Counting the cost of the Coalition's hybrid NBN

The Coalition's promise of a cheaper NBN may seem like a good political move but it's bound to backfire unless Turnbull is willing to share detailed costings and deployment plans with the public.

The Coalition's mooted NBN policy continues to be a source of healthy speculation and while there are still more questions than answers about what lies in store it's clear that the basis of the silence is now more political than technical.

While everyone else is asking for certainty and "guarantees", the politicians are sticking to their tried and tested policy of avoiding making any binding statements and clearly differentiate themselves "from the other guys" in the mind of the voters

Last week the shadow communications minister answered some questions posed to him and his answers at least underline that the NBN is now part of Coalition policy, perhaps even a "core promise". 

One important facet of the responses, for me, was that Turnbull has removed any misconception about the need for an additional entity for Telstra to transfer its copper distribution network to build an Fibre-to-the-Node (FTTN) network. 

The SSU (Structural Separation Understanding) already covers this and for now we will have to assume that Telstra won't have any problems working out a mutually beneficial deal with the Coalition.

FTTN details missing in action

The Coalition is however adamant about reviving the HFC networks and I am also not entirely convinced by his reply to my question about "detailed FTTN deployment plans". 

I read Turnbull's reply as "NBN Co won't have to do much design". But while the digging plan might be substantially the same, the implementation details, materials/equipment sourcing and contractors are entirely different.

The subtext here is that I may have been quite wrong in inferring the Coalition has detailed deployment plans necessary for detailed costing and estimates.

As a politician, especially before the election campaign, Turnbull cannot offer binding answers on a range of questions that are important to us as users of internet access services:

  • Will he offer any performance, availability or pricing guarantees on his Hybrid-NBN to the electorate?
    • If I was living outside Tenterfield, I'd be wondering if I'd ever see a high-speed, low-latency Internet connection.
  • Will his hybrid-NBN have a lower total capex and opex over 25 years compared to a pure-play FTTP NBN?
  • When will the network be substantially converted to Fibre?
    • 25 years? 50 years? Never in the foreseeable future?

There are three elements to the Turnbull/Coalition NBN promise that, before the election, need to spelled-out in fine detail:

  • sooner
  • cheaper and
  • more affordably for users

"Cheaper" is the classic "wriggle room" statement but is that enough?

Focusing on price makes a lot of sense if that is the public’s sole criteria of merit for a product or service. The trouble with offering anything for sale to the general public is that there are many incompatible attitudes to money and criteria used to judge "merit".

For some it boils down to price, while other are willing to queue for days to get highest quality or latest functionality. Then there is the peer group conformance which drives many to have the same gadgets and services as their friends.

However, most people appreciate "value for money". This is why many products come in three price points: the very cheap "poverty pack", the expensive "luxury edition" with all bells and whistles and the mid-price, good value model that's 90 per cent of the function for 70 per cent of the cost. My unease is with Mr Turnbull's value proposition.

This is a political policy that must be sold to the electorate, and all he's got to differentiate on is price. The public is going to behave like purchasers: with no one common criteria and conflicting definitions of "best".

Labor has already taken the "high ground" with fibre everywhere: the latest functionality and "best" quality. Leaving the Coalition to look at price as their "product differentiator".

And there's the rub, the FttN is an unknown amount cheaper, but significantly lower performance. We already know a small percentage of the population are sold by 'cheaper' and this segment probably cancelled out by the "luxury model" folk. That is unless you live in the bush and have to use dial-up and satellite. So it's likely that the central group, the "value for money" deciders, will swing this.

The question becomes: What value proposition will the middle group see? 

A false value proposition

Here are a few things they should consider.

While FttN is the last evolution possible with the copper network fibre optic, commercially introduced here in 1988, is a solid technology at the beginning of its lifecycle.

Fibre starts with a guaranteed speed 2-5 times that's possible with FttN's VDSL for the majority of homes at more than 65 per cent of the maximum distance. 

There is no guarantee that the 70,000 new "nodes" needed to be rolled out for the FttN will be 2-5 times cheaper than the Fibre-to-the-Home (FttH) network. The price of the network termination in the home will be roughly the same. The existing ~8500 RIM/CMUX units serve many times more than the ~100 lines that each VDSL node would serve, and the maximum cable distance is two times too far. Transact installed pretty much this technology (small VDSL nodes) but much better cable, "cat-5" around a decade ago.

But the best Turnbull can say about the price of the FttN is "we'll see". His only hope of selling the FttN to the value-for-money group is to have detailed costing, which means detailed deployment plans. But so far what we have is the vision of a hybrid-NBN of mainly FttN with HFC, wireless and some fibre.

For 60 per cent or more of the capital cost we'll get 20 to 50 per cent of the performance, with no upgrade path except complete replacement with full fibre.

The clincher for me is that while a VDSL-FTTN will be, as I've said previously, better than what I have now. It won't be value-for-money, especially because it's obsolete when built and will need full replacement in 2020-2030. Building a VDSL-FTTN means all its costs have to be fully recovered in just 10-12 years. That makes depreciation the most expensive operational cost of this solution.

Who gets to pay to dig up all the copper and remove the nodes and their conduits etc?

That designed-in removal, disposal and conversion cost from VDSL-FTTN to full fibre has to be paid for, by the subscribers. 

The hybrid NBN is almost certainly going to be a stop-gap measure and an expensive one at that.

Turnbull may be able to deliver a sort-of NBN "sooner and cheaper", but without detailed costing of this deployment and estimates of a full fibre replacement, he cannot assert "more affordably".

He might hope this is true, but can't guarantee it, and his VDSL-FTTN won't be considered value-for-money by the majority of consumers.

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