NBN PLAN: Where it sees its rollout risks CARRIERS DIVIDED: Reaction to 120 POI compromise PRICING STING: How plan might disincent take-up
ANALYSIS Grahame Lynch, Kevin Morgan cast their eyes over the NBN corporate plan
COMMUNICATIONS DAY 21-DECEMBER 2010
What’s happening today in telecom business, policy & technology
ISSUE 3901
Full NBN corporate plan wrap
The numbers behind the NBN The 160-page corporate plan for the NBN delivered by the Federal government and NBN Co is a substantially different document to the 400-pages NBN Co first presented to communications minister Stephen Conroy back in November. Not only has it been substantially trimmed for public consumption, but it has also had to be substantially reworked from a case premised on 14 points of interconnect to one that is now based on 120 points of interconnect. In a news conference yesterday to present the business case, prime minister Julia Gillard commented that the impact on financials and the rates of return on investment had been “relatively minor” and that the decision to change the network topology had been primarily based on Australian Competition and Consumer Commission advice. However, the corporate plan itself would suggest that NBN Co had not intended moving from its 14 POI position, calling the new structure a “design trade-off” and suggesting that it could lead to higher wholesale input costs for access seekers. Of the 120 points of interconnect, 80 will be in metropolitan areas and 40 in regional Australia. According to Gillard, the so-called semi-distributed model would make better use of existing infrastructure and still allow it to offer uniform national pricing. “The ACCC has advised the government that with this model the ACCC has the regulatory powers it needs to ensure a uniform wholesale price should the market not deliver that,” she told yesterday's news conference. “The ACCC has also said to the government that its expectation is that there would be uniform retail prices. In addition, when looking at the business case that's released today, the impact of the POI decision and other policy decisions are shown in the new rate of return and that new rate of return being 7.04 percent.” Prime minister Gillard also pointed out that the rate of return in the business case was higher than that initially anticipated in the original implementation study. “What that means for taxpayers is that this is a use of taxpayers money that has a sufficient rate of return that taxpayers can be paid back with interest,” she said. “There has been any amount of discussion in this building about a cost benefit analysis, well what this document is telling you today is that the NBN is viable, with a viable rate of return, as a proposition in its own right,” she pointed out. PRICING STRATEGY: NBN Co also confirmed that it would offer a uniform national wholesale access price, with a basic service of 12/1 Mbps for $24 per month to retail service providers. There is also an added variable of a “connectivity virtual circuit” charge that adds an unknown element to the
final charge that users will see. The capacity charge is in addition to the access charge and was described as payment for the shared resource between the premises and the point of interconnect, with NBN Co estimating it would be around $1 per end user initially. Meanwhile, the basic 12/1 Mbps service will be available across fibre as well as the 7% of the population covered by either fixed wireless or satellite networks for the same price nationally. However, in the case of satellite it will have an interim product in place until two yet-to-be-commissioned satellites are ready in 2015, with the interim product expected to offer 6/1 Mbps speeds. The fibre access service will include 100/40 Mbps services initially for a wholesale price of $38 per month, with higher speeds expected to be offered in time. NBN Co CEO Mike Quigley told yesterday's new conference that the company had been conservative in its take-up rates for the higher speed offerings and that the business case wasn't reliant on take up of the more expensive services. “We haven't predicted a huge growth in high speed services. Higher speeds will happen. I frankly personally would be a little surprised if we didn't see those people moving through some of those higher speed tiers faster as more and more services became available,� he suggested. FINANCIALS: The business case also presented financial forecasts, although nothing unexpected and roughly in line with previous estimates. Total capital expenditure to the end of the nine-and-ahalf year construction period is $35.9 billion, with net operational expenditure offset by revenue at $1 billion. The total funding requirement is estimated at $40.9b. Funding will initially come from the government, which will contribute equity of $27.5 billion, with other funding expected to come from operational earnings and private debt. From 2015 NBN Co will begin raising funds through capital markets, with an estimated $13.4 billion expected to be needed to finance the project. Geoff Long
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NBN Co gives insights into rollout risks NBN Co has provided substantial detail on what it sees as the risks to its viability and the protections it will need. One key assumption is that it will be given protection against “cherry picking” from rivals that don't have the same mandate to rollout to unprofitable areas. Its financial model assumes that the company will pass 100% of greenfields and brownfields premises in the fibre footprint by the end of FY2021 so as to achieve 93% fibre coverage. However, should the proposed protections fail to arrive and competitors took hold in the most lucrative regions it would have a major impact on returns. For example, a decrease of 50% of greenfields connections would reduce projected returns to 5.4%. NBN Co estimates that the effect on total funding for such a scenario would be an extra $1.2 billion in total funding and a $1.7 billion additional requirement in government equity. In addition to the impact of cherry picking in greenfields, there would be an impact in the most commercially attractive areas of brownfields. This would take the returns well below 5%, it estimated. Another area it has modelled for is the use of aerial deployment. According to the plan, it will use underground existing infrastructure, mostly from Telstra where it is fit-for-purpose, then aerial wherever possible. However, NBN Co also assumes that it will be granted powers and immunities, including to allow the company to maximise aerial deployment coverage and minimise the roll-out timetable. Its financial model expects that the company will pass 25% of the brownfields premises through aerial deployment in the local network. If aerial deployment was constrained to 10 percent of brownfields, for example because of limited access to the aerial corridors, then the NBN projected returns would reduce to 6.8%. As a result, total funding would increase by $1.8 billion and government equity by $1.3 billion. Another risk area relates to its targets of deploying at a rate of almost 6,000 premises passed per day. As NBN Co notes, a significant risk to achieving this planned rate is a possible economy-wide shortage of available construction resources at an acceptable cost. In particular, this will be dependent on the overall market demand for labour. NBN Co says it will work with the training industry to ameliorate the impacts of possible labour shortages. Other major potential stumbling blocks include the availability of exchange facilities for the location of the semi-distributed PoIs; Negotiations on commercially attractive terms for the procurement of Greenfields Build-Operate-Transfer (BOT) arrangements; Securing contracts with suppliers and construction contractors on competitive terms and conditions; and securing enough spectrum to service its planned area of 4% of Australian premises covered by fixed wireless. Geoff Long
Fed gov’t sets out its NBN expectations In a response to both the corporate plan from NBN Co and the earlier implementation study from McKinsey and Company and KPMG, the government has released a statement on what its expectations are of NBN Co as it rolls out the national broadband network. The statement covers issues including coverage and premises to be served, NBN Co’s role in new developments, the legislative and regulatory framework, ownership arrangements, funding, planning, reporting and performance management. Another area covered is the recent decision to provide for battery back-up arrangements for customer premises. According to the statement, the government intends to undertake consultation with stakeholders, including emergency services, on the appropriate way of ensuring access to battery backup services for those who need them. It has indicated that in the interim it expects NBN Co to provide battery back-up to all premises in COMMUNICATIONS DAY 21 December 2010 Page 3
the fibre footprint to ensure a standard telephone will continue to provide voice services during blackouts. The statement also outlines key decisions in relation to NBN Co’s role in transforming the industry structure, including greenfields provisions that are covered under proposed amendments to the Telecommunications Legislation Amendment (National Broadband Network Measures – Access Arrangements) Bill 2010. The proposed amendment will require new fibre networks built after 1 January 2011 for residential and small business purposes to be wholesale-only as well as offering a Layer 2 service on an openaccess basis. The government said it will consult with industry in finalising the detail of the amendment. It would also give NBN Co the option of overbuilding infrastructure built after 1 January 2011. The government has also already indicated it will consider the introduction of a levy, if necessary, to prevent “cherry picking” of lucrative areas and new estates. The statement also indicates that the government is willing to use other legislative measures to support the NBN rollout. It will present to the Council of Australian Governments a proposal for state and territory governments to streamline their planning and development processes to implement a nationally consistent approach. Geoff Long
NBN business case: carriers clash over the POI decision The tension between larger and smaller carriers has increased after the federal government followed the recommendation of the Australian Competition and Consumer Commission to mandate 120 points of NBN interconnect. While Optus and VHA welcomed the move, Internode and IspOne came out in stark opposition and decried what they described as the missed opportunity for smaller players to be given an equal footing. Telstra welcomed the extra detail and confirmed definitive agreements have not yet been finalised with NBN Co. “Optus welcomes the release of the NBN corporate plan which appears to be consistent with the NBN Implementation Study released earlier this year,” Optus regulatory GM Andrew Sheridan told CommsDay. “In particular we welcome the government’s decision to accept the ACCC’s advice to enhance the prospects for competition on the NBN by significantly increasing the Points of Interconnect (POIs) offered to the NBN. “While we can’t comment at length until we’ve analysed the location of the proposed POIs, we still believe that offering more POIs than the 120 outlined in today’s plan would have been a means of ensuring stronger competition in the provision of wholesale backhaul services. Competition in backhaul will encourage the industry and NBN Co to invest in future technology leading to greater price intensity and improved levels of innovation delivering greater value for consumers.” VHA was also broadly supportive of the POI decision revealed in the announcement today and welcomed the additional detail. “The 120 Points of Interconnect will deliver a useful wholesale backhaul resource that will complement Vodafone’s current transmission arrangements, without impacting on areas of the market where there is already competition,” a VHA spokesman told CommsDay. “We are pleased the NBN infrastructure will overcome current bottlenecks and provide competitive access for mobile services backhaul. We support the principle of connecting our base stations to the optical-fibre of the National Broadband Network at sites where a building has NBN access.” But Primus CEO Ravi Bhatia said “It is highly prescriptive about the retail products. I would have expected a pure bitstream service so we as RSPs can add value to varying degrees, so that is one shortcoming. Secondly I think the 119 POIs is at best a very serious compromise of what is really needed. I have looked at the list of POIs and I am actually surprised, some of them don’t deserve to be POIs because they are mid-city exchanges which are very small, serving typically 500 homes or something.”
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SMALLER ISPS CRITICISE REJECTION OF 14 POIS: Internode CEO Simon Hackett said “We are disappointed to see the 14 POI model has been set aside by the government and the ACCC in favour of a 120 POI model, however we are enthusiastic and committed to making the NBN - and Internode's participation in it - a huge success regardless of how many points of interconnect there are. We need to study the product plan and the pricing model in detail before being able to comment specifically on pricing aspects of the process - it is early days in that regard.” ispONE also criticised the POI decision, saying that it would lead to increased and varied wholesale pricing for all RSPs nationwide, and will decrease competition amongst the smaller end of the sector, and those RSPs operating in regional and rural areas. “Despite the dominant infrastructure players being up in arms about stranded assets and sunk infrastructure costs, the original proposed 14 POIs would have led to smaller players having an opportunity to compete on a level playing field and reduce costs associated with infrastructure” said IspOne MD Zac Swindells. “Now this is not the case.” TELSTRA UNABLE TO REACH DEFINITIVE AGREEMENT: “We now have more certainty on points of interconnect, NBN Co’s pricing and its business plan,” a Telstra spokesperson told CommsDay. “These are important issues for consumers and the industry and are critical to the value of our agreement with NBN Co. So we understand the reasons why the Government took the additional time to consider all the implications.” “As a result we have not yet been able to reach definitive agreements. All parties continue to work on resolving the outstanding issues and continue to target a shareholder vote by the middle of 2011.” Miro Sandev
Analysts: Pricing structure could inhibit high-speed take-up Analysts say that the NBN corporate plan proposes a pricing structure which, paradoxically, might discourage users from taking full advantage of the fibre medium. RBS analyst Ian Martin told CommsDay says that the proposed Connectivity Virtual Circuit charge— an aggregation levy charged on top of access fees—could prove a disincentive for RSPs to migrate users to premium services. “The CVC, ultimately will be a third of revenue,” said Martin. “They are trying to price with low access charges and low increments for access charges initially but get more of the upside as volume starts increasing. So in effect that is taking some of the upside for ISPs which are supposed to be encouraging people to migrate to higher services, [they] will see some of that revenue migrate to the NBN. At some point that becomes a bit of a disincentive if it is too big a chunk.” The NBN plan said “CVC revenues will be heavily dependent upon competition through quality of service, which will act as a catalyst for Access Seekers to purchase sufficient CVC capacity to enable EndUsers to experience maximum actual speeds over the NBN.” Martin warned that RSPs would have to be generating significant revenues to cover the range of input costs for high speed broadband. “For the high end services which the NBN was supposed to be all about – 50Mbps or 100Mbps service – you are going to have 3 fairly sizeable charges: the access charge which is $38, which is not bad; you will be paying another $10, $15, $20 for the variable (CVC) charge, this is as a wholesaler – those two components will flow through to the retail charge, but then if you are using that kind of content you are likely to be paying a content provider as well for the value of the content. There is a lot of revenue that has to be generated at the high end product.” PRESS RELEASE VS FINE PRINT: This is consistent with some initial calculations by BBY analyst Mark McDonnell. “The structure of the pricing is quite an intriguing proposition and very, very different from the press-release highlighted $24,” he told CommsDay. “It is going to take a bit of work to get it fully reconstructed but at this stage if you just look at it at a high-level sense if you take their ‘total homes connected’ data and their revenue you can see what the average revenue per connection is. So if you divide one by the other you see that the average annual revenue per connection rises to $626.39 by 2020. That $626.39 figure is $4.9 billion revenues divided by 7.8 mil-
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lion premises [by 2020].” This assumes a monthly ARPU of $62 by 2020. “It is actually quite complicated and you have to make a lot of assumptions,” he added. “So when they present estimated retail prices, which range from $65-150, it is incredibly sensitive to all those other assumptions around penetration and so on and how those costs get shared out at the discrete customer level. What we see around that very heavily promoted $24 number is really not the full story in terms of the real costs.” ERGAS SAYS CASE REVEALS LOSSES: Meanwhile, economist Henry Ergas—who has led calls for more cost benefit analysis of the NBN—said the NBN plan shows it won’t make money for taxpayers. “What is involved in this project is that taxpayers sell government bonds, which have very low risk, and hence requires only a 6-7% return, to buy a stake in the NBN, which has high risk and hence requires a higher return,” said Ergas. “The business case estimates that higher required return at some 10-11% and even though that seems based on a rather confused analysis, and too low, it is worth taking it as a benchmark. On that basis, taxpayers suffer a loss of $10-12 billion even on the base case, where that is the difference between the required return and the expected return. In other words, the business case anticipates a taxpayer loss equal to about 1/3 of the capital to be invested in the project, where the capital outlay is calculated in present value terms.” Ergas also questioned the assumption that the move to wireless-only households would stabilise at a level only slightly higher than today. HASTEN WIRELESS SUBSTITUTION? This sentiment is shared by RBS analyst Ian Martin who wonders if the copper-NBN transition process might even hasten the move to wireless. “The assumption about wireless-only households is wildly optimistic,” Martin said. “Particularly if you have this issue where you are going to be migrating 4 million voice-only households to a 12mbps VoIP product; when they have to migrate anyway you’d expect a large percentage of those would opt not to take the basic broadband product but have their voice on mobile. You would expect far more leakage when you have got to force a decision than when it is a natural occurrence.” Ergas says the lack of NBN support for a voice-only product highlights this issue. Miro Sandev
Industry supportive of NBN plan, as Coalition questions opportunity cost The release of the NBN plan has received a mixed reception, with internet industry, consumer and carrier lobby groups generally supportive. But the Federal Coalition has attacked the document saying the investment should be spent elsewhere, while the Greens decried the delay and raised concerns about the eventual privatisation of the network. The Australian Internet Industry Association welcomed the release of the forecast and said it would allow the business community to gain a clearer understanding of emerging opportunities and allow for a much stronger engagement between business and technology sectors. “The NBN Co plan forecasts positive operational earnings by 2018, and a positive net income by 2021,” the AIIA said in a statement. “This forecast does not take into account the broader productivity and social benefits of ubiquitous broadband. We need to be clear: economic growth is the rationale that supports building this network.” “There are immediate returns on offer for every business that will only become more powerful with ubiquitous, high-speed broadband. On the other hand, businesses that delay risk becoming dinosaurs in a digital age.” Meanwhile, ACCAN head Teresa Corbin said that for her the “the key point is that whether you are on a fibre line, wireless or satellite connection, wherever you are in Australia it will be the same wholesale price.” “We are pleased that Mike Quigley made an additional statement about people that are on voice-only services continuing on the same prices – so this is Telstra customers that are covered by the low-income
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measures. They have a guarantee in the [NBN Co/Telstra financial] heads of agreement that that pricing will continue and obviously that is less than $24” OPPOSITION RESPONDS: The federal opposition repeated its line that the rollout required more scrutiny and questioned the opportunity cost of spending taxpayers money on what was essentially a video distribution infrastructure instead of hospitals and schools. “It’s pretty obvious that the main usage for the NBN is going to be internet-based television, video entertainment and internet gaming,” opposition leader Tony Abbott said in a press conference. “As far as the Coalition is concerned, there is nothing wrong with any this but given all of the infrastructure needs facing Australia…it is far from clear that this really is a sensible investment.” “If you look at the cost – 12Mbps at $58/mth is already comparable to what is available. If you look 10 years ahead, only something like 1/3rd of households are going to be using applications that require 100Mbps. Finally, there does not seem to be any decision in the documents revealed today for the continued provision of voice-only telephony for people who do not want more sophisticated services.” Abbott mocked minister Conroy’s assertions that the NBN could lead to better health and environmental outcomes. “This idea that you can fix every problem by putting an “e” in front of it is just bizarre,” he joked. Shadow minister Malcolm Turnbull added “The roll-out of the NBN was promised to be completed in eight years. We now learn that it will not be complete until 2021 – three years later and 14 years after Labor’s original failed NBN tender.” “Many Australians with inadequate broadband services today, whether they are in the country or the city, will have to wait much longer to get adequate broadband under the NBN than they would under the more practical approach outlined by the Coalition.” The Greens criticised the fact it took the government this long and also flagged the issue of the large capital raising projected for 2015. “The Greens would have preferred this information to have been released much sooner so it could be discussed properly,” Greens communications spokesman Senator Scott Ludlam said. “NBN Co plans to arrange debt funding progressively from 2015. Whatever way this is done, the Australian Greens strongly believe the wholesale components of the Network should remain in public hands,” said Senator Ludlam. “We do not want to see a repeat of the Telstra privatisation debacle.” COMMS ALLIANCE WELCOMES CONSULTATION: Comms Alliance CEO John Stanton said the NBN plan was a solid platform for the network roll-out. “Communications Alliance welcomes the indication from the government today that it will consult with stakeholders on the question of mandatory battery back-up for the network termination unit at customer premises,” he added. Comms Alliance urges the adoption of an “opt-in” regime that would allow consumers who need and want such back-up to receive it. Stanton said that mandatory provision of batteries to every customer premise is poor policy because it: will not work in many cases such as where the customer uses a cordless phone and adds up to $150 million of unnecessary cost and has environmental implications through the insertion into the Australian environment of more than 10 million large batteries. Comms Alliance also noted that NBN Co will conduct a trial of home run architecture for greenfields sites. “I hope that NBN Co will not be obliged to use home run technology, because it does add cost and complexity to the roll-out, without offering clear advantages over alternative architectures,” Stanton said. Miro Sandev
ANALYSIS BY GRAHAME LYNCH
NBN Co’s magic trick: the double toll There is an extremely clever sleight of hand in NBN Co's corporate plan, no doubt necessitated by the reality that while most business plans are aimed at investor eyes, this one also has to win over voters, consumers and commentators. The twist comes in the true cost of connecting to the network. Access charges begin at a competitive $24 a month for entry level 12/1Mbps, rising to just $38 for 100Mbps services. Looks fantastic and, on the surface, would seem to put those fears of $150 tariffs to rest. But the sting is in an additional connectivity virtual circuit charge that NBN Co will levy - an effective
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"compulsory aggregation" surcharge. This will be priced at $20 per megabit per month, reducing to lower levels as the network matures. In its plan, NBN Co says the impact of this will be minor - that it will add just $1 or 4% or so to the typical entry level access charge. But the true implication of the CVC is revealed in the fine print of the plan which says it will contribute perhaps 30% of revenue by FY2025. "This reflects a policy to balance NBN Co revenues between speed (AVC) and usage (CVC). The construct of charging for CVC capacity is the principal mechanism by which NBN Co can benefit from the expected future growth in broadband data usage." In other words, if users actually start to use the fibre to its full capacity—the three HD video streams per home example touted by Professor Rod Tucker as the justification for fibre in the first place—RSPs will be compelled to requisition vast amounts of CVC capacity from NBN Co. One CEO of a putative RSP I spoke with yesterday reckons that $1 is a "significant under-estimate" of the economics of aggregation charging as the NBN analysis doesn't incorporate the need to provision overhead or the fact that RSPs are compelled to maintain existing legacy backhaul contracts and "AGVC" arrangements with Telstra during the NBN transition period. Another CEO of a national ISP also thought that NBN Co might have under-estimated the implication of CVC pricing given the recent trend to “unlimited” quotas. The $1 CVC assumption seems based on 15Gb monthly usage, he estimated, implying a committed information rate of just 50 Kbps. He concludes: "To deliver a 1,000GB plan as providers are providing today the cost would be $24+$60 CVC charges. This would be $84 wholesale ex GST." Indeed if a RSP was to buy just 200Mb of CVC capacity across each of the 120 POIs they would face half a million dollars of monthly connectivity costs on top of the monthly access charges. Of course, this doesn't include the cost of backhaul behind the posited 120 POIs or international transit capacity - recently estimated to cost in excess of $100 per Mb from Sydney in a Telegeography survey. It is interesting to note the implied threat that the ACCC will regulate these backhaul prices, also that NBN Co deliberately name checks international transit as an area it will "review" (and presumably intervene in if the market doesn't work to NBN's advantage). Thought the NBN would end regulatory conflict? Think again! So the bottom line is this: the NBN Co corporate plan envisages an approximation of today's prices at today's real level of monthly usage (low teen GBs) for a nominal 12Mbps of speed at contention rates of 1 in 100 or more - admittedly an improvement speed wise for a great many end users today while preserving the status quo for a large minority (and potentially reducing speed for those on HFC or short copper loops). It models a typical retail tariff for such an offering at around $56 a month. But if higher speeds are accessed and more importantly, if data usage surges in line with the predictions made by NBN advocates, RSPs and end users will pay much more and NBN Co stands to benefit greatly with massively increased ARPUs. The big question here is this... will RSPs and the end market buy in to this equation? Clearly, NBN Co thinks so. It predicts 70% take-up of the NBN within the decade, and most importantly, thinks the rise of wireless-only households can be halted from its current trajectory (13% and rising) at the 16/17% mark. It also assumes that no businesses will go wireless-only. This is a little odd given many incorporated sole traders would seem to operate off their mobile phones and that elsewhere it states that NBN adoption rates might lag in the bush because of competition from Telstra Next G This begs the question: why not elsewhere? Its ARPU projections (nearly 50% above entry level prices in its first years) suggest that it believes a substantial revenue flow will accrue from usage above the base of today. Most importantly, NBN Co thinks that retail service providers will be satisfied with 10% to 20% EBITDA. I'm not sure its largest potential RSP—Telstra—will be satisfied with this, given it earns over double that now but of course it gets a $15b sweetener. Optus' overall EBITDA is around 25%, Macquarie Telecom the same, iiNet's about 16% or so, but of course, they had the expectation that the whole structural separation of Telstra and NBN shebang would add to their margins, not preserve them in aspic. This would suggest that the ideal business model for RSPs will not be NBN access only - but NBN +
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additional services. Singapore tells us that NBN + multichannel TV + mobiles is the most likely marketing pitch from carriers. Telstra, Optus and VHA will get a boost here given the direct advantages they have in mobile network ownership combined with the additional indirect cost advantage they get from their existing (and sunk) national backhaul investments in fibre and microwave. Dave Burstein, the editor of US website Fast Net News, suggests this is also the case in Europe: "The experience in Britain and France is that companies with a second and third revenue source are willing to go very, very lean on the Internet part. The most dramatic is the "free" DSL with Sky TV in the UK. That's very limited, but many do get a decent offering at five pounds. Similarly, the hottest broadband company in France in Bouygues, the #3 wireless. They are combining everything into a very attractive quadruple play offering that's selling very well." Indeed, I suspect that while the NBN may achieve many things it will not make a thousand competitors bloom. More likely it will add the phrase "horizontal integration" into the industry lexicon of pejoratives. NBN Co needed to pass the tricky political test of coming up with a business plan that satisfies the contradictory demands of taxpayers and consumers. With a cheap headline access price and a forecast path to profitability, it probably passes that perception test. That there is devil in the detail was always a given - that this detail is based on assumptions that people will readily pay an effective double toll for speed and data consumption to a last mile network, for what is likely to be highly discretionary usage such as movie downloads and so on, is a real policy problem, albeit one for another day. Grahame Lynch
COMMENT BY KEVIN MORGAN
Still waiting for a business case Both Julia Gillard and Stephen Conroy promised that the NBN’s business plan would be released in December – we’re still waiting. What we saw yesterday was clearly not the business plan. It was NBN Co’s corporate plan and clearly said so. And it’s not just a matter of semantics - a corporate plan produced to satisfy the requirements of the Commonwealth Authorities and Companies Act 1997 is a somewhat different animal compared to a business plan. In this case the difference amounts to some 250 pages. On 18 November when the prime minister was being pressed by the opposition to release the business plan she told the House “It is more than 400 pages long and the government, as prudent and responsible managers, are now analysing the case in detail, running the fine-toothed comb through it’. One can only conclude that the fine tooth comb found much that was not fit for public consumption, all on the cost side, because what we now have is a 150 page corporate plan— a sort of hyped up mission statement with some numbers rather than a real detailed business case that sets out the costs, revenues, profit and loss and balance sheet of a proposed business. True, the sanitised corporate plan does contain some real meat – the proposed pricing which as Grahame Lynch points out whilst seemingly a political winner has some nasty stings in it. Yet attractive as these prices may be they may as well be plucked from thin air unless it’s known what they are grounded in and at the moment we are still in the dark on the potential costs on the NBN. Under the Commonwealth Authorities and Companies Act 1997 a corporate plan must set information on quite a number of matters such as the objectives of the company, assumptions about the business environment, dividend and financing policies, CSOs etc. but it does not have to include any detail on costs and dutifully NBN Co have complied. Less that one third of the document is concerned with the kind of assumptions and numbers that would constitute a real business case and what numbers and assumptions there are dwell on near intangibles, demand and pricing rather than hard facts about the price of the NBN’s technologies and their actual deployment costs. Of course, a highly attractive price plucked from thin air is difficult to challenge unless the costs of the platforms delivering it are known and it far safer to detail prices and revenues rather than costs. The industry’s collective jaw might well drop in disbelief at the low prices the NBN promises but mouths would be open if the NBN actually set out the detailed costs that they have predicated those prices on.
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At the broadest level what the NBN promises is the delivery across multiple platforms (including $2.5 billion worth of satellites) of at least 12 Mbs for $24 per month that will be delivered over a network where the average cost per household or business connected is around $2600 despite the fact that 75% of fibre will be underground. Given the cost structures of the various geotypes that must be served— inner city brownfield, suburban brownfield, greenfield estates, semi rural and rural brownfield and remote—it is fanciful to believe that the network could be built for just over $36 billion. True, a vertically integrated operator such as Verizon utilising aerial cable and much of their existing infrastructure might be able to do it in highly populated urban markets but not here in Australia. All we know from the corporate plan is that it can all be done on budget and deliver the promised pricing because of the Telstra deal. According to the mission statement, Telstra ducts and pit & pipe will readily allow the ready, low cost installation of fibre. Pity it will all have to be individually spliced at each pit rather than deployed on the plug and play aerial model that underpinned Verizon’s relatively low cost deployment. Unfortunate too, if informed industry estimates are correct and only some 20% of the last mile ducts (those beyond pillars and cabinets) are useable and let’s forget using the existing Telstra lead ins – many are direct buried. There are of course at least six thousand experts out there who might demur at the NBN’s bold assumption: the Telstra field workforce and contractors who maintain the existing copper. They know the existing duct network is full of fragile copper (not to mention water) and consists of a mix of ducts made of PVC, galvanised iron, earthenware and even, asbestos. Best not to go into the detail and the real problems and risks that a deployment using Telstra’s ducts might face and similarly don’t publish any hard numbers on equipment costs or the costs of trenching and horizontal boring.
IN OTHER NEWS
Telstra formally applies to terminate EAs Telstra has lodged a formal application with Fair Work Australia to have all Telstra enterprise awards as part of the award modernisation process. “This will have no immediate effect but will be important when we negotiate the next Enterprise Agreement,” the Communications, Electrical and Plumbing Union said in a bulletin. “This is because the awards are used when applying the "Better Off Overall Test" to an Enterprise Agreement.” “Telstra's tactic is to reduce certain minimum standards by making the EA “safety net” the Telecommunications Services Award rather than the current enterprise awards. This would mean, for instance, that the safety net level for standard working hours would increase from 36 ¾ hours to 38 hours.” “Our employees, who are covered by the Telstra Enterprise Agreement, Employee Collective Agreements or individual contracts, will not be adversely impacted by the national modern awards system application,” a Telstra spokesman told CommsDay. “Telstra is in a unique position in the telecommunication industry as it has 11 enterprise awards that are specific to Telstra. Parties to existing enterprise awards have until 31 December 2013 to apply to Fair Work Australia to have the enterprise awards modernised.” “Modern awards are a key safety net in the national industrial relations system. As such, Telstra is simply submitting an application to Fair Work Australia to be part of the national modern award system and allow Telstra employees to be covered by the same safety net of employment terms and conditions as other employers in the national system. “ “The CEPU will be taking appropriate action to prevent the Telstra initiative and has met with the other unions affected by the move to determine a common approach,” the union said.
TCF draws up draft code for international roaming A draft international roaming code has been drawn-up by the telecommunications industry in a bid to improve consumer confidence. The move follows a series of high-profile ‘bill shock’ stories in the media where consumers faced huge, unexpected mobile bills when returning from overseas trips.
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TCF CEO David Stone told CommsDay the code is all about informing people. He said: “We can’t do anything about the international charges; they are determined by the overseas carriers. We can make sure people know what to expect.” For the most part the code is about providing information in a standard and easy to understand format, so phone users travelling overseas are aware of the likely costs and issues before they leave New Zealand. Information will also be available at airports, departure point and at travel agents. The code also includes a ‘TCF International Mobile Roaming Guide’. This recommends ways of providing consumers with examples of the likely charges for common uses of roaming. Stone said the code has the backing of TUANZ, the Ministry of Economic Development, the Ministry of Consumer Affairs and the Commerce Commission. These four bodies along with New Zealand’s three mobile carriers were all on the working party that drew up the code. Submissions to the code close on February 15 and the code should come in to practice soon after, however Stone said that’s largely academic as the three carriers are already using the code or something very similar. Stone said the next stage in the process comes next year when the TCF will try and harmonise New Zealand roaming practices with those in Australia. He said there have already been preliminary discussions on this.
Change at the top for contractor Silcar Telecom contracting firm Silcar has announced a change of leadership, with current CEO Bernie Cooper to be replaced by Peter Lamell, who has previously worked for Shell and coal technology company HRL. Silcar is a joint venture between Siemens and Thiess Services and has undertaken contracts for Telstra and NBN Co, among others. In a statement from the outgoing Cooper, he said handover of the leadership was now underway and he would finish with the company at the end of January 2011. He had been with the company since 2001. “With our current work secured and strong opportunities in place for the future, Silcar’s business is assured and is entering its next growth phase. It is now the right time for a change in leadership,” Cooper said. Geoff Long
RIM LAUNCHES BLACKBERRY BOLD 9780 PHONE IN OZ Research In Motion has launched the BlackBerry Bold 9780 smartphone in Australia. It is also the first BlackBerry Bold smartphone to come with the new BlackBerry 6 operating system. The phone will feature a new user interface, rich WebKit-based browser, universal search feature and a high quality 5MP camera. ENABLE WINS DISTRICT HEALTH BOARD CONTRACT Canterbury District Health Board has chosen Enable Networks to provide fibre connections to its 20 Christchurch locations. Canterbury DHB CIO Chris Dever says the adoption of modern IT practices by Canterbury DHB’s clinical staff has driven a significant increase in demand for data connectivity. He believes the move to Enable’s city wide fibre network will boost the reliability of Canterbury DHB’s telecommunications services while lifting minimum connectivity speeds from 100Mbps to 1Gbps, and in some cases to 10Gbps. ByApril, CDHB will have moved all significant inter-facility links to Enable’s network and will be utilising a double fibre loop to provide network reliability (or redundancy), allowing data to be transported in alternate directions in case of network interference.
COMMUNICATIONS DAY 21 December 2010 Page 11
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