Archives For nbn

As I noted last night, besides some small related investments, there was no additional funding allocated to the NBN in the 09/10 budget, leaving a $38.3b short fall.

The Government has previously said that the NBN would raise money via infrastructure bonds, but wouldn’t these bonds count as debt?

The on the books catch is that they may not need to appear in the budget, because the bonds will be raised by the NBN corporation; not dissimilar to Telstra debt when it was still majority Government owned (NBN will be min 51% Government owned.)

But here’s the part that’s got me stumped: the form of the bonds.

From a previous Government statement:
?¢‚Ǩ?ìThe network will be funded from Aussie Infrastructure Bonds while private sector investment in the new company will be capped at 49%”

The implication here is that those bonds are Government backed. If they are issued by the company, with the Australian Government backing them, the Government in effect acts as a guarantor for the bonds. The last time I looked a guarantee of debt is counted as a liability until such time the debt is cleared.

If they’re not guaranteed by the Government, the use of the Aussie Infrastructure Bonds name is erroneous, but more importantly the cost of raising the money will increase relative to the security offered being less, which will further drive up the cost of the NBN.

Oz: Telstra open to break-up

TELSTRA will consider a voluntary separation of its wholesale and retail arms as well as the sale of some assets to the federal Government’s proposed $43 billion broadband network in a spectacular about-face that effectively dumps the aggressive four-year strategy championed by chairman Donald McGauchie and chief executive Sol Trujillo.

The radically different and more conciliatory approach is part of an attempt to ward off the threat of much greater government intervention in Telstra’s business. The company’s board has set up a special committee of directors and executives to come up with a new approach and to negotiate with the Government.

Even if the economics still don’t add up for the NBN, breaking Telstra up would be a massive win for the Government, and an even bigger win for consumers.

Now if only we could do something about censorship 🙂

Mark Day in the OZ (via Mumbrella)

IF we look through the increasingly clouded questions surrounding the Rudd Government?¢‚Ǩ‚Ñ¢s plans for a fibre-to-the-home high-speed broadband network, how it will be designed, who will build it, who will own it and what it will cost end users, one thing is crystal clear: this is a game-changer for media.

The $43 billion plan is a television killer. When it is built it will consign the Packer era of TV to the dustbin of history. Our future TV menu depends on new technologies and new paradigms.

It’s a nice theory. Will the internet kill TV? Yes, I believe it will, as I’ve argued time and time again. But will the NBN kill television?


The problem isn’t one of lack of demand. You only have to look at the exceptionally high level of BitTorrent usage in Australia to know that Australians love their internet TV.

The problem is one of legal rights, and access to that content on a television set.

There’s no Hulu in Australia, and even Hulu in the US is trying its best to stay off of television sets. We have a mix of content now online from FTA providers, but it’s hit and miss, and not anywhere near consistent.

Lets say we’re 5 years behind the US (that we are behind is a given, but we can argue on the time frame): does Day really believe that the NBN is going to overcome issues not yet overcome in the United States?

The real problem comes down to rights distribution models. TV stations here pay a lot of money for rights to US content. The only way a NBC or CBS is going to offer their content directly online to Australians over the NBN to a large screen TV is when doing so delivers a higher return then selling the rights to a local TV stations.

As much as I wish to believe this will happen soon (and it will happen eventually), that’s not a short term proposition in Australia. NBN doesn’t change that at all.

Also consider that Australian uptake of pay-tv (cable) is far lower than most comparable markets. Australian’s aren’t all that keen in paying big dollars for content. That complicates the consideration more.

I mentioned in an earlier post that bundling may be the saving grace for the NBN: in that context, it’s not Day’s suggestion of internet TV (although it may be delivered via Internet protocols) but Cable over the NBN. That could work, well…depending on the cost.

We haven’t heard farmers complain for a while. Like clockwork though:

ABC: Rural areas ‘need broadband the most’

The Central Darling Shire Council’s general manager, Tim Hazel, says it is not fair Wilcannia will miss out on the Federal Government’s National Broadband Network.

The federal Minister for Communication, Stephen Conroy, says the $43 billion network will benefit regional communities but has admitted the scheme will only be available to towns with a population of 1,000 or more people.

Mr Hazel says smaller rural communities should be offered the same services as cities and larger rural centres.

“The smaller and more rural and remote towns probably need these types of services even more than our city counterparts or our regional counterparts,” he said.

Actually, why should they be offered the same services?

If you choose to live in the middle of no where, should you really expect that you’ll get all the same services as someone in a city with millions of people get?

Lets be clear on one point though: they’re not getting it because they don’t vote Labor (mostly.) Broadband went out to small communities under Howard because most of the regional/ remote seats were Liberal or National Party seats; it was always seen as helping keep the voters on side.

I do remember under Broadband Connect 1 a community of 50 people getting ADSL for example (Malloy Island, near Augusta WA).

And that might be the better solution here, a new Broadband Connect scheme that subsidizes regional connections in areas not covered under NBN. The Government could then cap the cost so the spend is the same as City areas;

Consider that under BC1, the subsidy was around $1200-$2500 per connection. NBN is slated at around $5k per connection. Rudd could say private operators get $5k/ connection if they provide access to areas not covered by NBN at a certain min spec (say 50mbps instead of 100mbps.)

The bigger question though comes back to whether we treat highspeed access as a social right for all like we consider a telephone connection.

That’s a political call more than anything.

Age:?Ǭ†Telstra set to abandon major cable upgrade

In the aftermath of the Government’s decision last week, Telstra’s immediate task will be to rethink its investment in cable after it emerged that regulatory changes could include forcing the telco to divest the network which passes 2.5 million homes and businesses.

Wow. Just wow.

Should the Government decide to force Telstra to divest the cable network, Merrill Lynch said it could be folded into the proposed national broadband network, which would mean that fibre-optic cables would not have to be rolled out to many homes and businesses in the cities.

The broker said the new company proposed by the Government to run the national network was the “only logical buyer” of Telstra’s city cable network.

More wow.

NBN at $200/ month? Maybe

April 11, 2009

I wrote earlier in the week about how the numbers don’t stack up for the NBN when you consider the need to repay the cost of the rollout. The key presumption in that post was that the NBN had to be offered at a competitive rate to encourage uptake, but that competitive rate would never cover costs.

But what if it simply can’t be offered at a competitive rate to cover costs?

$200/ month is the figure from AAPT:

Paul Broad, chief executive of Australia’s third largest telco, AAPT, is convinced broadband bills will rocket to at least $200 a month under the Government’s plan and says consumers simply won’t pay.

The Opposition put the figure at $150 earlier in the week, and noted rightly that the profit would have to be bigger than Telstra’s to cover costs (news again)

Opposition Leader Malcolm Turnbull questioned the commercial viability of the project suggesting it would need an annual return of $6 billion, The Advertiser reports.

“Now that is substantially more than Telstra’s entire profit,” he said.

“If as the industry analysts say, if this would require households who are currently paying say between $40 and $50 a month for broadband, to pay $150 a month for broadband, where is the evidence households will do that?” he asked.

I’ve got no problems with the maths in either, but I have serious doubts on the marketing logic: there’s no way in the world the NBN is going to ask $200 a month for access.

Zero. Zip. Zilch.

Take the economics out and it’s a pure political decision. Conroy and Rudd might be dumb, but they’re not dumb.

But here’s the other consideration: the NBN is a WHOLESALE network. We’re talking access to retail costs really, not wholesale costs. Image $200/ mth wholesale access + the retail margin on top.

Not happening.

Which leaves us with a black hole, because it has to bring in this sort of money to recoup its costs, let alone make a profit.


There is one scenario that might make it work. Not at $200. Maybe not at $150. But it could work at $100-$150.


Triple play phone, data and tv.

Gizmodo Australia found only 20% of people would pay over $100 for NBN access…but for internet access.

If say Optus or iiNet offered unlimited calls, cable TV and high speed internet for say $150/ month, people might pay.

But that consideration is made on today’s competitive environment.

2018 on the other hand??

Steve Murphy in the Business Spectator:

The 21st Century infrastructure equivalent of the Snowy Hydro is what K-Rudd says of his new Broadband plan, but will we end up flushing as much money down the fibre optic drain as we do water down the Hydro.

The problem is we don?¢‚Ǩ‚Ñ¢t know and the Government can?¢‚Ǩ‚Ñ¢t tell us with any degree of precision because it is yet to conduct a feasibility study. That?¢‚Ǩ‚Ñ¢s right, K-Rudd and the team don?¢‚Ǩ‚Ñ¢t know if what they?¢‚Ǩ‚Ñ¢ve announced is feasible.

I did some digging, the Government doesn’t use the words feasibility study…but it’s an accurate description. Point one of the NBN rollout (source)

Commence an implementation study to determine the operating arrangements, detailed network design, ways to attract private sector investment

but wait, there’s more:

The preliminary estimate is that the enhanced NBN network will cost up to $43 billion…

The Government’s objective is to achieve 90 per cent coverage of the FTTP network, and remaining coverage to be delivered through wireless and satellite technologies, within this funding envelope. Initial advice to the Government is that this objective is achievable, but this estimate will be subject to an implementation study.

Two questions

1. Does the $43billion include the cost of repayment of debt, or is it simply the cost of the actual rollout?

Whether the Government directly borrows, or offers infrastructure bonds, both come with interest that needs to be repaid. The official release says “will invest” which could suggest that the $43 billion figure is to be spent on the rollout, not the repayments. If this is the case, the $43 billion could actually be something like $45 billion.

2: Why doesn’t the NBN include planning for increased international access?

The NBN includes

implement measures to address backhaul ‘black spots’ through the timely rollout of fibre optic transmission links connecting cities, major regional centres and rural towns – delivering improvements to telecommunication services in the short term

But no mention of international pipes. We already have the problem where say a 20mbps ADSL connection here is the equivalent of maybe a 2mbps connection in San Francisco because of the distance and congestion in the connections that pull the data across the Pacific.

100mbps internal connections mean little if there isn’t increased capacity on the international backbones. Yes, you’ll be able to access sites hosted in Australia quickly, but sites outside Australia are another matter.

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?

Cost per household of NBN (at 100% rollout): $5,063 per house.

We don’t know if this includes the cost of connecting each home. The policy says “connect each home” etc, but given this is a wholesale network, there may feasibly be an actual physical connection cost (+ equipment, unless the Government is handing out free modems/ network devices) for the average punter.

But that aside, when will it cover its costs?

At $50/ month with 100% takeup rate: 101.26 months. Nearly 8 1/2 years.

At $100/ month at 100% takeup rate, divide by two: 50.63 months. 4.2 years.

But then we have the problem that this is a wholesale network, not retail. Those reselling the network will want a margin, and it will need to be competitive with alternatives, some already being rolled out today.

At $25/ month wholesale with 100% takeup: 202.52 months, or just shy of 17 years.

At $50/ month with 100% takeup rate: 101.26 months. Nearly 8 1/2 years.

But then we need to consider that the network will most definitely not have 100% take up. In fact, 100% is an impossible figure. Knowing the rate of take up though in 2018, given we don’t know what the competitive landscape will be, is at best a guess. There are two considerations: competition and overall demand. We know the NBN will have competition from at least Telstra, possibly other companies by 2018 (and well before then.) Second, we know that not everyone takes up new technology (there are still people using Dial-Up today!). The demand builds over time, so you never get say 75% of the market demanding the option immediately; a quick look at broadband stats for Australia shows that demand for a new tech builds over time, often driven by increased competition and downward pricing.

Here’s some calculations based on wholesale rates

$25/ month at 25% takeup: 810.08 months, or 67.5 years
$50/ month at 25% takeup: 405.04 months or 33.75 years

$25/ month at 50% takeup: 405.04 months or 33.75 years
$50/ month at 50% takeup: 202.52 months, or just shy of 17 years.

Now we’ve made some presumptions on wholesale pricing vs retail. The wholesale price could be higher but the higher that price, the less appealing the network becomes, so you decrease demand. You’d also have to consider that Telstra with its competing network isn’t going to sit back and let the NBN undercut it by a huge margin either.


What the figures show is that the NBN may never cover its costs. The counter argument is that this is a nation building exercise and a huge investment by the Government, but that has a rather important flaw: the Government is building the network through a separate company they’ll majority own until sometime between 2020-2030. That company will have private investment as well, so it will have a duty to cover its costs somewhere along the line. Note also that the Government is talking about issuing infrastructure bonds; those bonds will offer repayment with interest. The money to repay these has to come from somewhere.

The problem is that the earliest the NBN might recover its costs, even under the most generous model, is 8-10 years. Realistically we’d be looking at 15 to 30 years, possibly longer. People may argue that the NBN will still be of great service in 2018, but does anyone really believe that this will still be state of the art tech in 2038 or beyond, and that nothing else will have come along that does it bigger, better and cheaper?

The numbers just don’t add up.

Update: should have added, these calculations also presume that the project will come in at cost. Government projects rarely do, so the starting cost of the network could be higher again, making it even harder to repay.