Can Australia afford the Coalition's NBN?

The Conversation

Consumers know well that buying a cheaper product often costs more in the long term when the cheaper product has to be replaced. This is true of the Coalition’s vision for the National Broadband Network (NBN): it may cost less in the short term, but not in the long term.

The Coalition will save around $14.6 billion by replacing Labor’s fibre-to-the-premises (FTTP) version of the NBN – which, as the name suggests, delivers fibre optic cable to directly to premises – with a cheaper, fibre-to-the-node (FTTN) alternative, which involves delivering optical fibre to a shared 'cabinet' (or node), then connecting the cabinet to residential and business premises using existing copper telephone wires.

But careful analysis of the details of the Coalition's NBN policy shows its FTTN network does not provide good value for money.

As the Coalition is quick to point out, fibre-to-the-node technology is used in many parts of the world, but there are some major differences between the Coalition's NBN business model and the model being used by overseas operators.

One difference is that Telstra owns the existing copper network, over which the FTTN technology will operate. In overseas deployments of FTTN, the company deploying the entire network is typically the incumbent operator that owns the copper network.

Deploying FTTN is clearly a good alternative for these companies because it enables them to extract as much value as possible out of the copper network before it inevitably becomes obsolete.

Unlike FTTN deployments elsewhere in the world, the Coalition’s business model requires that a full commercial price be paid for access to the copper network. The Coalition hopes it will obtain access for the same amount NBN Co has agreed to pay for access to Telstra’s ducts and pits ($11 billion).

That comes to approximately $1000 per premises, and pushes the Coalition’s NBN cost up to about $29.7 billion, or about $2320 per premises. It will likely be the most expensive FTTN deployment anywhere in the world.

What will the Coalition get in return for its $11 billion? It certainly won’t be a shiny new Ferrari – rather, a rusty FJ Holden that requires constant maintenance, love and attention to keep it running.

Telstra has not disclosed the details, but there is anecdotal evidence maintenance costs for the ageing copper network could be as high as $1 billion a year. Added to that, parts of the copper network will require remediation because very high bit-rate DSL (VDSL) technology – which will be used in the Coalition’s network to send data over the telephone wires from the node to the premises – does not always work well over an aged copper network, with problems such as:

• intermittent degradation due to water ingress
• poor wiring
• old technology fixes such as bridge taps and pair gains, which degrade performance.

While no one (including Telstra) knows how much it will cost to remediate the copper network to make it VDSL-capable, the cost is likely to be a significant hit on top of the $1 billion-a-year ongoing maintenance costs.

Facilities-based competition

Another problem with the Coalition’s policy is that it permits facilities-based competition – whereby multiple providers of internet connectivity can connect customers via competing parallel networks. An example of facilities-based competition is the parallel hybrid-fibre-coaxial (HFC) networks owned by Telstra and Optus that run alongside each other on the power poles in many suburban streets in Sydney and Melbourne.

Facilities-based competition might seem like a good idea on the surface, but could have serious implications for the cost to the taxpayer.

It would mean Telstra would be permitted to compete with the Coalition’s FTTN NBN using Telstra’s HFC network and any other parallel network that Telstra, other companies, or state and local governments could build in the future.

Those competing networks will be able to cherry-pick customers in more profitable areas, such as densely-populated inner city precincts, while outer suburbs and regional areas will pay more for access.

In short, facilities-based competition could seriously undermine the NBN business model, which is calibrated to provide a rate of return that enables the NBN to be 'off budget'. Facilities-based competition might be an attractive proposition for Foxtel, News Corp or Telstra, who could do very nicely from a cherry-picked business, while taxpayers help to ensure that the remainder of the country receives a good broadband service.

Special challenges

At a technology level, the Coalition’s particular approach to FTTN brings a number of special challenges that are likely to be expensive.

The Coalition is offering a 'fibre on demand' option to customers who need higher bandwidth than can be provided by the standard FTTN network. Fibre will be laid between the node and the customer’s premises on a case-by-case basis with the cost borne by the customer. But under this model there will be extra costs that NBN Co will incur.

Extra space will need to be reserved in the node cabinets to terminate the fibres and connect them to the exchange. In essence, there will be two parallel networks housed in the one cabinet. In addition, the cabinets will need to contain equipment that provides telephone connectivity to each home. This equipment is located in the home in an FTTP network, but will most likely reside in the node in the Coalition’s network.

The Coalition has made much of the fact that many households are moving to wireless-only broadband access, and doing away with fixed broadband connections. In order to keep up with this increasing demand for capacity on the wireless network, wireless operators are being forced to install large numbers of small wireless base stations, and to connect these base stations to the internet via fibre.

Labor’s FTTP network will provide the necessary infrastructure for this expected expansion of the wireless network, but the Coalition’s lower-cost FTTN network will not.

Will the Coalition’s NBN provide value for money? Compared with Labor’s FTTP NBN, which will be easily upgradeable to ultra-broadband capacity when new applications come online, the Coalition’s FTTN NBN is a short-term, limited-bandwidth solution.

At a whopping two-thirds of the cost of the vastly-superior FTTP NBN, the Coalition’s NBN stacks up as waste of money.

Further reading:
Labor and Coalition broadband policies – what’s the difference?
News Corp Australia vs the NBN – is it really all about Foxtel?
FactCheck: will regional internet users pay more under the Coalition’s NBN plan?

Rod Tucker's research is financially supported by the Australian Research Council, Alcatel-Lucent, and the Victorian Government. The Institute for a Broadband-Enabled Society has received cash and in kind support from a range of companies including Optus, NBNCo, Ericsson, Microsoft, Cisco and Google, through its industry partner program and research collaborations. This article was originally published at The Conversation. Read the original article.