full opinion/analysis by Renai LeMay
10 January 2014
With hundreds of thousands of new fibre premises scheduled to come on line and thousands of others opened to wholesale access, 2014 is slated to be the long-awaited first banner year that will see all of the National Broadband Network Company’s hard work finally start to pay off in bulk. But unfortunately it’ll also be the last, as the Coalition’s plan to rip apart Labor’s NBN vision starts to takes effect 12 months down the track.
When you look ahead at the likely fortunes for the National Broadband Network project over the next year, it’s hard not to feel at least a little optimistic about the project over that period specifically.
As the company’s first chief executive Mike Quigley laid out comprehensively in a major speech in early December, the project’s foundations have now been laid very solidly. NBN Co is now a company of close to 3,000 people with all of the processes and systems needed to build national telecommunications infrastructure. It has extensive deals with the nation’s largest construction partners. It has access to Telstra’s pits, pipes and ducts infrastructure. It has supporting IT systems for operations and billing. It has a set of wholesale products which can be purchased by retail ISPs. It has the ability to connect retail customers on behalf of those ISPs. In short, it has everything in place that a wholesale telco needs.
As Quigley told the Telecommunications Society of Australia, in NBN Co’s first four years of its life, the company has made “considerable progress”.
The company is also starting to show real progress with relation to its Fibre to the Premises network rollout, the most important aspect of its work. If you examine the weekly rollout figures which it now releases regularly through its website (the latest figures for the week ending 5 January are available here in PDF format), what we see is that the company’s progress in the months of November and December show a marked difference to the months immediately previous.
In September and October, as the depth of NBN Co’s difficulties with key construction firms such as Syntheo and Visionstream became apparent, NBN Co’s rollout progress slowed to a snail’s pace. October in particular was a terrible month for the company, with four consecutive weeks showing very little progress in the number of premises servicecable by its network.
However, in November and December, the company’s rollout surged ahead again, and it started to be able to render five or six thousand new premises serviceable in quite a few weeks. This number is still far short of the tens of thousands of premises NBN Co would like to be reaching every week — but it does reflect the fact that NBN Co’s rollout is once again ramping up as the company gets further control of its construction partners.
Adding to this optimism is the amount of work already underway in NBN Co’s wider network rollout. In the revised Statement of Expectations which Communications Minister Malcolm Turnbull and Finance Minister Mathias Cormann issued to NBN Co in late September, the two Minister instructed NBN Co to complete construction of the NBN network to some 300,000 premises where construction had already begun using the all-fibre FTTP model favoured by the previous Labor Federal Government.
Subsequently, in early November, NBN Co confirmed that Turnbull had approved a further 150,000 premises to receive a full FTTP network deployment, taking the total number of premises where FTTP network construction work is under way to some 450,000. Many, perhaps most of these premises are likely to be rendered serviceable in 2014, especially towards the end of the year, meaning that NBN Co’s FTTP network will, for the first time, start to make a dent as one of Australia’s largest telecommunications networks of any stripe. NBN Co’s Strategic Review estimates that by June 2014, some 457,000 premises will be passed by NBN Co’s FTTP network, with a total of 1.05 million to have been passed by June 2015.
It’s not likely that that second figure will be reached, given that it currently appears the new Coalition Government will, from mid-2014, drastically modify the NBN rollout along the lines of the ‘Multi-Technology Mix’ model which NBN Co recommends in the Strategic Review. However, given that even that model recommends that some 26 percent of Australian premises be covered by FTTP access by 2020, it is still true that a huge amount of current FTTP construction activity is still to go ahead.
Furthermore, at the Statement of Expectations briefing in September, it was revealed that detailed network design for 645,000 premises was under way using the FTTP model. As mentioned, the Government has already approved construction to go ahead for some 150,000 of those premises; meaning it is possible that more from that tally will be added to the list.
NBN Co is also likely to add further FTTP premises to its list shortly that it didn’t actually construct itself, courtesy of acquisitions. In May 2013, for example, retail ISP iiNet revealed it had reached an agreement which would see NBN Co buy the fibre to the premises network which iiNet bought 18 months ago with its acquisition of Canberra-based TransACT. That fibre network isn’t massive — it only has some 8,500 premises servicecable, with a further 4,500 premises planned or already under construction — but it will add a nice chunk of the Canberra market to NBN Co’s network.
All NBN Co has to do to get those premises available to customers is to integrate the network with its own and apply its own billing and operational systems to the infrastructure. Given the acquisition took place in May, it’s not too hard to guess that NBN Co is close to opening up that TransACT FTTP network to wholesale access under its standard terms and prices, giving customers in that region of the ACT a plethora of better options than they had previously been able to access under the network’s monopoly owner TransACT.
Another win for NBN Co in 2014 will be the move by current Vodafone Australia chief executive Bill Morrow to take the reins of the company as its new chief executive from around March or April.
The Coalition’s appointment of Ziggy Switkowski to serve as NBN Co’s executive chairman was a controversial one. The executive’s tenure leading Telstra and Optus in the late 1990’s and early 2000’s had already made him infamous in Australia’s telecommunications industry; in addition, there is also the fact that Switkowski had not worked directly in the telecommunications sector for almost a decade prior to joining NBN Co, and had not worked very directly on massed telecommunications network rollouts at either Telstra or Optus. The executive’s performances at Senate committee hearings into the NBN have so far done much to generate suspicion amongst onlookers that he will be a little too loyal to Communications Minister Malcolm Turnbull.
However, Morrow is an entirely different kettle of fish. The executive is a turnaround specialist who was injected by Vodafone’s global shareholders into the company’s ailing Australian operation. Although the results of Morrow’s efforts at Vodafone Australia have not yet bourne much fruit for the troubled company in terms of financial results, it is true that the steps he has taken to reform the company have been decisive and swift, resulting in vastly improved network speeds and performance as well as customer service. Morrow is well-respected in the industry and personable.
Perhaps more importantly, the executive is one of the globe’s best-respected and most experienced telecommunications executives in general. He has previously been the chief executive of US telco giant Clearwire in 2009 and 2011, the chief executive of US utility Pacific Gas and Electric Company, and has held a slew of other senior positions at Vodafone in Europe, as well as serving as president of Japan Telecom.
Morrow can be expected to take firm control of NBN Co’s reins, focusing the company sharply on its rollout responsibilities as well as providing a stronger degree of transparency and professionalism than NBN Co has displayed over its turbulent past six months, when much of the company’s management has seemed primarily to be trying to stay under cover and out of the political maelstrom riding above its head. The executive is a worthy successor to NBN Co’s founding chief executive Mike Quigley and is a very solid choice to take the company forward in the next three to four years.
If you take these factors into account, 2014 is looking to be a very solid year for NBN Co in general. It will be a company run with decisive leadership, that will finally deliver on the promise of delivering a Fibre to the Premises network in many locations around Australia. For the first time, for many hundreds of thousands of Australians, the term “National Broadband Network” will have some meaning, as their broadband speeds and reliability are radically upgraded for a similar price.
The only problem is that this vision will be extremely short-lived; in fact, it will very likely end at the end of 2014.
With the exception of Morrow’s appointment, all of the strengths of the NBN project mentioned so far in this article can be attributed to the previous Labor Government, which set up the project in the first place. There is now no doubt that Labor mismanaged the project and underestimated its complexity, taking a highly unorthodox approach to the upgrade of national telecommunications networks which left the incumbent telco out of the picture almost completely; other nations have achieved better results by supporting and working with the incumbent, rather than forcibly dismantling it as Labor has tried to do with the NBN.
Unlike previous years, in 2014, the NBN project will finally reap the benefits of Labor’s vision. However, in 2015, as the Coalition starts to radically reshape the project, that vision will be lost.
The other activities to be conducted by NBN Co in 2014 are directly inimical to Labor’s vision. Early in this year, the new Coalition Government will very likely accept the recommendations of NBN Co’s recently published Strategic Review and start drastically re-focusing the project. This will involve it abandoning network construction plans in areas already technically served by the HFC cable networks operated by Telstra and Optus (up to a third of Australian premises), and deploying Fibre to the Node technology to much of the rest of the nation.
It is likely that NBN Co will spend at least half of 2014 negotiating behind the scenes for access to the HFC cable networks. The company’s Strategic Review notes that it assumes that NBN Co would be able to gain access to the networks in the second half of calendar year 2015 — with “fill-in and lead-in work being completed in four subsequent years”.
Likewise, FTTN deployments to the remainder of the country not served by FTTP would be undertaken in the same timeframe — from the second half of 2015. Full rollout of FTTN would not be possible until early 2018, according to the Strategic Review (this information can be found on page 96 of the review).
One final fixed-line technology will also be used under the assumed model — Fibre to the Drop Point — for example, this could mean apartment buildings already passed by the NBN’s fibre in the street could have fibre connected to their basements while re-using the internal building copper cable to individual apartments. The same approach could be taken with business premises in business buildings, for example, or individual retail outlets in shopping malls. NBN Co’s Strategic Review indicates that this style of rollout could be used from the second half of 2016.
Unless Telstra consents to selling its South Brisbane fibre rollout to NBN Co (the copper network was replaced over the past several years in that area with over 18,000 fibre connections, due to the construction of a new hospital), there will also not be any new substantial existing fibre networks to roll into the NBN footprint. And even if Telstra does consent to a South Brisbane handover as part of its negotiations with NBN Co, it is likely that such a handover would take several more years.
What this altered approach to the NBN means is that while 2014 looks set to be a very successful year for NBN Co in terms of its rollout, the end of this year may also largely mark the end of much of the visible progress on the network’s rollout, while the company attempts to work with telcos such as Telstra and Optus on access to their networks to be able to deploy HFC cable upgrades, as well as FTTN and FTTB/DP rollouts.
FTTP work will go on around the nation to some degree, but it seems very likely that unless the Coalition Government approves significant further FTTP premises, much of this rollout work will reach fruition in 2014, potentially leaving NBN Co with a gap period from 2015 where it will not be seen to be achieving to the same degree that it was previously.
And even where the company does start to make progress on its HFC, FTTN and FTTB/DP networks from 2015 through 2018 and beyond, this progress will be viewed by much of the Australian population as inferior in nature to the previous FTTP efforts. It will be very hard for the Coalition and NBN Co to argue that it is providing Australians with a ‘fair go’, when neighbouring suburbs, neighbouring streets or even, sometimes, buildings in the same streets have access to fundamentally different fixed-line broadband technologies, depending on how NBN Co deemed it most appropriate to connect certain premises to its network.
I’ve previously explored what kind of chaos this will cause to NBN Co’s product pricing strategy. It will be interesting — and likely disheartening — to see how the company deals with the other implications of offering three or four different types of broadband access to Australians who had been expecting — and who overwhelmingly support — a unified single model.
Perhaps the only exception to this situation will be NBN Co’s twin satellite launch in 2015. Again, a relic of Labor’s original NBN policy, this launch will instantly unlock significantly faster satellite broadband access in very remote areas of Australia. NBN Co was recently forced to stop selling access to its interim satellite broadband services due to intense demand. The new launch will be a dramatically positive event for rural Australians. It will happen in mid-2015; although it’s not clear when.
To sum up, 2014 is slated to be somewhat of a banner year for NBN Co. It will have a fresh, charismatic face as its new chief executive. It will finally deliver on its promise of Fibre to the Premises to hundreds of thousands of Australians. 2014 should be NBN Co’s first real “ramp-up” year, and the company will become a very visible presence in many Australians’ homes and business premises for the first time. NBN Co will become real, in a sense that it hasn’t previously been able to achieve.
However, tragically, 2014 will also be the last year of certainty for the NBN project. 2015, although it will see the launch of NBN Co’s highly anticipated twin satellites, will also mark the beginning of true uncertainty for the project and its impact on the Australian population, as the cluster of different technologies that the Coalition is planning to use to replace NBN’s all-fibre vision not only cause a gap in the project’s rollout plans as it takes several years to start delivering, but also creates a patchwork effect in the company’s national rollout.
It’s a classic case of things getting better before they get drastically worse. 2014 will be a good year for NBN Co’s existing rollout. But after that, the Australian population can expect a bumpy ride.
In the meantime, of course, the political circus surrounding the NBN will go on. The Coalition will continue to blame any problems with the project on Labor and Labor will continue to bemoan the Coalition’s lack of vision with its ‘Multi-Technology Mix’ model. We might see a bit of Palmer United Party spice added into the mix at some points, and of course the Greens will keep on attempting to add a voice of reason into the festivities. This is the kind of thing we’ve come to expect from the NBN.
The irony of 2014 will not be lost on many Australians, by the end of this year. It is a tragic situation indeed when a major government project such as the NBN is set to be ratcheted back and modified … just as it starts to deliver. But then, perhaps we should have expected that as the ultimate casualty of an electoral system which revolves around three year terms. Such systems are just not suited to decade-long infrastructure efforts. More’s the pity.