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News, Telecommunications - Written by Renai LeMay on Tuesday, September 11, 2012 12:59 - 76 Comments
Turnbull ignores FTTN cost issue
news Shadow Communications Minister Malcolm Turnbull has avoided responding directly to a claim by NBN Co chairman Harrison Young yesterday that the Coalition’s fibre to the node-based broadband policy could end up costing more than the current fibre to the home-based NBN.
The Federal Government’s NBN project currently focuses on a so-called fibre to the home rollout style, which will see Telstra’s copper network decommissioned and fibre deployed all the way to homes and business premises. However, the Coalition has proposed to acquire portions of Telstra’s copper network and deploy fibre only part of the way to premises. This is a style which is popular in some countries internationally, such as the United Kingdom.
In a speech yesterday to a lunch held by the Committee for the Economic Development of Australia, Young claimed that the Coalition’s policy of delivering NBN cost savings by using fibre to the node technology wouldn’t necessarily save money, and wouldn’t actually meet the objective of structurally separating Telstra either.
“… the prospective cost savings of fibre to the node depend on what time frame you look at,” he said. “Maintaining the copper that connects node to premise is expensive. Coping with legacy IT is expensive. The total system cost of fibre to the node is higher than its front-end cost. The same is true of fibre to the premise, but less so. The apparent cost advantage of fibre to the node decreases as you lengthen the time frame you look at. In the long run, as Keynes famously said, we are all dead. Estimating costs is an engineering problem. Deciding on the relevant time frame is a policy question.”
Most media outlets which reported Young’s speech yesterday chose to focus directly on the cost issue as it was the most controversial aspect of the speech, and Young’s comments ran against traditional thinking in the telecommunications industry. Up until now, most telecommunications industry commentators have consistently stated that FTTN-based broadband deployments would in general soak up less costs in general than similar FTTH-based builds, although some have highlighted a potential higher long-term maintenance cost associated with the copper portions of a FTTN network.
Following the speech, Turnbull published an extensive reply to Young’s comments on his website. However, in the reply Turnbull did not respond to Young’s claim with regard to the cost of a FTTN-based NBN build, as opposed to a FTTH build.
Instead, Turnbull chose to focus exclusively on other aspects of Young’s speech, such as the issue of whether last mile telecommunications infrastructure was a natural monopoly, and whether a fibre to the node-style rollout would meet the goal of structurally separating Telstra’s wholesale and retail operations. Turnbull also discussed the issue of cross-subsidisation of broadband between city and rural areas.
The issue of the cost of the NBN project continues to be one of the most contentious issues associated with the project.
Turnbull and other senior Coalition figures have consistently referred to what they see as an unreasonable cost associated with the NBN. For example, Turnbull yesterday said: “Our criticism of the NBN is focused on the vast expense of its solution and the decade or more that it will take for the NBN to be provided in all parts of Australia. That cost and delay is in large measure due to the decision to deploy FTTP to 93 per cent of premises, although it also increasingly appears to reflect NBN Co’s sheer incompetence and inability to deliver such a huge project in a timely manner.”
In a separate interview published by The Beast magazine last week, Turnbull said with respect to the Coalition’s rival NBN policy:
“What we will do is we will complete the build of the NBN and we will do it sooner and we’ll do it cheaper and it will be more affordable. In large part the reason we’ll do it that way is because we won’t do fibre to every house, we will bring the fibre further into the field and hook it up to the legacy copper so that the length of the copper is short enough to enable you to run very high speeds — 50, 80 megabits per second — more than sufficient for domestic purposes. The bulk of the cost of this network is in the last mile, as it were, and it’s all in the civil works, not in the gear. It’s just in the labour. So we would save an enormous amount of money.”
However, many commentators consider it to be misleading for Turnbull to focus only on the cost of the FTTH NBN build alone, and not its return. The cost of building the NBN is not an expense as generally understood, but is actually an investment expected to generate (according to NBN Co’s corporate plan) a modest return of 7.1 percent on the Government’s investment, over the period through to 2030.
In comparison, there is currently no publicly available evidence that Turnbull is correct in his ongoing claims that the Coalition’s rival NBN policy would save the Federal Government billions of dollars in investment when it comes to its funding of the NBN project. For the Coalition’s rival FTTN plan to save the Government money, it would either need to make similar revenues as the existing FTTH plan, but with lower costs, or make higher revenues than the current FTTH-based NBN plan.
The Coalition has not yet released the monetary details of its own rival NBN policy, although Turnbull stated recently that the policy had been costed. An analysis by Citigroup published in November found that the Coalition’s policy would cost $16.7 billion. The Citigroup report didn’t mention what financial return, if any, the Coalition’s proposal was slated to bring in on its own investment.
Turnbull’s comments do not reflect the first time that the Coalition has referred to the inaccurate possibility of saving government money by cutting or substantially modifying the NBN project. In February, for example, opposition Leader Tony Abbott stated in a high-profile speech at the National Press Club in Canberra that cutting Labor’s National Broadband Network project would free up Federal Government money to be spent in other areas such as transport.
The news also comes as Turnbull’s office has not responded to a list of questions regarding the Coalition’s FTTN plans forwarded to it last month, following a fact-checking exercise conducted by Delimiter into an article Turnbull published in July strongly pushing for the potential for the NBN project to be modified to focus on fibre to the node technology instead of its current fibre to the home rollout.
At the time, a consensus had appeared to develop amongst those commenting on the National Broadband Network project on Delimiter that Turnbull needed to provide more evidence that Fibre to the Node is the best style of broadband infrastructure rollout for Australia’s long-term telecommunications needs. The questions were:
- What international examples of FTTN-style broadband deployments do you consider most pertinent to the Australian situation, and why?
- How long do you estimate it would take, if the Coalition wins the next Federal Election, to deploy FTTN to more than 90 percent of the Australian population?
- What, specifically, do you estimate would be the cost difference between deploying FTTN and FTTH as part of the NBN rollout?
- Do you consider it possible to re-work the current Telstra/NBN contract to focus on FTTN instead of FTTH, and how long do you estimate this would take?
- What broad details of this contract would need to change, and how long do you anticipate the ACCC would take to approve a modified version?
- Do you have a long-term plan to upgrade a FTTN-style network to a FTTH-style network, or a medium-term plan to allow ad-hoc upgrades of this network to FTTH?
- What do you consider to be the time frame on which a FTTN-style network would continue to be used without an upgrade to FTTH? Will there, in fact, be a need to upgrade in the long-term to FTTH? On what evidence do you have these beliefs?
- How would you address the claim that FTTN is a short to medium-term technology that will be superceded over the next several decades by FTTH, and that Australia should only be investing for the long-term when it comes to this kind of telecommunications infrastructure? On what evidence do you feel this way?
Image credit: Delimiter
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