Sunday, 27 May 2012

NBN Pricing- The myths and the facts

There's almost constant furore surrounding the NBN in mainstream AND net media these days. My previous post covering how mainstream media seems to unfairly portray the NBN in a constantly negative light shows quite clearly publications such as The Australian and the Daily Telegraph seem to have a mandate to ensure Australians are against the NBN. Recently, there's been any number of statements from Tony Abbott, leader of the Opposition, about how the NBN will bring financial doom to the average Australian. The last post I made about the NBN and the budget was about how the NBN is funded, but this post, I'll be talking about what its' pricing will be like for us, the consumer and how it will change from the current pricing strategy of the industry.

During the Reply to the Budget speech Mr. Abbott made, he was quoted as saying why "spend $50(1) billion on a National Broadband Network so customers can subsequently spend almost three times their current monthly fee for speeds they might not need?"

(1) He and other opponents to the NBN get this $50 Billion amount from a rounded up figure including total cost of the NBN ($37 Billion) + payments to Telstra and Optus over the next 10 years ($11 Billion). These are from 2 different funding locations and that also doesn't take into account that the government will only spend $28 Billion total as I've previously showed

Is this true? Will your average Australian end up paying considerably more for their current telecommunications needs under the NBN? In a word; no. Will Australians telecommunications spending increase over the coming years? Most likely, yes. But these are 2 separate issues, which Mr. Abbott has conveniently bundled together. Let's have a look.

Lifehacker Australia have a constantly updated article of NBN plans available across the telecommunications industry. From Telstra to Optus and Iinet, Exetel, Internode, iPrimus, any telco that has currently signed to provides services over the, as yet small NBN. But how do these plans compare to available plans? Let's have a look at iinet first, Australia's 3rd largest and widely accepted as one of our best ISP's in terms of customer service. Note: it is more than possible to still have a phone at home, but not pay line rental, using Naked Broadband. This is where you have ONLY a broadband connection and can use a VOIP (Voice Over Internet Protocol) enabled phone that plugs into your router/modem. This is often considerably cheaper than home phone calls + line rental and can save you money over standard setups. However there are bundles available for phone calls, line rental and broadband on most providers. I'm sticking with mainly JUST Broadband here, as it'll simplify things a bit. But there's savings from the NBN available when you take into account line rental as with normal copper services.

Their current offerings on ADSL2+ have 2 parts- On iinet network or off. The vast majority of people outside of cities will be off their network (and many in the cities). Those lucky enough to be in a location where iinet have DSLAM's (hardware in the local Telstra exchange) have a price and quota advantage, because iinet use their own hardware rather than hiring Telstra's. So, let's take a mid range plan, Home-2: 100GB quota, untimed (iinet used to do peak/off-peak on all plans, now only on off-net) and, being ADSL2+, up to 24Mbps, for $59.95 a month (the majority of houses are more than 2km from an exchange and are therefore limited in speeds, as I've explained before)

Off-net, the same plan, Home-2, will only get you 20GB data, shared 10GB peak, 10GB off-peak. If you want ADSL2+ speeds (or as close as you can get to them outside iinet's network) it's an extra $10, otherwise you're stuck at 1.5Mbps. As an example, I'm using their turbo pack and I get a peak of 9Mbps during off-peak times (after 12am, before 8am) although I can sometimes get speeds lower than 1Mbps. So now, instead of $59.95, it is $69.95, for the same plan, same speed (sort of) and lower quota. To get the same quota, you'd have to go up to their Home-3 plan, for $79.95 a month, plus the $10 to get above 1.5Mbps. And of course with BOTH these plans, you save money by bundling your phone or VOIP or both. So the equivalent plan OFF the network would be $89.95. (note, you can double this quota and add line rental for $89.90 a month, much better deal)

Needless to say, this is just ONE combination of countless available JUST on iinet, not including Business ADSL. The array is bewildering and quite often telco's rely on this to sell you something you don't need. Always shop around for the best deal and bundling options.

Now, let's take a look at iinet's NBN plans. There's not a direct quota comparison- they have 3 tiers of light (40Gb), medium (200Gb) and Heavy(1Tb), but we'll choose the medium for mid-range clarity. Then we have to choose a speed. The most popular speed chosen, according to NBN themselves at the moment, is 25Mbps down/5Mbps up (I'll be discussing the importance of uploads and the NBN next post) so let's go with that(2) . It also compares well with our mid-range ADSL2+ plans, as the maximum speeds you'll achieve on these would be 24Mbps (though unlikely). It is also unlikely you would achieve 25Mbps on your NBN plan all the time, but at least with the NBN, distance makes no difference, and you would receive much closer to 25Mbps more of the time. It is only iinet's bandwidth and servers which make a difference, not distance. So, moving on.
(2)Not anymore, Quigley (CEO of NBNCo.) just released details that show the highest proportion of the plans chosen by active premises, at 37% is, in fact, the 100/40Mbps plan....and apparently we don't WANT these speeds??...)

So, a medium quota of 200Gb (100Gb peak/100Gb off-peak) and 25Mbps speed plan. This will set you back $64.95 a month. If you want a home phone as well, across the NBN, it will cost you $9.95 a month to rent BoB2, iinet's all-in-one modem that provides broadband, WiFi, home phone, VOIP and an answering machine (home phone). So that's a total of $79.90 for the bundle. That's regardless of where you are on the NBN. (Note: you can have a home phone WITHOUT broadband on the NBN, just like on copper, contrary to some comments made)

So, for broadband only, $59.95 a month for those on iinet's network, with 100Gb, $64.95 a month for those on the NBN for 200Gb and $69.95 for those off iinet's network with 100Gb and all with comparable speeds. Some of all these plans have a $79.95 setup fee depending on your choices.

So....smack in the middle then. Remember, there is a tier in NBN plans lower than this, 12/1, which starts at $49.95 a month, available with your choice of quota and is likely to get you speeds still higher than many of the people on ADSL2+ plans, even on iinet's network. So....not much really there about more expensive, let alone 3 times more....

Ok, then what about you guys who don't use the internet much, you say? Right, let's look at a budget offering from Exetel, widely known for cheap Broadband. So Exetel's cheapest ADSL1 option (low speed, up to 8Mbps) is $37.50 a month, 75Gb of quota. Exetel's cheapest NBN plan is $35.00 a month. That gets you 12/1 speeds, with 50Gb a month quota, with a $100 setup fee. (fairly normal for all cheaper plans) We're assuming here you're not too fussed about speeds, as you only use it to check email, browse news a bit and maybe watch a youTube clip now and again.....but again, not exactly 3 times more expensive. In fact it's slightly cheaper, but once you take into account the added quota from the ADSL1 plan, you could make a case for basically the same cost.

Alright, what about us guys who are power users? Those of us who stream all our music, watch catchup TV regularly, play regular online games via Xbox, Playstation or PC, download numerous (legal of course) BitTorrent files and even watch a streamed movie or 2. Let's go to Internode. They're widely used currently by many power users, as they have large quotas for the best price (although they are somewhat homogenising with iinet after their takeover).

Let's assume here you can get Internode's network for ADSL2+, as these are the highest speeds available to the majority of Australian power users (we'll check cable in a minute). Let's also assume, being a power user, you use VOIP as your phone, so you don't need a home line connection (Naked DSL). This is the best possible combination for power users as line rental for them is a waste. Internode has a partnership to use Optus' own HFC network, which significantly extends its' reach too. So, their "easy Naked" plans go up to 300Gb at up to 24Mbps (ADSL2+) for $89.95, or, if you're a REAL heavy consumer of data, you can get 600Gb for $119.95 of 1200(!!)Gb for $149.95....but only on Internode's part of the network. Optus stops at 300Gb.

And the NBN plans? Well, if you choose the top tier speeds, 100/40, it's $94.95 for 300Gb, $114.95 for 600Gb and $164.95 for 1000Gb. So, here, the NBN is, 2/3 times, more expensive, mainly because the NBN pricing strategy, as outlined in their corporate plan, uses the top tiers to subsidise the bottom tiers to a certain extent in wholesale pricing and this is passed on it retail (this is fair enough when you think- power users are usually happy to pay more to get the best available). But say, you don't need 100Mbps yet (and few residential clients would, as yet), if you jump down a tier to 50/20, the prices are $84.95, $104.95 and $154.95 respectively for 300, 600 and 1000Gb. So 2 are cheaper and one is slightly more expensive, but you still get TWICE the available theoretical speeds over ADSL2+. And again this is everywhere the NBN will be available.

And finally, if you're lucky enough to be on Telstra or Optus Cable (HFC or Hybrid Fibre-Coaxial), you have a few options. If you're on Telstra's "Ultimate" cable (13 Digit account number apparently) you can get 500Gb for $99.95 at up to 100Mbps- sneakily they DON'T say, unless you click through the comparison, this is only if you have a full Telstra home line service, something that costs minimum $29.95, AND a 24 Month plan. So that means it's ACTUALLY $129.90 minimum for JUST the broadband on a casual basis. There are contention issues on Telstra's HFC cable, like on copper, so you're unlikely to get above 80Mbps peak and probably less in real-world usage.

On Optus? Optus have the better deal, as they offer Naked DSL on their HFC cable (no line rental required). For 500Gb (250 peak/250 off-peak) it is $79.99. Or you can take advantage of Optus' bundling, which they've always pushed, and get home phone, Broadband, with 1000Gb data and a free wifi modem (Telstra costs $299 for the modem) on their "Fusion" $129 plan....however...

There is actually no mention of speed at all on these plans. In fact, there is no mention ANYWHERE on Optus' broadband pages about speed- only a "Premium Speed Broadband" pack which mentions DOCSIS 3.0 as their speed upgrade option (this is the technology behind the theoretical 100Mbps HFC speeds) but not the actual speed it gives.

I was flabbergasted by this. They actually don't list it at all on their website as far as I can see (if anyone finds it on there, let me know) and I actually had to go to Whirlpool to find the speeds. This suggests Optus believes its customers either a) Don't WANT to know their possible speeds (unlikely for the VAST majority of people who want to compare plans) b) Are too dumb to know what the speed means or c) Can't guarantee even close to their stated speeds (which seems indicated by the Whirlpool information). So, if you're willing to deal with this sort of company attitude....their normal speeds appear to be 20Mbps on "Optus Direct" which is Optus' own copper network or 100Mbps on "Optus Cable", but you're unlikely to see anything close to these speeds in real-world use. Both of these service a minority of Australia (between 30 and 45%) between the 2 networks and cover much of the same ground as Telstra's HFC cable. Optus choose not to wholesale from Telstra's copper network unlike every other ISP.

So, there we have just a SMALL cross-section of the plans available now and on the NBN. In the budget stakes, the NBN price is slightly less, but with slightly less quota and similar speeds. In the mid-range, it's pretty much bang on par for price, slightly cheaper some tiers, slightly more in others, but with higher speeds and similar quota. In the high end, NBN offers slightly more expensive plans, but with much greater speed and slightly lower quotas. But certainly none of them "3 times more."

Because of the NBN's pricing structure (which is complicated and I won't go into on this post), it wants to incentivise the mid-range users, the majority of users, to move up the tiers, as it makes a higher rate of return on these tiers, offsetting the users on lower tiers. The power user isn't that much concerned with price, as they aren't now, and also subsidise the lower tiers with their pricing. But the pricing is hardly exorbitant. In most circumstances no more than $5-15 more a month.

Now, will Australians use more data and need higher speeds as we move into the future? Definitely, particularly when you look at all the content moving online, from streamed music to HD movies and catchup TV (and eventually probably broadcast TV). This will mean going higher up tiers to get better speeds (quotas generally increase or price decreases with the same quota on any given tier), which will subsequently increase the proportion of the weekly budget Australians spend on telecommunications; I don't see a problem with this. We are in an increasingly connected digital world and it is paying a larger and larger role in our lives. It is bound to consume more of our budget over time as it increasingly affects more parts of our life. But apparently Mr Abbott doesn't believe this is right, hence his "for speeds we don't really need" comment. I'm not going to speculate on his thinking here, but needless to say, it seems more like conjecture to me.....

He's also states "Why dig up every street when fibre to the node could more swiftly and more affordably deliver 21st century broadband?” he added. “Why put so much into the NBN when the same investment could more than duplicate the Pacific Highway, Sydney’s M5 and the road between Hobart and Launceston; build Sydney’s M4 East, the Melbourne Metro, and Brisbane’s Cross City Rail; plus upgrade Perth Airport and still leave about $10 billion for faster broadband?" See this Delimiter article for more.

I don't want to go much into this as this is getting too far into politics (bleh), but:

1) Where this idea of digging up the streets comes from I'm totally at a loss to explain (and the idea that FTTN would do it any less). NBNCo. have brokered a deal with Telstra called the Telstra Financial Heads Agreement. This agreement allows NBNCo. to use as many of Telstra's cable ducts and boxes as is practical, even stretching to pulling unnecessary copper out to make room, so that NBNCo. doesn't HAVE to dig up streets. Where this is not possible (such as portions of where I live in the Southern Highlands) they will be running the cables on power poles.

This is a picture I took of the install on a street in Kiama Downs. I have a good friend there. This is a main junction point for individual fibres to/from houses. These are on about every 2 or 3 poles and the slightly thicker black wire you can see (running out top to bottom of pic) under the main cables above, is the actual NBN fibre...this is hardly obtrusive and NBNCo. have committed to using existing poles in communities and only these cables for aerial deployment if required.

2)While it is true the funding (government equity debt) could be used for other infrastructure projects....that's not likely. The reason the NBN is such a good plan is that it will make a return on its' investment, meaning after 35 years the government will be MAKING money off the NBN. If they were instead to use it to duplicate the Pacific Highway? The M5? Brisbane Cross City Rail? They're not likely to make money back on this. At best, if they put tolls on them, they might pay for 50% of the project. And we ALL want more tolls don't we....

I believe it is clear that the pricing structure of NBN retail plans available for Australians is competitive and will continue to be so. Statements like that of Mr. Abbott's in the Reply to the Budget Speech, televised nationwide, bring massive amounts of confusion, half-truths and just plain falsities to the NBN debate. At the risk of politicising slightly, this seems to be the aim of the Opposition- the harder the fact is to sift from fiction, the more likely people won't look into it...

Friday, 11 May 2012

The NBN and The Budget- Professional relationship or Hanky Panky in the Boardoom?

So, we're back around to that time of year again- The Budget.

A time of year when all those businessmen with Blackberries (well, iPhones these days, after RIM seems to be bleeding users) on your commute suddenly start scrabbling through last years forecasts, delving into their already stretched briefcases for that tax analysis- Was it based on last year's company tax, or next year's?.....

For the average commuter, The Budget most likely doesn't win over from NCIS or Biggest Loser, or it may be quietly in the background, while you await this years tax cuts/hikes and Family Benefit changes. Sometimes a quick glance at the paper the Wednesday morning following to confirm, yes, that $10.15 you save every week NOT buying a morning coffee now, has just been shunted in to the governments coffers, most likely to give a few extra dollars to that lazy burk over the back fence who only ever leaves the house to buy more pizza and coke and blinks uncertainly at the sun everytime he does. Lazy good-for-nothing.....mumble.....mumble........

The majority of Australians look on The Budget as something akin to your year 8 history class- Interesting during highlights at the beginning, BONE WRENCHINGLY dull during the majority of the explanation and with very few interesting questions asked at the end. And inevitable; it ALWAYS happens. (why couldn't Mr. Merz be sick today???)

This years Budget appears quite friendly in general- some shuffling of tax thresholds, company taxes and some putting off of some payment or another to sure up the small surplus we were "promised." By now most people have accepted the changes the Carbon Tax will bring, even if they still disagree, and the Budget showed little in the way of surprises, except that some of the compensation wasn't really compensation- it was anti-compensation, such as tax hikes being pushed back so we don't lose MORE money.

But more interesting this year, to us tech-heads anyway, has been the Budget's relationship with the NBN. Actually, to be fair, The Budget, as an expense, doesn't have a close relationship to the NBN- The Budget is about spending; the NBN is a capital expense and so it doesn't show up as spending in The Budget. Ah.....

And of course this is where it gets interesting. The NBN is not a Budget expense; it is considered a piece of infrastructure and an INVESTMENT and is destined to make a modest return, so it remains "Off-Budget", even though the government will spend $5.8 Billion dollars on it this year alone (broken up between payments to Telstra and funding to NBNCo directly). But wait! Does this not mean we actually have a....d.....dd...... DEFICIT.....shudders....

Enter the Coalition- This is the line they have been spruicking  for the past year or more. The NBN SHOULD NOT be Off-Budget, it is a government expense and should be treated as such.....oh and look (evil maniacal grin) it means we have a Deficit now, after Labor PROMISED you it would have a surplus!!

Leaving aside the "Deficit we were meant to have" is this a valid point? Have Labor "cooked-the-books" in removing the NBN from The Budget in order to make the garbage pile smell and look like potpourri? According to the Australian Parliamentary Library, no.

Study notes recently published found that, according to accepted international standard accounting measures, the NBN should NOT be counted as an expense in The Budget, as it is a government investment (it will eventually turn a profit and provide a modest return for The Government of the day). This seems logical- Should a company, such as Telstra, decide it wants to build a new fibre network in Brisbane (as it's recently done), any costs related to the planning, implementation and construction of the new fibre network would not appear on the Annual Statement as expenses. They would appear as capital expenditure, as Telstra is investing in an asset they have reasonably assumed will give them a revenue stream in the future. This is standard practice in business and is not at all "under the table" or "below the radar". Yes, the books appear healthier in terms of expenditure for the year, but the money has still been spent, it is just considered an investment, not a day-to-day expense. And before you argue, this IS a business case- NBNCo is a wholly owned company of the Australian Government, funded by the Government, so they are constrained by business ethics and laws.

Why then the brew-ha-ha? Well, as I've explained in a previous post the NBN is funded by government debt. The Government issues bonds, which entities buy and the Government pays interest on them as they mature. This money usually goes towards infrastructure such as roads, rail, ports etc. In this case, telecommunications infrastructure. This is very different to government expenses, such as Health, Welfare, Defence and so-on; these are yearly expenses, that are reshuffled and re-evaluated every year, sometimes multiple times. Their primary funding comes from taxes, both Income and Company taxes, as well as GST, Sales taxes, Import taxes, Stamp Duty etc. These taxes are fluid- the forecast GST intake dropped significantly this year to $50.4 Billion for 2012-2013, $3.8 Billion down on last year (WAToday) mainly due to customer spending reduction thanks to the European crisis and other instabilities, such as a slowdown in construction. As such, both Federal and State Budgets often have to be tweaked to allow for these changing revenue streams. It is unwise to allow this to happen to infrastructure spending, as changing amounts of spending at a critical point in the project can end up costing much more due to changes, contracts and inefficiencies. As such, infrastructure money is usually agreed on beforehand and funded from a location where it can have constant cash flow, such as government loans.

All in all, the NBN being funded by National Debt is sensible, normal, rational and reasonable- but this doesn't sit well with the Coalition. They see themselves as the best economic managers for the country (and by past records, they have a claim to that title) but their competing Broadband Initiative, as we've looked at, would be (almost certainly) On-Budget, mainly consisting of subsidies to private companies to increase their fibre rollouts and inferior besides. So the Coalition have been issuing constant streams of negativity and baffling condemnation of NBN spending and funding in the hope the average Australian will believe the NBN is another taxpayer waste, like The Insulation Scheme (poorly handled, but largely cause by greed, not government inefficiency) or the Carbon Tax (jury's still out).

Alot of the statements from Tony Abbot these days are bordering on propaganda when it comes to the NBN. I'm not a political analyst and I'm not really interested in discussing his political tactics here, but suffice to say, this is hurting Labor, but it's also hurting, more importantly, the NBN and the Coalition too. It is perfectly reasonable for the NBN to be funded in the way it is being funded; this should not be an issue politically. Any decent business analyst will tell you there are sound reasons behind the servicing of government debt and infrastructure, but the Coalition seems to have become deaf, blind (certainly not dumb- the stream from both parties is almost constant!) and immovable to the idea that the NBN is possibly a decent proposal that should have bi-partisan support.

Friday, 4 May 2012

....and after our break

Work keeps the best of us busy. Going overseas for work runs you off your feet. However, I plan on covering a number of topics shortly. I have some personal pics of the NBN install in Kiama Downs (for those who don't know what the installations will look like) and I plan on looking at the impact the NBN will have on our daily lives in detail. I'm also going to discuss the rise of "mobile broadband" and what it means in a world of the NBN.

As always, any comments about what you've read hear, or elsewhere, or questions and discussions are welcome. The more we talk about it, the more information is passed on, which has been a major problem for the NBN all along.