Note: The calculations in this article have been modified slightly since they were published. You can find details here.
news A researcher from Monash University has published a detailed analysis of the NBN company’s costs which appears to show that Labor’s technically superior Fibre to the Premises model represents better financial value than the Coalition’s preferred Fibre to the Node technology only a scant few years after FTTP was deployed.
Under Labor’s previous near-universal Fibre to the Premises model for the NBN, the HFC cable and copper networks owned by Telstra and Optus would have been shut down. However, the Coalition’s Multi-Technology Mix plan instituted by Malcolm Turnbull as Communications Minister in the Abbott administration is seeing them acquired and upgraded by the NBN company instead.
Turnbull has repeatedly stated that Australia would benefit more from a situation where more Australians got access to high-speed broadband speeds faster under the MTM model, rather than taking longer to deploy the technically superior FTTP option.
In addition, the Prime Minister has repeatedly stated that the cost of deploying Labor’s FTTP model would be substantially higher by many billions of dollars than using the MTM model.
However, analysis published by Monash University researcher Richard Ferrers in December appears to show that the FTTP option would actually deliver better value than the FTTN alternative.
Ferrers is a research data analyst at Monash, with a PhD in Technology Innovation Management. He is a part of the Australian National Data Service, which focuses on making Australia’s research data assets more valuable for researchers, research institutions and the country at large.
On his personal blog (we recommend you click here for the full post), Ferrers noted that the release of internal NBN documents late last year had, for the first time, provided the opportunity to compare the costs of the NBN company’s various technologies, using the company’s own financial figures.
Ferrers’ analysis suggests, he wrote, that FTTP ended up being better financial value than FTTN when the NBN company’s operational expenditure and projected revenue figures were examined six and a half years after each technology was deployed.
This fact, he said, came from the fact that FTTP was significantly cheaper to run on an ongoing basis ($90 less per connection per year), but also generated more average revenue (close to $25 per month or $300 per annum per connection).
“This difference totals about $30 per month,” in favour of FTTP, Ferrers wrote. “This is a total net benefit of $390 per household per year for using FTTP over using FTTN.”
Consequently, the analyst wrote, the capital expenditure difference between the two technologies (FTTP costs about $2,300 more per premise to install than FTTN) would be earned back in 76 months — or about six and a third years.
Over the long term, according to the analyst, this would add up to many billions of dollars — for example, $9 billion in total over ten years. “The longer FTTN remains in place, the greater the foregone benefit for not switching to FTTP,” he wrote.
And there are also other factors which would also inflate the cost of FTTN. For example, as the FTTN network was gradually replaced with FTTP over the long-term due to growing demand, this would cause additional costs to accrue to the FTTN option.
The analysis adds to a growing body of evidence showing that the MTM option chosen by the Coalition Government will add an extra cost burden to the NBN company’s finances.
For example, in August this year, the NBN company revealed the project’s funding requirement had blown out by between $5 billion and $15 billion compared with the Strategic Review conducted by NBN Co executives in late 2013 after Malcolm Turnbull became Communications Minister.
In early November, the former chief executive of the NBN company, Mike Quigley, released an extraordinarily detailed and highly referenced document showing the blowout was due to the Multi-Technology Mix imposed by Turnbull. Shortly after, NBN chief executive Bill Morrow broadly confirmed the analysis.
However, the NBN company also still maintains that it would cost dramatically more to deploy FTTP than its current MTM model. In October it was revealed that the NBN company, after a request from Turnbull, had produced analysis showing the FTTP model would cost peak funding of $74-$84 billion to deploy, compared with $46-$56 billion for the MTM model.
Image credit: Office of Malcolm Turnbull