Tuesday 17 September 2013

The Bandwidth of Democracy

What is Democracy? Hundreds of thousands of lives have died for it. Entire wars fought over it. Statesmen in funny wigs have had clandestine meetings in secret to work towards it. But what does it mean to live in a Democracy? I won't bore anyone with definitions that you've probably already read (Kieran Cummings aka @Sortius already dissects it very well in his latest blog post) But suffice to say there seems to be a disagreement brewing between newly appointed Communications Minister, Malcolm Turnbull and the online community.

Several days ago Mr Turnbull posted what he might've thought was a rather innocuous tweet in response to a fellow Twitterati who was calling for Mr Turnbull to recognise a recent online petition asking the new government to reconsider its' NBN plans. The tweet, from Phillip Tyson, said:

@TurnbullMalcolm I ask that you reject the coalition's NBN. Nearly 200,000 people have signed a petition for FTTH @ http://iwantthenbn.com

To which Mr Turnbull replied:

@PhillipTyson wasn't there an election recently at which nbn policy was a key issue?

Now, I don't know about you, but I see clearly Mr Turnbull has said there he believes the election result has, without question, determined the direction of the NBN under a new government. Strange considering the NBN was not part of the Coalition's oft repeated multi-point plan during the election, much publicised on TV and on pamphlets. In fact, the only well publicised (unless you count 11pm on Lateline) talk about the NBN under the Coalition....was from Labor. And the resulting rebuttals from Turnbull which usually made it in on page 17 somewhere of the Telegraph or Australian.

Now regardless of this fact, Mr Turnbull knows full well petitions are an important part of Democracy, he himself having linked to dozens over the course of his time in Opposition and indeed his political life (Sortius covers several). They are a vital gauge of public opinion on individual issues that an election cannot hope to canvass- there is so much extraneous noise and so many policies flying around, the voting public would be hard pressed to understand and comprehend all to the degree required for proper scrutiny. Mr Turnbull's response however, was not so affirming:

Last Saturday there was a general election at which the NBN was one of the most prominent issues. The Coalition's NBN Policy - which can be read here  had been published in April - five months ahead of the election. The Coalition won the election.

Again, Mr Turnbull appears to be suggesting a Coalition win, without question, determines the direction of the NBN. What many people may not realise is, the NBN does not require legislation to pass to radically alter its' direction. Unlike Direct Action or Stop the Boats, this Coalition plan, to change Labor's 93% rollout of Fibre to the Premises, to 22% FTTP and 71% Fibre to the Node, requires only the sign off of the Shareholder Ministers- Communications Minister, Malcolm Turnbull and Finance Minister, Mathias Cormann. That's it. No legislation (that's to come later - paywalled). No parliamentary debate. It is, essentially, a Dictatorship for the NBN. Something ex-Comms Minister Stephen Conroy relished.

The online community didn't appreciated these responses from Mr Turnbull and one particular response was jumped upon by the Earl of Wentworth:

On 13 September, Stuart Rintel, who is a Lecturer in Strategic Communications at the University of Queensland published a blog on the Conversation entitled "NBN Petition and the backlash: when does democracy speak?

His first misrepresentation is in the first paragraph where he writes that social media users "are mobilising against ...Malcolm Turnbull's claim that "democracy has spoken" on the issue of the NBN".

I am not sure what the University of Queensland means by "Strategic" Communications, but I doubt they mean "false" or "misleading".

Ouch. And it doesn't get better:

Stuart Rintel's blog is one which would disgrace any of his students.

Mr Turnbull has a history of personal attacks on the NBN, from NBNCo. former (still serving) CEO Mike Quigley, twice no less, to the NBNCo. board in general and even the new Chairwoman Siobhan McKenna. It seems Mr Turnbull doesn't play by the rules of 'play the ball, not the man.'

Recently, many groups online have sprung up to try and make Australians aware of the importance of FTTP to Australia's digital future. A dozen Facebook pages, a dozen Twitter Avatars and dozens of individual web pages and web sites dedicated to trying to allow the public of Australia to understand that while Labor's NBN was far from perfect, its' underlying majority technology, FTTP, was essential for growth and innovation in Australia. Much of the public sees the distinguishing factor between FTTP and FTTN as simply speed- FTTN is capable of around 100Mbps, depending on where you live. While FTTP is capable of 1000Mbps in its' current form, as being rolled out by NBNCo.

But the simple fact is, speed is only of secondary importance right now. Let's face it- few people have legitimate uses for over 100Mbps. Sure, 100Mbps and above is fantastic for businesses (current DSL and Ethernet prices for businesses are far beyond those for even business aimed plans on the NBN in many instances), but for your average consumer; it'll be several years before they are demanding 100Mbps....not as long as some would think though. But the primary characteristics of FTTP are:

- Reliability- Fibre has only one major weakness; physical damage. It and its' architecture is impervious to Water & RF interference. And poor joints are easily determined within a few metres via optical testing techniques.

- Ubiquitous speeds- NBNCo's FTTP network has a range of 14km from the fibre version of an Exchange (FAN) in which no matter which speed tier you order, at a wholesale level, you receive that speed. Of course, your RSP may throttle or contend the link. But this is the same between FTTN and FTTP. The point is FTTP has little physical limit like copper for speeds and distance. Certainly not in that 14km.

- Maintenance- Fibre in FTTP is between 2 and 5 times cheaper to maintain than copper. Verizon in the US, with its' branded FiOS FTTP system, show the company willingly upgrading people to fibre upon failure of their copper telephone line. The primary citation given for doing this is the failure rate of fibre- 2 to 3 times less than copper. That's a big saving when you're looking after millions upon millions of copper lines. In fact after Hurricane Sandy several years ago, Verizon chose to dump their copper network and replace the damage done with fibre. Several numbers have been bandied around from Verizon, $35/year/line for FTTP and $128/year/line for copper. But references for these are hard to find, being commercially sensitive industry information.

All this and you get a major boost in speeds available too.

Now, Mr Turnbull knows all this- he's talked to dozens of Telecom experts around the world during his time in Opposition. But they have apparently told him FTTN is an excellent and well performing technology. What he doesn't say is....all these experts are either incumbents and own the copper network or have already substantially, or completely, finished their FTTN networks (such as Germany or the UK). While Australia, under the new government, would not even start until late 2014/early 2015. There seems to be a major gap of information here not being talked about.

What myself and many others like me would like to see is Mr Turnbull's reviews. We want to see them happen in an open and publicly transparent manner. We want to see engagement with the online community, the telecom industry and experts in the field. Not behaviour such as we've seen (above) from Mr Turnbull is simply ignoring calls to be truly technologically agnostic. After all, if he was....why would he insist on giving a percentage coverage for FTTN? Would it not be prudent to wait for these reviews, as he chastised Labor for not doing originally on the NBN?

Our group, Mr Turnbull, wants to see you provide the best telecommunications infrastructure for this country to grow and evolve our services. We are apolitical- this is not about Labor or Liberal. This is about the best system that Australia needs not only now, but for decades to come.

James Archer is a member of the Australian FTTP Action Group, which includes groups such as Save the NBN and weneedthenbn.com, the author of the Change.org petition Nick Paine, former Telstra technician Kieran Cummings, telecoms and technology blogger Steve Jenkins and has support from several experts including Paul Budde and from ISP iinet.

Saturday 10 August 2013

NBN & the Election

I've been absent for a while on my blog, spending most of my time online trawling tech forums and Whirpool trying to find the good nuggets and disseminate facts and dissolve fiction surrounding the NBN. But it does get tiring after a while.

Just tonight, a hardworking chap and fellow pro-NBNer going by the handle Monsta_Au on Twitter has revealed a leak by NBNCo. themselves on the Ready For Service (RFS) dates for upcoming FSAMs. Leak, you might say? But they publish RFS figures every month! Indeed they do, but this one is significantly different. Instead of the 2 or 3 dozen or so FSAMs that usually change their RFS status or date a month, this "update" sees some 1107 FSAMs.....a considerable increase. And NOT a good one for NBNCo. Most appear to have been pushed back at LEAST 3 months, some as much as a few years (those are by and large aberrations, not norms). It's clear that this is the flow on result of the Telstra remediation halt from asbestos in pits thanks to, what appears to be, lazy or incorrectly trained subcontractors. Also compounded by NBNCo's recent problems with main contractor Syntheo, which have now been resolved- Syntheo has pulled out and NBNCo. has replaced their labour in 2 of 3 states (NT and SA) and are looking to up Downer EDI's responsibility for rollout in WA to cover it completely.

Now, those who've followed the NBN debate over the years will have 1 of 3 opinions here:

1- Labor have the right plan and the right people to do this. They should be allowed to continue no matter what. FTTH is just better for any number of reasons, including that it will last for decades. The Coalition's policy is weak, backwards and a waste of money and will put Australia back in the dark ages in telecommunications.

2- This is a natural progression of NBNCo's project management and a project such as this with a scope this large, almost uniformly the world over, expect delays on the scale of months to a year or 2. It just goes with the territory- there are SO many factors that cannot be accurately predicted years in advance that they're bound to change. It needs careful management, regular public questioning and rigid oversight.

3- This is yet another nail in the coffin for the Labor NBN and their mismanagement and another reason why the Coalition should be brought in ASAP to fix the rollout and go on with their new FTTN policy launched in April to save billions of dollars and years on this rollout.

And you know what? 1 and 3 are the most common. The arguments around the NBN are so inextricably linked to politics now, that there is almost NO rational thinking surrounding this debate. There are some standouts- Phil Dobbie from Comms Day's Crosstalk, Paul Budde, leading telecommunications analyst and head of BuddeComm come to mind immediately. But 90% or more of commentators, mainstream or otherwise, are constantly working at least a semblance of politics into the NBN arguments they make.

Examples? Renai LeMay over at Delimiter to start. Now, don't get me wrong, Renai produces excellent articles that have high levels of thought and analysis of what he writes. I wish him well in the startup of Delimiter 2.0 and am considering subscribing myself for his more in depth analyses. But the fact remains, while Renai has been writing articles lambasting the Coalition for their FUD and disingenuity, blatant lies in some cases get off with a "misleading" at worst or "factually incorrect" at best. He applies the same to Labor, not that Labor have generated alot of FUD until the lead up to this election on the NBN (it still baffles me why they would use incorrect information when they have the most popular policy Labor have ever seen on their side...) but Labor tend to get a bit more of a raw deal with "lies" and "ridiculous mistruths" featuring considerably more. Maybe I'm being unfair. Maybe, because I DO have a bias towards the NBN and I'm gleaning a pattern that isn't there. Head over to Delimiter or Google "Delimiter: NBN" to see if you agree on the dozens of articles over the months. I'm sure he'd appreciate the hits :)

But if I am being biased towards the NBN and Renai....then why do I think the other side is just as bad? Case in point- Kieran Cummings, known to the online tech community as Sortius (@sortius on Twitter). I like Kieran. He's genuine, outspoken and doesn't care what people think. That's why I'm fairly sure he won't mind me writing about him and expressing my own opinion (he may not appreciate the hits on his blog right now though- he's having big problems with his hosting service!). Sortius has produced some excellent work- his digging into Australia's average copper gauge recently has prompted some in the tech community, including Renai himself, to start investigating the issues around copper gauge in Australia and VDSL speeds and the impacts it might have on the Coalition Policy.

But he's also grossly exaggerated some of the "facts" surrounding the Coalition's rollout. His recent podcast on Cross-talk with Phil Dobbie - How far is your Node? -highlighted a glaring one; his insistence that Turnbull may need "potentially millions" of nodes to provide the speeds he is suggesting...or at least hundreds of thousands. Now, I don't think anyone would argue (in fact Phil Dobbie agreed) that the 55 000 nodes Turnbull is suggesting is likely a VERY conservative number (contrary to what Turnbull believes) as it assumes all those average copper lengths from the node, regardless of where you live, are, on average, 500m long. As Phil himself uncovered, in the UK, up to 25% of (particularly) regional copper lengths are above 800m. That puts a crimp on Turnbull's 55 000 and raises many questions about how much money & time could actually be saved over the NBN if the number of nodes was, say, 50% - 75% higher at least, than predicted to ensure his 25Mbps minimum. Not to mention the actual state of the copper itself being widely variable.

Now Sortius has every right to have his own opinion. I indeed agree with what he says much of the time. But I'm not interested in expressing an opinion of my own that is based on a political preference on the NBN. Sortius is not shy that he likes NEITHER major party. But he does express opinions political in nature or politically motivated- criticising or attacking Turnbull & other Coalition members rather than the "information" (I use that word generously) he peddles or exaggerating the case for the NBN or against the Coalition. He doesn't apologise for that. Fair enough.

Now, again, I could be being entirely unfair on Kieran. Perhaps many of his exaggerations are genuine mistakes and he is simply trying to get his point across in the most succinct and obvious way possible. In that case, Kieran, my apologies :)

What is my point in all this you might ask? One of the reasons I'm so frustrated (and therefore why I'm writing again!) at the moment is because the NBN has become almost entirely politics. Any mention of premises being switched on in a mainstream paper and it is almost inevitably followed by "the NBN, following recent blowouts in cost and huge delays in the rollout" and the comments sections are sometimes worse than YouTube for inane rhetoric....and that's saying something. Any delays, genuine or not, are met with scorn and derision by papers and Turnbull and equally randomised excuses and scorn heaped on the Coalition policy for being "just as likely to meet the same delays."

And here's the problem- while this keeps happening ANY real objective look at the NBN as a project is impossible. Am I ever guilty of this? Damn right I am! I have a political preference right now, just as most do (I'm relatively a-political- policies are what I vote on and that chooses my party) and sometimes it gets the better of me. But I try and keep as open a mind as possible, because being accused of being a "partisan hack" is about the worst insult I could think of to receive.

How is the NBN ACTUALLY going? On a short terms basis- badly. It has received 2 delays in quick succession, one of which (Syntheo and contractor rates) the NBNCo. board should have dealt with sooner and much more decisively. Was the reason they didn't political? To save face while Conroy was leading the charge and saying they could do no wrong? Probably. But that's the problem isn't it. They shouldn't HAVE to worry about the politics. They're here to build a National Broadband Network, not play political games. Add to that they appear to now be increasing their expenditure on contracts, a necessary measure to speed up the rollout and hopefully make up for the delays in the future (JXeeno (WP) over at his brilliant site www.mynbn.info has collated the affect of the newest delays after Monsta's "leak" information, in graph form) and you can see where Turnbull and media outlets get their ammunition from. The NBN is NOT going smoothly.

But if you look at it on much broader terms, what have we got? We have an entity, NBNCo, that came into being in 2009, just 4 years ago, produced a business plan and trials in 2010, more trials in 2011 plus a whole HEAP of contract negotiation, ACCC regulatory negotiations and network design. Also in 2011, the Telstra agreement- the largest corporate agreement between 2 entities in Australia as far as I'm aware ($11 billion NPV) over 35 years and essentially ensuring the complete structural separation of Telstra after more than a decade and a half of monopolistic overcharging and poor landline data services. And then, finally, in 2012, the beginning of volume rollout in July. Since then, they have gone from a few dozen passed premises a day to over 1200 a day now (head over to JXeeno's site to confirm) and will go ON increasing that steadily over the next few months before it is scheduled to jump up exponentially as new contracts come into play signed just in the last few months. It enjoys now over 185 000 passed Brownfield premises (I won't get into the debate surround MDUs!) and over 47 000 Greenfield premises passed with Fibre as well as some 20 000 with wireless and 35 000 with Satellite.

That's almost solely in 1 single year. People might argue "but the NBN has been around for 5 years and that's all its' done." Really? Take a look at what you're saying. Do you judge the construction of a house and its' build schedule by when you apply for the development application at Council? Or better yet, when you apply for the loan before that?? No. You judge it by the day the first person walks on site to do surveying. And even then, most builders won't give you a definitive end date until your slab is down. The NBN is no different- its' DA is for the WHOLE of the country (and is still being finalised in fact) and its' measurements have happened on THOUSANDS of premises over months. And its' whole scope is almost 10 years from now (accounting for the delay introduced). It's literally had its' slab poured and it finished drying at the beginning of this year....

I'm not saying you SHOULD agree with the NBN and have no choice not to. There are genuine arguments against the NBN as a whole. But I AM saying- be objective. And leaving this as a final note-  the NBN might be having problems. It might need an audit and even a heavier hand in management. But is changing the fundamental basics of the network, its' premise of providing ubiquitous, reliable, cheap, high-speed data services for the WHOLE country AND its' larger premise- separating Telstra and removing its' monopoly on fixed line products- when it is just NOW starting to gather steam, REALLY going to save time and money, regardless of the alternative?

Because that's what the Coalition want to do.....

What do we want? A network designed and built by network engineers for the best possible technical and economic outcome? Or a network designed by political ideology....

The choice is yours Australia. Just 28 days away....

Wednesday 5 September 2012

NBN History and Delays.....or prudence?

Ok, so it's been a while since my last post. I've been busy beavering away around forums and Tech sites trying to spread the word on the NBN (would you believe some people don't even know what it is?...). One thing I've noticed over these past few weeks is the argument from the Coalition and from supporters- "The NBN is drastically behind schedule- they were supposed to have 150 000 connections by now! This just shows how much of a waste it is and how much longer it is going to take."

Is this true? There's no question that it is indeed a long time, in anyones' book, since the NBN as we know it, was started. But why? For this, first I would suggest you read my new page NBN History. There is alot of backstory of the NBN and it is necessary to understand before we continue, where we came from.

Regulation- Bane and Saviour

Such as life in Australia that we have many, MANY, MANY regulations/laws for just about everything. NBNCo. needs legislation to make it exist and give it power, albeit funded by the government (those funding requirements need legislation too). The power OF NBNCo. must be regulated, to ensure it doesn't get above itself, even with the funding restrictions imposed by government. Regulations must be put into place surrounding how NBNCo. will offer services to RSP's (Retail Service Providers as they are in an NBN world) and how much they can charge for this- enter the ACCC. Legislation must also be passed to separate Telstra, seeing as the government can't just force a company to separate just because they use publicly bought infrastructure and have paid to use it (shareholders); the ACCC has to approve this too.

The upshot of all this boils down to- time. These agreements with Telstra took time. These regulation discussions and negotiations took time. This new legislation passing parliament (with a hostile Opposition too) took time. And add to that a hung parliament with the election of Gillard in mid-2010, meaning each and every piece of legislation must be gone over with a fine tooth comb before the Independents/Greens could force its' passage through parliament with the government, due to a completely hostile Coalition on the issue.

The discussions with Telstra started in late 2009, but they aren't completed until mid-2011 and they aren't signed into existence (with agreement from shareholders) until December 2011 or enacted until March 2012....only 6 months ago! The legislation to create, give power to and manage NBNCo. isn't passed and completed until 2010, well over a year after NBNCo's birth. And the regulations surrounding NBNCo's WBA (Wholesale Broadband Access) are still ongoing, due to constant objections from the big Telco's who are barging for more money, more restrictions on pricing and shorter contract terms.

The agreements with Telstra are crucial- they allow NBNCo. to sign a lease for accessing Telstra ducts, pits and exchange space for the next 35 years, at a cost of around $5.5 Billion. This is essential, so that NBNCo. DON'T have to dig holes and rip up driveways and paths (sound familiar....) and it saves them a bunch of money and time. They also allow NBNCo. to migrate customers off the Telstra copper and HFC (cable internet), 18 months after those areas are provided with live FTTH, ensuring the customer uptake is high without exception and maintaining NBNCo's business case which will allow it to service its' loans and thereby not costing the taxpayer by using bonds to borrow the capital. This part comes at a cost of $4 Billion over 8 years. The final piece is about USO (Universal Service Obligations) of Telstra to the government to maintain Payphones, Emergency (000) Services, traffic lights etc. This doesn't directly impact NBNCo, but will in the future. This amounts to about $1.5 Billion. Total agreement cost, $11 Billion. But, the agreement has a clause- If Telstra has to sign this agreement, Optus must also sign a binding agreement to migrate customers off their HFC (cable internet).....more on this next post....

That hurdle is overcome and, as stated, is finally signed and sealed in December 2011 and implemented in March 2012 by Telstra shareholders (99.5% agree in fact....). However, in the mean time, there is an interim agreement that allows NBNCo to use Telstra ducts etc. to enable it to start trials.

Now, this is where things start to get a bit dicey in terms of timing. Do we count the schedule, released by NBNCo. in mid-2010, as part of the original Corporate Plan, as the beginning of the construction of the NBN? After all, they're putting in fibre to premises, signing satellite contracts, running wireless backhaul and planning towers. Or do we count it AFTER the trials have finished? After all, you can't very well rollout infrastructure for millions of customers without first trialling it in real-world scenarios? What if something doesn't work properly, or takes longer than expected? This is the point of trials.

Trials and Timing- Subjective or Objective

And here I suppose is the crux of the issue. NBNCo. are a government company who has a duty to provide the Australian people with the best, most cost-effective and fastest build possible. To go ahead, full steam after nothing more than on paper planning would be extremely reckless- Australia is a vast country and many factors in geography, existing infrastructure, housing types and so on could effect the rollout. These need to be analysed in a real-world rollout. Hence the trials. The first FTTH trials started to rollout in Tasmania, where a State NBN had already been planned and given to Aurora Energy and NBNCo. had tied up a deal to incorporate that into the NBN at large. That saw the first fibre trials rolled out in 2010 by Aurora  and after legislation was passed in early 2010, saw that come under NBNCo. jurisdiction. The trials were completed and the first services tested in mid-2011, modest as they were (several thousand premises were connected, a few hundred used the service). Several thousand are now connected since commercial services have been turned on, with tens of thousands now passed.

The next fibre trials, on mainland Australia were in Armidale, Kiama, Townsville, Wilunga and Brunswick. These covered varying geographies and societal differences. They were conducted from September 2011. Again, initial takeups of the service were small, but have now risen to many tens of % in several of the sites after commercial service was turned on, including to nearly 35% in Kiama. While this seems small in the overall scheme of things, takeups of 15% overseas in similar rollouts are considered excellent. Don't forget too, takeup is largely irrelevant because of the Telstra deal- all those on Telstra copper (most people) will be migrated automatically to the NBN after 18 months of receiving fibre in their area and the FAN being active. Therefore even small takeups of 20% now, will still result regardless, in 70-80% takeups in 2 years time.

In the meantime, satellite deals for NBNCo's "Interim Satellite Services", which see 6/1 services supplied over existing commercial satellites, were signed in May 2011 with Optus and IPStar and offered from July 1 2011. These services have much cheaper prices than normal commercial services (see SkyMesh and compare NBN Satellite with IPStar satellite plans) and much higher speeds, with much higher downloads. And the contention is managed on these satellite slots, meaning these NBN customers continue to receive higher speeds when in peak times, on the same satellites. Once NBNCo. launch their own satellites, by 2015, there will be 90Gbps shared between 300 000 premises. This seems low; after all, if everyone were to download at full speed the entire time, it would result in 450Kbps maximum speed. However, the satellite area is so vast, the likelihood of even half these services downloading at full speed (12/1) at the same time is negligible. However, NBNCo. are also only predicting some 120 000 people to use these satellite services (see the new Corporate Plan), making contention even easier to manage.

The second mainland fibre trial sites partially skipped "trial" phase and instead switched on commercial services as soon as connected. These were done at 15 other locations and expanded 4 of the original locations in the trials, resulting in some 65 000 connections by April of 2012. However, reported takeup was only some 3700 actual services by then, on fibre.

Wireless trials were conducted from April this year, with a few hundred premises outside the fibre footprint of the trials in Armidale, being connected via NBNCo's fixed wireless LTE solution, for current speeds of 12/1. This was expanded to Toowoomba and Tamworth in June. There are a little over one thousand people on the NBNCo. wireless plans.

All these trials, as you can see, have been planeed, executed and spaced out according to the best ways to tackle the various geographies of Australia. The trials are now totally completed. Full commercial rollout of the NBN services, announced as part of the 3 Year Rollout plan in very late March this year (just after the Telstra agreement signed in December took effect in March), were to begin in July. Some 750 000 connections will be started or completed by the end of this year and 3.5 Million will be started or completed by 2015.

Why did I just go through, what may seem like, a giant advertisement for the work NBNCo. have done? Because it gives an indication of the sort of groundwork that has to be done for a rollout on this scale. It cannot be simply rolled out as soon as the numbers are crunched. Real-world numbers must be seen and compared to ensure the best outcome. And this is exactly what has happened as a result....

Blowout? or Blow hard?

So here we come to the point- is NBNCo. on time, on budget and prudent in their efficiency? Most of the mainstream media would have us think not- the term "blowout" was used in conjunction with the new Corporate Plan (2012-2015) announcement more times than I've seen it used in the 5 years previous....

The Australian: "Extra $3.2bn needed to fund NBN" (Google the Headline to get around the paywall..)

None of those are particularly positive for NBNCo. or the government. But let's have a look a bit more closely about what the new Corporate Plan actually says....

1- An extra 3.9% in Capex (Capital Expenditure) or $1.4 Billion
2- An extra $3.2 Billion in Opex (Operating Expenditure)
3- A slight dip in revenues of $0.6 Billion
4- Internal Rate of Return raising from 7% to 7.1%
5- 9 Month Start delay, compressing to 6 month end delay (Jun 2021 instead of Dec 2020)

Now, this all seems quite odd- NBNCo. appear to be spending more to build the network, more to operate the network, taking longer to build it AND receive less from customers, yet they will produce MORE return on investment?? Firstly, here's the mistake often overlooked by the media- the IRR of 7.1% is over 30 years. The Capex, Opex and Revenue forecasts are over 10 years. (till 2021)

Second, the start date was pushed back, but that doesn't actually mean it's taking longer to build. The total build time is actual 9 years 3 months (Mar 2012- Jun 2021) but it was supposed to begin in July 2011 and end in Dec 2020 (9.5 years). Primarily because of the Telstra Definitive agreement vote being pushed back to December 2011 and the agreement not becoming effective until March 2012, meaning NBNCo. could not access detailed information on ducting, current infrastructure condition and other detailed work offered through the Telstra deal, the start date for commercial (or volume) rollout was pushed back from Jul 2011 to Mar 2012.

3rd- let's have a closer look into that extra Capex and Opex:

Capex increases for 2 main separate reasons:

1- Build Drop- This is the method used by NBNCo. in predetermining and pre-building the lengths and connections of the fibre being rolled out through every street. Originally, NBNCo. were using a Demand Drop system, ie. The main local fibre would be run past all premises and then when the customer wanted (or was migrated to) an NBN connection, an NBN crew would then come out and connect the premises connection device (PCD) to the street fibre (the drop). Then the team would install the NTD and connect it to the PCD to have a full service operational by the end of the day for the customer to ring up an RSP and be connected.

Now however, NBNCo. have chosen the "Build Drop" method. This is where the drop to each premises and the PCD are installed AS the local fibre is rolled down the street past each premises. This means, when a customer wants an NBN service, 2 technicians simply come out with an NTD and connect it to the PCD and the customer is up and running. This technique saves on double work requirements (treading the same streets twice) and is expected to save NBNCo. money and time in the long run, while bringing forward some extra costs (speeding up customer connection time artificially with the Build Drop).

2- The Optus Agreement- This Agreement (which a clause built into the Telstra agreement required) was not assumed in the first Corporate Plan. This agreement has seen much debate, as it essentially pays Optus $800 Million to migrate its' internet customers off their HFC (cable internet) instead of letting NBNCo. slowly remove customers as natural speed improvements tempted customers to change to the NBN. It is a lot of money to pay Optus, especially when they are likely not to actually compete with the NBN anyway, however, the ACCC believed it was for the good of the NBN business case (and anything that increases the business case for the NBN increases the likelihood the NBN stays intact- the best outcome for the consumer) that this deal should be allowed. This requires NBNCo. to accelerate rollout in these areas to ensure it meets the guidelines of the agreement (all Optus HFC areas to be connected by 2018) thereby requiring NBNCo. to move forward Capex to cover this.

Several other increases in Capex included:

- Greenfields- NBNCo. must connect Greenfields even outside the current fibre footprint now, raising Capex costs to get fibre to these areas in the next few years.

- Network Distances- More accurate network data, available after the Telstra agreement came into affect, has caused the amount of fibre required to be increased after this data was analysed.

- MDU's (Multiple Dwelling Units)- NBNCo. had underestimated the Capex required to connect all MDU's with fibre

- Higher Labour costs.....don't think this needs much explanation.

Opex increased for several reasons:

1- Once again, the Optus deal, which will result in more customers being online on the NBN faster than originally planned, meaning higher Capex to deal with this (but also correspondingly higher Revenues).

2- The Telstra deal gave NBNCo. access to more dark fibre and exchanges than predicted, meaning Opex goes up for using these systems, but Capex goes down for not having to provision them separately.

3- Small extra requirements for IT and network interactions between NBNCo. and Telstra as well as with other RSP's.

Revenue decreases for 1 primary reason- The agreement NBNCo. made with RSP's in mid 2011 for a rebate on the first 150Mbps of CVC, before a POI reaches 30 000 connected customers. This erodes NBNCo's initial revenue takeup in each of the CSA's (Connectivity Serving Areas) until a critical limit is hit and all CVC has to be paid for. This can be seen on page 62 of the Corporate plan- you can see the CVC earnings are pushed back significantly, taking nearly 4 years to come back to initial predictions. This lowers overall revenue earned in the first 10 years (covered by the new Corporate Plan).

All this is pretty dry, but the point about all these things is, the major changes to the costs and thereby the explanation for the "blowout" (I don't like that word- I'd hardly call 4% or $900 Million a blowout when BHP just dumped $50 Billion on an investment a few weeks ago....) is quite clear and it is, primarily, due to changes in scope. Both the Optus deal (not part of the original Corporate Plan) and the New Developments requirements to connect all houses over 100 premises, rather than over 500, as NBNCo. originally budgeted for, soaks up 50% of the cost increases. Add the build drop for another 20-30% of the cost now, but less costs later. The 20-25% left (or 1% overall) in increased costs shows actually how close NBNCo. assumed and predicted many costs to be in its' original Plan. I don't know about you, but I think if my custom built house was to come in 1% over budget + 3% over budget for additions I made to it, I'd be pretty happy with that.... (remember that Opex increase is a move forward of costs from the Optus agreement. Those costs would always have been required, they're just required sooner rather than later when there is more Revenue to cover them)

NBNCo. appear to be doing a decent job of designing and rolling out a network over the past few years, that has constantly had its goal posts moved. Their original predictions about the costs within the scope they were given, was within about 2%. And the scope changes have added around 10% extra cost of 10 years, but much of that is clawed back through higher revenues and no longer required labour for the Demand Drop.

Is takeup relevant?

Well, I guess that depends on what you believe. Does it matter that people aren't jumping left, right and centre onto the NBN straight away? (although in some cases they are- see Kiama and Willunga takeups of 25% and 38% respectively) Not really- the Telstra deal, which the Coalition regularly overlook in explaining how uncaring people regard the NBN, requires that any FSA (Fibre Serving Area) that has full and active connections for its' coverage have ALL premises within its' footprint migrated to the NBN, off Telstra copper or HFC and now Optus HFC as well, within 18 months of commissioning.

This means, at an average of 12 months from beginning work on an FSA to completion (some will take 16 months, some will take 9 months) that within 2.5 years of a FSA being started, all ~40 000 premises connected in that FSA will be on the NBN. That's a 100% takeup rate of all fibre connected premises (a 70-80% total takeup rate once wireless only premises and vacant premises are taken into account, as they are in the Corporate Plan). There are dozens of FSA's finished each year during the rollout. This means, after an initial delay, there will be some 40 000 premises connected every few weeks. Regardless.

Don't agree with me about any of this? Comment away, or, come join me and others debating it over in the Whirlpool forums (Fighting the NBN FUD, 2012-2015 NBN Corporate Plan or the Coalition NBN Position are 3 threads many, including myself, frequent readily). Many analysts and tech journalists have said since the new Corporate Plan has emerged that now that NBNCo. is in full rollout mode, their predictions of takeup and spending should be judged from here on out. I think this is fairly reasonable- CEO of NBNCo. Mike Quigley said himself, along with Senator Stephen Conroy, that this is the first Operational Corporate Plan. The original was a Corporate Plan for a company starting up. But this new Corporate plan should be used to judge their performance over the next few years (new Plans will be released each year regardless).

So, NBNCo. have vaulted most of their hurdles and are now on the beginning of the 200m back straight. They're due to pickup speed over the next few months and years and we'll soon see, by June next year in fact, whether NBNCo. are capable of delivering. And if they are, what is going to happen at the next election in late 2013.....