Realising our broadband future Presentation by Mike Quigley, Executive Chairman, NBN Co

In his speech at the ‘Realising our Broadband Future‘ conference, the man charged with spearheading the transformation of Australia’s broadband network outlined his vision for one of the nation’s most important infrastructure developments. In what will eventually emerge as one of the most ambitious infrastructure projects undertaken in Australia, the National Broadband Network is poised to put down roots across the nation. Mike Quigley explained why he is so enthusiastic about the project, and how it will benefi t Australians on a business, economic and social level.

Realising our broadband future Presentation by Mike Quigley, Executive Chairman NBN Co at the University of NSW, December 2009

We have just heard the Prime Minister articulate the government’s agenda to realise Australia’s broadband future, and the part that the National Broadband Network will play.

His address made it clear why this initiative is raising so much interest around the world. It is a unique nation building program that has the potential to lift Australia’s productive capacity.

I am also reminded as to why I was very keen to be part of this project. For a telecom professional this initiative is a once in a lifetime opportunity.

This is why my colleagues and I are so enthusiastic about belonging to the growing NBN Co team.

While we are growing rapidly we are keeping our attention very tightly focused on the objectives we have in front of us, which are: 1. To provide broadband coverage across the nation, offering speeds up to 100Mbps to 90 per cent of the population and 12Mbps to the remaining 10 per cent. 2. To facilitate the development of a level competitive playing fi eld for access seekers, by building a wholesale platform providing open and equivalent access. 3. To build this wholesale network in the most cost effective manner possible.

The NBN Co team is using these three broad objectives as a reference point for everything we do. I am also keen to ensure that these objectives, and the way in which we go about realising them, will be as transparent as possible, giving future customers, and of course taxpayers, the opportunity to hold us accountable.

NBN Co is a startup. But not quite like any startup I have been associated with. Normally, startups have an opportunity to stay under the radar as they get themselves established.

This has not been possible for us as, understandably, there is considerable public interest in the job we are doing.

And that job is to build an access network that can provide a suite of wholesale products to Access Seekers.

This involves developing a wholesale product offering, selecting technology and then designing the network and systems.

Processes and systems will be put in place to maintain the network.

The design is then tested and qualifi ed in our test labs and the end to end solution exercised in fi eld trials.

We then move into volume rollout of the network.

In parallel with the design and planning process we are developing both a fi nancial plan and a project plan.

We are working closely with the lead advisory team of McKinsey/ KPMG as they undertake their Implementation Study.

NBN Co and McKinsey are focused on somewhat different aspects of the project, but there are signifi cant benefi ts from us working cooperatively together. So this is exactly what we are doing.

I believe it was very sensible of the Government to set up this dual stream approach at the beginning of a project of this size and complexity.

There are many complex issues to be tackled and the interaction between NBN Co and the McKinsey/KPMG team is very productive and will, I am sure, lead to the right outcomes.

I intend to give you some detail of how NBN Co is approaching our task but fi rst I would like to address two questions that I am often asked.

The fi rst is: Why do we need 100Mbps?

The second is: Why roll out FTTP when it can all be done with wireless?

I believe it was very sensible of the Government to set up this dual stream approach at the beginning of a project of this size and complexity.

There are many complex issues to be tackled and the interaction between NBN Co and the McKinsey/ KPMG team is very productive and will, I am sure, lead to the right outcomes.

Realising our broadband future

1. What will we do with 100Mbps?

I will only mention applications briefl y because, frankly, there are people better qualifi ed than me to talk about future high bit rate applications.

Instead I am going to point to some broadband traffi c trends and ask what judgements it is sensible to make given these trends.

First, let’s see what Cisco believes is going to happen to worldwide fi xed IP traffi c. (Slide 1)

What is driving this growth?

Largely video applications of every sort – VoD, HD Videoconferencing, Internet TV, HD image transfer for medical applications, PVR downloads, distance education, etc.

As Cisco observes, the continuing increase in screen resolution and the steadily increasing power of processors means that people are going to be more inclined to be running multiple highbandwidth applications concurrently.

Next let’s have a look at some history (Slide 2). Here I have modifi ed somewhat a slide that I know Geoff Hayden of AlcatelLucent has used.

It shows the downstream bit rates since 2,400bps V-series modems came into general use back in the late ‘80s.

Should we assume that the trend will now roll over (red band) or continue (green band)? I would not put my money on the red band.

If we believe the trend will continue upward as shown in the green band then it makes sense that the Government initiated this major project, since a wholesale FTTP network of this sort cannot be built overnight.

I said I would not focus on applications, but I will use just this one slide (Slide 3) to illustrate the types of applications that will become available as access speeds increase.

When we get to the point where 3D collaboration and full remote computing is commonplace then fi bre will be the only way to provide the speeds required.

It is not just the Australian Government that has recognised the importance of fi bre based broadband (Slide 4).

You can see that there are a number of fi bre based initiatives taking place in our region.

Five of the six are providing speeds of 100Mbps or above.

Given these trends, I am confi dent that Australians will productively use 100Mbps in the years ahead.

Now to the second question.

Realising our broadband future

2. Why not do it all with wireless?

Here is another IP traffi c projection from Cisco, (Slide 5) but this time showing mobile IP and fi xed IP traffi c on the same chart.

As you can see, fi xed IP traffi c is expected to dwarf mobile IP even though the growth rate for mobile is considerably higher than for fi xed.

While wireless is currently enjoying high growth rates, it has inherent limitations compared to fi bre.

It is simply very diffi cult to overcome the limits imposed by physics.

Spectrum is a scarce resource and there is just so much you can do to increase spectral effi ciency using better modulation or coding schemes.

We have seen real increases in speeds and download capacities offered with wireless networks in the last decade.

Some of this is due to more spectrum becoming available, to larger channel bandwidths and to better modulation techniques.

But by far the most important factor in the growth of total wireless capacity has been the increasing number of cells and the shrinking of cell sizes.

This factor outweighs, by several orders of magnitude, all the other factors that have led to the million-fold increase in wireless capacity since the 1950s.

So, why can’t we just keep increasing the number of cell sites and continue to reduce cell sizes?

We can, but we still have to haul the traffi c out of the cell sites and for that we need fi bre.

As traffi c demand increases we can keep reducing the size of these fi bre-connected cells so we end up with a very large number of cells, each serving a small number of premises.

Is this likely to be a cheaper option than FTTP?

I doubt it.

We must remember that wireless is a shared medium, and so we must factor contention into the access traffi c calculations.

Peak speeds may be high and equal to those of fi bre currently, but average speeds are dramatically lower.

High-bandwidth, constant bit rate applications such as IPTV and HDVC are very challenging over a wireless network.

It is also the case that users at the edge of the cell experience a far lower grade of service than those in the centre.

At the centre of a cell, in next generation wireless systems, a user may experience speeds of up to 150Mbps, but at the cell edge the peak may be only 10-20Mbps.

These are speeds for single users. The speeds obviously reduce as the number of users in the cell increases.

There is no magic to this. If 100 users on a cell are downloading content at the same time, each will get, on average one per cent of the total capacity.

In spite of these limitations there is a very important place for wireless broadband in the NBN world.

One would be foolish to think otherwise.

But one would be equally foolish to think that wireless technologies are going to solve all our traffi c needs, particularly as HD video and other high capacity remote computing applications proliferate.

We need both technologies, fi xed and wireless, to meet our future needs.

3. Getting the competitive structure right

There has been a lot said about where Australia fi ts in the OECD comparison on broadband penetration rates, so I will not revisit that data. But we are further behind than we would like to be.

This can be attributed, in part, to the less than ideal industry structure that we currently have in place.

The telco industry has been dogged by long-running disputes through the regulator, in the courts and in the media, over the issue of equivalent access.

Despite years of attempts by the ACCC to resolve access issues, disputes over equivalence continue.

Given the Government’s conviction that ubiquitous high-speed broadband is critical to Australia’s economic future, it is no surprise that action is being taken to correct the competitive failings of the current structure.

So, every bit as important as building out a fi bre network is the need to get the industry structure right.

We have seen that in some metro areas of Australia the DSL market can be highly competitive and deliver real consumer benefi ts.

NBN will enable an improved version of this model to operate nationally.

After considerable industry consultation the Government decided that what is needed is equivalent access, at a wholesale level, to any bottleneck access assets.

So how do we ensure this for the fi bre assets we will be building?

Realising our broadband future

4. What will we be providing and to whom?

To answer that question I need to explain what NBN Co will be providing and to whom.

NBN Co is charged with the job of building a platform so that a 100Mbps fi bre based service can be delivered to 90 per cent of premises and 12Mbps to the remaining 10 per cent.

The platform for the 90 per cent will be either GPON or Ethernet point-to-point fi bre. The technology used for the remaining 10 per cent will be wireless or satellite, depending on location and geography.

For the fi bre based wholesale service we will be providing a layer two, Ethernet based bitstream which will connect premises to Points of Interconnect (PoIs).

The Points of Interconnect will be located where it is convenient for access seekers to connect.

I am going to return to the subject of Points of Interconnect, but fi rst I will expand a little on the bitstream service.

You can see from the red and green elements on this chart (Slide 6) how we are positioning NBN Co as a layer two bitstream provider only. We simply move bits from a premise to a Point of Interconnect.

From the Optical Network Terminal (ONT) at the premise through the fi bre network to the Optical Line Termination (OLT) and then to an Ethernet switch located at the PoI.

To coin a phrase we are the “network plumbers”, providing high capacity, confi gurable pipes.

We expect there will be both wholesale service providers, shown in grey, and retail service providers, shown in blue, who will build services on top of our layer two platform.

They are the ones who will provide the services and applications to the end customer and deal with issues above layer two, such as IP addressing.

We are designing the network so that the 100Mbps bitstream is able to be partitioned logically.

This gives the end user the option of obtaining their voice, Internet and video services from one service provider or several.

We will also be providing some sophisticated capabilities as part of the bitstream service, such as multicasting, so that services like IPTV can be run effi ciently on the network.

We are not restricted to carrying only today’s services of voice, video or Internet. We are agnostic to what is running on our Ethernet platform, and so a range of new services can be carried over this platform.

Returning to the question of Points of Interconnect (or PoIs). We will locate them where there is contestable backhaul.

This will ensure that access seekers can reach any customer by connecting to an NBN Co PoI, which will by defi nition be served by backhaul from more than one backhaul provider.

There will be several types of PoIs deployed and I will show two of these on the next slides.

The fi rst (Slide 7) is a “Fibre Access Node”. It terminates the multitude of fi bres coming from the Gigabit-Capable Passive Optical Network (GPON) systems connecting the premises within the area served by the node.

In the node is an Ethernet switch to which access seekers can connect. In this case there is contestable backhaul to the Fibre Access Node.

If the Fibre Access Node is at a location where there is only uncontested backhaul, then we need to do something different.

In this case NBN Co will aggregate the traffi c from several such Fibre Access Nodes, as shown in this next slide (Slide 8), and haul it back to a location where there is contestable backhaul.

Realising our broadband future

This second location, which we call an “Aggregation Node”, then becomes the PoI for access seekers. In this case the Fibre Access Nodes are not PoIs.

There are, of course, a few more variations on this theme, but I think you will have got the concept.

There are likely to be between 100 and 200 of these NBN Co PoIs throughout Australia and their location needs very careful consideration.

Where we place these PoIs may have an impact on industry structure so we will be consulting with the industry and holding discussions with the Government and the ACCC to ensure we get this placement correct.

By limiting our scope both in the geographic sense, from premise to PoI, and in the network sense, by not going above the Ethernet layer, we are occupying as small a footprint in the overall value chain as possible.

This leaves plenty of scope for the users of our network, the access seekers to build facilities, innovate and develop new services.

It is now time I mentioned the support systems.

Business Support Systems (BSS) support processes such as sales activities, customer interactions, taking orders and processing bills.

Operational Support Systems (OSS) support network processes such as maintaining network inventory, provisioning services, confi guring network components and managing faults. NBN Co plans to build a low-touch, self-serve, business and operational support environment.

Because we are a startup and building a new network we have no legacy systems constraining our design.

We are also doing everything we can to keep both the wholesale product suite and network as simple as possible.

This reduces the complexity of designing and building the OSS and BSS, which as we all know is one of the complex challenges all telcos face.

Given this, we have set ourselves some requirements as we design our BSS/OSS. These are: • Being able to cope with high transaction volumes with variable peaks. • Providing transparent processes and automated systems for ordering, provisioning, assurance and billing. • Ensuring equivalence of access for service providers regardless of size and capabilities. • Providing seamless interworking to Access Seekers so they can add, delete or modify services as simply as possible.

We will, of course, be discussing these and other requirements, and their implementation, with potential access seekers.

Turning now to the solutions for the 10 per cent of premises not served by fi bre.

For this remaining 10 per cent we are aiming to provide a wholesale product using both wireless and satellite technologies.

We would like the wireless and satellite products to be as similar as possible to the fi bre based product.

But fi bre and radio based technologies are not the same. Nevertheless, we will do our best to align the products as much as possible.

The question of spectrum availability for the parts of the country where we will need to use wireless is still an issue to be resolved.

There is obviously an advantage in using spectrum at the lower end of the range so that we can use larger cell sizes and reduce the number of cell sites needed in low-density areas.

This will keep costs to a minimum.

Given the size and demographics of Australia, we will need to use satellites to reach the last several per cent of the population.

This is the only economic way of doing it.

We believe this will likely be done with a couple of new Ka band satellites. Current satellite designs are available that can provide capacities of close to 100Gbps.

We are still doing the traffi c dimensioning and costing on the fi bre, wireless and satellite solutions and the outcome of these calculations will inform our choices of where the technology boundaries will lie.

The capabilities of each technology and the dimensioning choices we make will of course be included in our wholesale product specifi cation.

We are intending to have an extensive industry consultation on this wholesale product suite, prior to the submission of an access undertaking to the ACCC.

So, in summary, we are in the process of developing a wholesale product suite that will: – Support differentiation and innovation by service providers – by providing them with an experience as close as possible to owning their own network – Offer open access and equivalence to create a level competitive playing fi eld for service providers – Promote maximum end-user choice in terms of both services and providers – Deliver appropriate network reliability, resilience and security – Allow secure simultaneous delivery of multiple applications with predictable levels of quality – Offer fl exibility in terms of speed, usage, degree of symmetry and quality of service. – Support legacy services, with for example, an Analogue Telephone Adaptor on the ONT.

We will also plan for the evolution of the network as speeds and capacity demands increase.

While the passive fi bre network will likely have a very long life, the active equipment will need to be upgraded as technology evolves.

So we are giving careful thought to the potential upgrade paths from the 2.5Gbps GPON systems of today to the 10Gbps systems which will be available in a few years and then the 40Gbps systems which may be available with Wavelength Division Multiplexing Passive Optical Networks (WDM PON).

I will now say a few words about getting the network built.

Realising our broadband future

5. The Network Build

The largest costs in deploying this network are in the civil works surrounding the fi bre build.

There are many choices and factors that can have a large impact on the costs of deployment – the aerial versus underground mix, availability of duct space, lead-in distances, availability of backhaul, ONT placement and confi guration, battery backup, migration costs... the list to be considered is long.

Estimating the costs associated with each of these factors is not an easy exercise.

In preparing a business plan the two factors that dominate the estimates are the deployment costs I have just mentioned and the revenue plan, which is also dependent on a large number of variables.

So it is quite sensible to work through the details of product defi nition, pricing architecture, network design and build planning before trying to assemble a business case on which one could rely.

Sometimes the data one needs is just not known.

For example, in estimating route and drop fi bre lengths, there is no readily available database we can use.

But we do have some sophisticated geospatial tools, which allow us to make some reasonable estimates.

This next Slide (9) is a picture from one such tool showing the distribution of Geo-coded National Address Files (GNAFs) throughout Australia.

The red areas represent the 91 per cent of premises that are

served by a pillar. These are in 8 per cent of the land area.

The green areas represent the 9 per cent of the premises that are served directly from the local exchange – possibly over a very long distance using long copper runs or a rural radio system. This 9 per cent is in the remaining 92 per cent of the land area.

It is possible to zoom in on this map and see the occasional little green dot that represents another premise. appreciation for the remoteness of much of Australia and the extent of the build we will be doing.

As you would expect, we are taking all the steps necessary to prepare for this very large civil construction job.

There are discussions taking place now regarding access to critical infrastructure such as ducts and poles.

We are going to need to leverage a signifi cant part of the capability of the Australian construction industry in getting this job done.

Once the build is underway we will be dealing with, in close cooperation with service providers, the complex task of migrating customers from the copper network to the fi bre network.

This needs a good deal of coordination between activities at the premise, activities in the local exchange, and activities within the databases and systems.

There is a considerable amount of work to be done in the preparation of all the potential migration scenarios, and that work is now underway.

It is another area in which we expect to have signifi cant industry consultation.

There are many more issues on which we are currently working in NBN Co, as we design and plan the deployment of the National Broadband Network, but I hope with this brief description, I have given you a fl avour of what this new company is now doing.

So let me conclude.

6. Conclusion

In being interviewed for the role of the CEO of NBN Co back in July 2009 it became apparent to me that the Government had a clear vision of the economic and social advantages for the nation in rolling out a high-speed, fi bre based network.

It seemed to me that they had identifi ed the technologies that would be needed and the right approach for getting this complex job done.

So it was with some enthusiasm that I accepted the role to lead NBN Co.

I would have to say that after fi ve months in the job, my confi dence in both the judgement and resolve of the government is undiminished. I believe I can speak for the whole NBN Co team in saying it is a privilege to be associated with this nation-building initiative of the Rudd Government.