The year the NBN stood still

It's been a year of significant outcomes for the National Broadband Network (NBN) and there's no doubt that Communications Minister Malcolm Turnbull will be revelling in the pyrrhic victories he has secured this year. 

As the minister responsible for altering the course of one of the most significant transformations of a national infrastructure project in modern history, Turnbull has no shortage of critics. But Turnbull is about to cap off 2014 with the deals with Telstra and Optus finally on the table and the last rites read on Labor's NBN dream.

Since taking office in September 2013, Turnbull has been actively propagating the message of the multi-technology mix (MTM) NBN being a far better idea than a project that would have provided the majority of Australians with a single world leading access network technology.

A second-rate technology template

Business leaders and engineers were happy to see that finally here was a minister in Canberra that understood that frequent minor upgrades to a broader range of older access network technologies would lead to a steady increase in revenue and profits for vendors and construction companies over coming decades; and this in turn would ensure the ongoing frequent NBN rollouts would be a major source of employment for decades to come.

That confidence is not shared by all, especially those who are to be consigned to a second-rate technological solution, but that's unlikely to trouble the minister.

But it might be worth mentioning that internationally 2014 has been a shocker of a year for UK's BT, which has been quoted on many occasions by Turnbull as a paragon of virtue when it comes to fibre-to-the node (FTTN) rollout.

Turnbull who often highlights the UK as an example of why Australia needs FTTN might be surprised to learn that in the Telegraph on December 9 an index prepared by a broadband provider Hyperoptic ranked London 26 out of 33 major European cities for broadband speeds, with an average download broadband speed of only 26.3 Mbps.

According to Karin Ahl, president of the Fibre To The Home Council (FTTH) Europe, “these findings are in line with those of the FTTH Council Europe market panorama. The UK does not appear in the FTTH Ranking because, with only 0.09pc of British homes subscribing to FTTH/B at year-end 2013, the country has not yet reached the 1pc threshold.”

"FTTH is the only future-proof way to build broadband access networks, and it is our strongly held view that the socio-economic impact of fibre broadband justifies the investment. Governments need to make the right decisions for the future, not ones based on the past, in order to build it once, and build it right.”

Make of that what you will, but the BT experience isn't exactly the template we should all be aspiring to.

That aside, there has been a lot of remedial work carried out inside NBN Co in 2014.

Switkowski, Morrow clean house

A key activity for NBN Co chairman Dr Ziggy Switkowski and CEO Bill Morrow in 2014 has been to reorganise NBN Co and fill key positions vacated after the management team shakeup. Key appointments included CTO Dennis Steiger and CFO Stephen Rue who joined COO Greg Adcock and head of strategy and transformation JB Rousselot.

NBN Co's reorganisation provided an opportunity to complete an overhaul of management practices, streamline and improve relationships with construction partners, complete the transition to the MTM NBN and introduce access network technology divisions.

The HFC division under Steiger's control was formed in October to transition the Telstra and Optus HFC networks into a single HFC network connected to the NBN. Steiger, who has extensive international experience with HFC networks, will be overseeing the connection of 3-4 million premises to the NBN which will be a significant and much needed boost to rollout numbers before the next Federal election.

NBN Co told Business Spectator that major outcomes in 2014 include:

• Since the start of the year, NBN Co has doubled the number of homes and businesses able to order an NBN service – from around 330,000 to more than 670,000.
• We have also more than doubled the number of homes and businesses connected to the network from 130,759 to 309,562 premises as at 4 December 2014.
• The year was also marked by the first communities to complete the transition to the NBN from the existing infrastructure – the first upgrade of its kind in more than 100 years.
• NBN Co released an indicative view of scheduled construction work  of the next 1.9 million homes and businesses across more than 400 cities, suburbs and towns were work is set to begin between now and June 2016 - this was the first plan to reflect the company's new, flexible multi-technology approach and an important step toward reaching its goal of 8 million connections to the NBN by 2020.
• These achievements are a result of hardworking contractors, partners and our highly motivated teams. We are well placed to continue this growth in the year to come.

The NBN rollout commenced its fourth year in 2014 and the fixed access network progress was steady while the fixed wireless rollout progress has been a major success story for NBN Co and Ericcsson. Behind the scenes NBN Co has been working steadily to prepare infrastructure and systems for the two satellites which are scheduled for launch in late 2015.

The MTM challenge is just getting started

The transition to the MTM is a major challenge for NBN Co's engineers and to ensure that the MTM rollout can commence in earnest in early 2015 a number of trials have been carried out in regions around Australia. NBN Co commenced a major FTTN trial in July in partnership with Telstra that will see 1000 nodes deployed and 206,000 premises connected to the NBN over about twelve months.

Improvements to technologies and construction identified and tested using rollout trials have contributed to a significant reduction in rollout costs and the time taken to complete a rollout area. As a guest of NBN Co, I had the opportunity to visit several rollout sites in 2014 and it was encouraging to see the enthusiasm and endeavour displayed by the rollout crews.

The cost of rolling out fibre past premises has been slowly coming down from an initial cost of more than $2000 per connection to about $1200 per connection as highlighted in the Melton FTTP trial results tabled in the Senate in early October.

Another major achievement in 2014 for NBN Co's construction partners has been a reduction inthe time taken to complete the FTTP rollout in an area,  from more than a year to about nine months, and it's anticipated that as the rollout continues the construction time will be further reduced.

An improved automated geospatial construction management process called RENDER, developed by a former NBN Co engineer, was successfully used in the Melton FTTP rollout trial and it will be through this and other Australian innovations that NBN Co's task of completing the largest national infrastructure project will made easier.

NBN Co has had to deal with external challenges in 2014 and the most significant was the announcement by TPG that it would commence a FTTB rollout to about 500,000 premises in multi-dwelling buildings located in high value inner urban areas. NBN Co is expected to fast track FTTB rollouts to premises in multi-dwelling buildings commencing in early 2015 to head off this challenge to NBN Co's bottom line.

Reviews, audits and everything in between

It's hard to keep count of the NBN related reviews and audits carried out by the government's hand-picked teams in an effort to create the “facts” that underpin the rationale to kill Labor's NBN and head off debate about the technical suitability of the Coalition's policy.

Turnbull, the lead character in a real-life version of BBC's “Yes Minister”, has unwittingly provided more than enough justification that the MTM NBN will become a source of international ridicule for decades to come and sadly leave Australia languishing behind our competitors in the race to become major participants in the global digital economy.

But that's not to say that the government has failed to address all of the underlying long-term problems faced by the telecommunications industry. As precursor to the Telstra deal, the government has released a very positive policy paper outlining a roadmap for telecommunications regulatory and structural reform including a response to the recommendations of the cost-benefit analysis of broadband and review of regulation, led by Dr Michael Vertigan AC.

The key policy reforms identified by the government include:

• a phased implementation process that will deliver a more competitively-neutral market structure long term;
• requiring networks competing with NBN Co to offer wholesale services on a non-discriminatory structurally separated basis;
• legislating that NBN Co be the infrastructure provider of last resort;
• replacing NBN Co's policy of uniform national wholesale pricing with pricing flexibility and price capping;
• a competitively neutral industry contribution mechanism to fund NBN Co's fixed wireless and satellite services long term, replacing NBN Co's internal cross subsidies;
• fostering competition in new developments by allowing NBN Co to charge developers for telecommunications infrastructure;
• requiring NBN Co to have separate accounting, and subject to review, separable corporate systems, for its key technology platforms; and
• fine-tuning of the regulatory framework

The key recommendations include separating NBN Co into technology divisions that might be sold off separately at a time when it is deemed appropriate to privatise NBN Co and the use of an industry levy, similar to the current universal service levy, to fund the fixed wireless and satellite services for regional and remote Australia to replace NBN Co's internal subsidy.

The Competitive Carriers Coalition (CCC), which is an industry association that represents the interests of non-dominant telecommunication carriers, welcomed the government's “measured response to the Vertigan review, which reduces the risk of further uncertainty and delay in the development or a sustainably competitive communications market.”

The CCC's support for most decisions to be deferred until the NBN has “actually been built” provides a key assessment that should be supported by the entire telecommunications industry that NBN Co must be permitted to get on with the job of completing the NBN with some certainty.

Another key government recommendation supported by the CCC was the decision for discriminatory practices by NBN Co to be prevented. “Calls for the removal of non-discrimination rules requiring NBN Co to treat all its customers equally were friendless in the competitive industry, and NBN Co never made a persuasive case to explain the need.  The Government's decision not to remove these obligations should put the argument to bed.”

CCC chairman Matt Healy said that “a compromise that specifically addresses NBN Co's claims that the non-discrimination rules make it difficult to conducts trials and pilots is sensible.”

The requirement for companies offering access networks competing with NBN Co to offer wholesale services on a non-discriminatory structurally separated basis is according to the CCC “a core policy principle [that] gives crucial certainty to the industry.”

Early monetisation strategy

Opening up NBN Co's fixed wireless towers and backhaul capability to mobile cellular operators in early 2014 was a positive step along the pathway towards a more aggressive monetisation strategy that will take NBN Co beyond providing wholesale broadband connections to premises.

NBN Co has a way to go before other monetisation opportunities are fully realised but the list of possibilities is long, including offering wholesale products based on satellite, fixed and mobile wireless, Wi-Fi and other technologies that can be used to connect planes, trains, boats, vehicles and the “Internet of Things” to the NBN.

After nearly 15 months of effort the NBN Co agreements with Telstra and Optus have been renegotiated and new agreements put before Cabinet for approval. With the government's blessing in coming days the renegotiated agreements will be signed-off and released at the start of the holiday season, meaning it will be more than two months before the Senate Select Committee on the National Broadband Network will have an opportunity to scrutinise the deals.

For NBN Co 2014 couldn't end fast enough and while there has been some noteworthy progress, the year will be mainly remembered as one in which the the NBN stood still. But despite the concessions made to Telstra and Optus, NBN Co is at least in a better position than it found itself at the beginning of the year.

However, for the government and particularly Turnbull, who is destined to be remembered as Telstra's Alan Bond, 2014 will be remembered as the year that the government took a wrong turn and consigned Australia to the broadband back blocks.

Mark Gregory is a Senior Lecturer in the School of Electrical and Computer Engineering at RMIT University.