its new because it doesn’t currently exist.

The last point to me is a key one. Instead of forcing Telstra’s hand, or using legal means to use the infrastructure currently in place, the Government is spending $43 billion on a network that will duplicate some of what’s already there.

Lets presume you put Telstra’s network into the mix, but the Government still wants everyone else to get fibre. I can’t find a definite figure on Telstra’s current network, but the figure in Melbourne alone was “1 million customers.” One figure I saw suggested Telstra was aiming for 6m customers, but I don’t believe that figure. Lets say it’s 3 million Australia wide.

There are 8.296m households. Each one costs $5,063 to service. 3m = $15.2 billion in NBN costs.

Telstra has a market cap of $41.6b. How much would it cost to buy Telstra’s cable network, presuming you didn’t want to force Telstra’s hand by other measures? Even if it cost $10b to acquire, you get a network in the ground now that needs maybe $1 billion in upgrades (the Melb upgrade is priced at $300m) and you save $4.2billion. But here’s where it’s even better: because you’d also cut the rollout time from 8 years to maybe 5 by not having to roll out fibre to those places that already have it.

See what I mean now about duplication and waste?

14 responses to Sorry Stilgherrian, you’re wrong on a key point

  1. Spinning off Telstra's wholesale arm into this new venture would certainly give it a head-start, and I hope that's what they do. You're right that it doesn't make sense to duplicate networks, but at the same time, keeping the status quo would be worse.

    The problem is that Telstra's record indicates that they don't really like to play ball, that they are quite happy with the monopoly that they have… so would you support the Government forcing Telstra to give up its wholesale business?

  2. Creating a whole new entity sounds like a huge expense. The fibre optics are only going to be a small percentage of the total cost.

    And who is going to work at this new company? Ex-Telstra employees of course, which means it will have the same culture and mindset of Telstra.

  3. How much of that cost is to ensure there is enough bandwidth to deliver 100mbps for each home. I know very little of Australia's network infrastructure, but Im willing to bet a significant amount of this money is for the bandwidth for the backhaul

  4. Appreciate your thoughts about duplication on waste and I must say I agree with them.

    Nice post!

    All the best,
    JOnas

  5. Why do you keep doing calculations based on households?

  6. Duncan – all good points but don't you think that these things may have already been tested with telstra and the like? the duplication is one thing – but if the govt tries to force telstras hand whats your assessment of the risk that the govt will get bogged down in courts and parliament to get what it wants? potentially delaying the whole process rather then as you anticipate saving the govt time. I will take a wager that starting from scratch will actually be quicker and cheaper in the long run. cheers

    ps why make the article about Stilgherrian?

  7. Rowan,
    don't get me wrong, I'm not pro-Telstra, and as a concept the one thing I like about the NBN is that it takes Telstra out of the picture.

    In terms of Government intervention in Telstra: yes, 100% support it, and it can be done. It has already been done in NZ after privatization. In the US, they broke up AT&T as well on competitive grounds. Howard (and Beazley before him, Beazley was the one who was behind the initial Telstra sales) made the huge mistake of not splitting wholesale and retail.

  8. Because the supply to households is the primary cost.

  9. Ben
    about Stil because of his quote in Crikey. Don't get me wrong, I could spend weeks on end with Stil, one of the smartest writers in our space, and I value every time I get to spend time with him.

    No on the court side if it's done properly. Telstra will bitch and moan, but so does every near monopoly that gets broken up. It's been done in NZ, and done in the US. What's missing here is the political will

  10. Hey Duncan,

    You write a straight to the point post and I enjoyed reading it.

    This has been something very similar to what I have discussed with a few buddies some days ago.. nice to see that other people think alike.

    All the best,
    John

  11. I see problems here.

    1) A new network is the point, It becomes an asset,
    2) Starting from scratch allows it to be actually built correctly. There is no point trying to patch existing infrastructure, in the long run, its a waste of money. Telstra and Optus's networks are built around legacy systems.
    3) Telstra's cable network is just that, cable. There are limits (that aren't far off Telstra's 100Mbit plan). With how Optus is replacing LAT with VoIP (which I'm led to believe is because Motrola are no longer producing CAU's) cable is a legacy technology. (Don't get me wrong, I'm a hge fan of the HFC networks)
    4) This is part of a stimulus package. The government claim that most of the cost in the NBN will the “trenches” etc. The idea is that it creates lots of jobs, which mean more tax revenue for the government, more spending in the economy etc. Rather than just giving everyone more KRudd $$, this money creates jobs, and the community benefits with more infrastructure.

  12. I see problems here.

    1) A new network is the point, It becomes an asset,
    2) Starting from scratch allows it to be actually built correctly. There is no point trying to patch existing infrastructure, in the long run, its a waste of money. Telstra and Optus's networks are built around legacy systems.
    3) Telstra's cable network is just that, cable. There are limits (that aren't far off Telstra's 100Mbit plan). With how Optus is replacing LAT with VoIP (which I'm led to believe is because Motrola are no longer producing CAU's) cable is a legacy technology. (Don't get me wrong, I'm a hge fan of the HFC networks)
    4) This is part of a stimulus package. The government claim that most of the cost in the NBN will the “trenches” etc. The idea is that it creates lots of jobs, which mean more tax revenue for the government, more spending in the economy etc. Rather than just giving everyone more KRudd $$, this money creates jobs, and the community benefits with more infrastructure.

  13. I see problems here.

    1) A new network is the point, It becomes an asset,
    2) Starting from scratch allows it to be actually built correctly. There is no point trying to patch existing infrastructure, in the long run, its a waste of money. Telstra and Optus's networks are built around legacy systems.
    3) Telstra's cable network is just that, cable. There are limits (that aren't far off Telstra's 100Mbit plan). With how Optus is replacing LAT with VoIP (which I'm led to believe is because Motrola are no longer producing CAU's) cable is a legacy technology. (Don't get me wrong, I'm a hge fan of the HFC networks)
    4) This is part of a stimulus package. The government claim that most of the cost in the NBN will the “trenches” etc. The idea is that it creates lots of jobs, which mean more tax revenue for the government, more spending in the economy etc. Rather than just giving everyone more KRudd $$, this money creates jobs, and the community benefits with more infrastructure.

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