Can Australia Afford The Coalition's NBN?

Consumers know well that buying a cheaper product often costs more in the long term when the cheaper product has to be replaced. This is true of the Coalition's vision for the National Broadband Network (NBN): it may cost less in the short term, but not in the long term.

Picture: Jason Goulding

The Coalition will save around A$14.6 billion by replacing Labor's fibre-to-the-premises (FTTP) version of the NBN – which, as the name suggests, delivers fibre optic cable to directly to premises – with a cheaper, fibre-to-the-node (FTTN) alternative – which involves delivering optical fibre to a shared "cabinet" (or node), then connecting the cabinet to residential and business premises using existing copper telephone wires.

But careful analysis of the details of the Coalition's NBN policy shows its FTTN network does not provide good value for money.

As the Coalition is quick to point out, fibre-to-the-node technology is used in many parts of the world, but there are some major differences between the Coalition's NBN business model and the model being used by overseas operators.

One difference is that Telstra owns the existing copper network, over which the FTTN technology will operate. In overseas deployments of FTTN, the company deploying the entire network is typically the incumbent operator that owns the copper network.

Deploying FTTN is clearly a good alternative for these companies because it enables them to extract as much value as possible out of the copper network before it inevitably becomes obsolete.

Unlike FTTN deployments elsewhere in the world, the Coalition's business model requires that a full commercial price be paid for access to the copper network. The Coalition hopes it will obtain access for the same amount (A$11 billion) NBNCo has agreed to pay for access to Telstra's ducts and pits.

That comes to approximately A$1,000 per premises, and pushes the Coalition's NBN cost up to about A$29.7 billion, or about A$2,320 per premises. It will likely be the most expensive FTTN deployment anywhere in the world.

What will the Coalition get in return for its A$11 billion? It certainly won't be a shiny new Ferrari – rather, a rusty FJ Holden that requires constant maintenance, love and attention to keep it running.

Telstra has not disclosed the details, but there is anecdotal evidence maintenance costs for the ageing copper network could be as high as A$1 billion a year. Added to that, parts of the copper network will require remediation because very high bit-rate DSL (VDSL) technology – which will be used in the Coalition's network to send data over the telephone wires from the node to the premises – does not always work well over an aged copper network, with problems such as:

  • intermittent degradation due to water ingress
  • poor wiring
  • old technology fixes such as bridge taps and pair gains, which degrade performance.

While no-one (including Telstra) knows how much it will cost to remediate the copper network to make it VDSL-capable, the cost is likely to be a significant hit on top of the A$1 billion a year ongoing maintenance costs.

Facilities-based competition

Another problem with the Coalition's policy is that it permits facilities-based competition – whereby multiple providers of internet connectivity can connect customers via competing parallel networks. An example of facilities-based competition is the parallel hybrid-fibre-coaxial (HFC) networks owned by Telstra and Optus that run alongside each other on the power poles in many suburban streets in Sydney and Melbourne.

Facilities-based competition might seem like a good idea on the surface, but could have serious implications for the cost to the taxpayer.

Facilities-based competition means Telstra would be permitted to compete with the Coalition's FTTN NBN using Telstra's HFC network and any other parallel network that Telstra, other companies, or state and local governments could build in the future.

Those competing networks will be able to cherry-pick customers in more profitable areas, such as densely-populated inner city precincts, while outer suburbs and regional areas will pay more for access.

In short, facilities-based competition could seriously undermine the NBN business model, which is calibrated to provide a rate of return that enables the NBN to be "off budget". Facilities-based competition might be an attractive proposition for Foxtel, News Limited or Telstra, who could do very nicely from a cherry-picked business, while taxpayers help to ensure that the remainder of the country receives a good broadband service.

Special challenges

At a technology level, the Coalition's particular approach to FTTN brings a number of special challenges that are likely to be expensive.

The Coalition is offering a "fibre on demand" option to customers who need higher bandwidth than can be provided by the standard FTTN network. Fibre will be laid between the node and the customer's premises on a case-by-case basis with the cost borne by the customer. But under this model there will be extra costs that NBNCo will incur.

Extra space will need to be reserved in the node cabinets to terminate the fibres and connect them to the exchange. In essence, there will be two parallel networks housed in the one cabinet. In addition, the cabinets will need to contain equipment that provides telephone connectivity to each home. This equipment is located in the home in an FTTP network, but will most likely reside in the node in the Coalition's network.

The Coalition has made much of the fact that many households are moving to wireless-only broadband access, and doing away with fixed broadband connections. In order to keep up with this increasing demand for capacity on the wireless network, wireless operators are being forced to install large numbers of small wireless base-stations, and to connect these base stations to the internet via fibre.

Labor's FTTP network will provide the necessary infrastructure for this expected expansion of the wireless network, but the Coalition's lower-cost FTTN network will not.

Will the Coalition's NBN provide value for money? Compared with Labor's FTTP NBN, which will be easily upgradeable to ultra-broadband capacity when new applications come on line, the Coalition's FTTN NBN is a short-term, limited-bandwidth solution.

At a whopping two-thirds of the cost of the vastly-superior FTTP NBN, the Coalition's NBN stacks up as waste of money.

Rod Tucker is Director of the Institute for a Broadband-Enabled Society (IBES) at University of Melbourne. Rod Tucker's research is financially supported by the Australian Research Council, Alcatel-Lucent, and the Victorian Government. The Institute for a Broadband-Enabled Society has received cash and in kind support from a range of companies including Optus, NBNCo, Ericsson, Microsoft, Cisco and Google, through its industry partner program and research collaborations.

The ConversationThis article was originally published at The Conversation. Read the original article.


Comments

    At a whopping two-thirds of the cost of the vastly-superior FTTP NBN, the Coalition’s NBN stacks up as waste of money.
    ^This...
    Still haven't seen a CBA of this plan, despite all the jumping up and down about needing a CBA for FTTP...

    I asked the techs that installed it to my house what they thought of the condition of the copper in my town... They said if they use the coalitions plan, the dropouts will just get more prevalent because the copper is in such a shitty condition. In towns like mine it's around a hundred years old in the older sections and needs to be replaced anyway, and soon...!

    australia will end up with a full FTTP NBN network eventually the only difference is the coalition are first going to make us suffer with crippled network with old copper network at its core, copper that is already out of date now, it will need to be replaced, it needs to now! and it wont be cheap.

    the old rusty FJ holden is a great analogy, australia currently has a rusty old fj with a dying engine on its last breath, a FTTP NBN is akin to putting the FJ out to pasture and buying a shiny new ferrari, on the other hand the FTTN NBN is akin is putting a ferrari body on the old fj and intending to keep on going with its clapped out engine and calling it the cheaper better option.

    perhaps we can pay for the engine with all the boats we buy from indonesia

    good grief charlie brown. is this the tenth time i've seen this article on lh/giz in the last month?
    we get it......you want us to vote labor.

    Last edited 28/08/13 10:27 am

      ...or for the LNP to come to their senses and continue with the FTTP plan.

      Actually I would rather you use critical thinking and research everyone's plan, policies, history and if what they say is really true.

      What?? Lifehacker/Gizmodo blatantly leaning to the Left? That's nuts.

        Are you saying that if people are more technologically literate and prefer more realistic sensible cost solutions that means they must be left wing?
        Interesting!

          No, I'm saying this outlet's bias is clear based on the ratio of pro-labour articles.

            You aren't really because any article in favour of labour's NBN plan is not an article in favour of labour.
            Just because they are critical of the coalition's plan does not mean they hate the coalition.

            Personally, I am left wing, but that does not mean I automatically support all the policies that labour comes out with. It also doesn't mean I'm changing my political leanings when I do criticise a policy from labour and instead list the merits of one put forward by the Liberals.

    deleted

    Last edited 18/06/15 9:17 am

      My God, this is intriguing, who builds half an expressway?? (Don't answer that, I was being rheotic)

      And it's not even open all day.

      Last edited 28/08/13 11:27 am

        Adelaide has half an expressway. It goes one way in the morning and the other way at night. :-)

    OK. At this point we can pretty much just say that the Coalition is going to win the election. The polls are not in Labor's favour and have not been in Labor's favour since before the last election (the closest they've been since is 50/50 on TPP, which even then is not enough for them to win). With that said, I have two questions:

    1) Is it even remotely possible that the Libs could be convinced to keep the FTTP rollout? Has anyone thought to ASK Malcolm Turnbull if he'd be willing to reconsider the FTTN plan should a full analysis of the project show that it would be a waste of time and money in the long run (which it would, unquestionably)? Or if we had a grassroots campaign following the election to petition the government not to cancel the FTTP plan, would it make a difference? I find it so frustrating to think that the Liberals will basically scuttle the NBN out of spite for Labor, since there's really no other reason to not keep going with FTTP.

    2) Failing the above, when is it going to be OK to say that the NBN is dead, since the Libs' NBN is a joke. 3/4 the cost for 1/10 the capability. Sounds like a bargain!

    Was thinking idly about this on the way home yesterday and it strikes me that what we want from a leader is not someone who opposes EVERYTHING the other side says.. we just want a sensible leader....

    Why the coalition can't just come in and say, "ok.. that's the most sensible plan but we think we can get it done sooner/better.." rather than trying to come up with some half-baked plan.. any plan.. just to spite the opposition.. just to have an opposing idea..

    That's what makes these politicians so bad.. both of them.

      The joys of bipartisan politics. South Park covered it quite well with the "Vote for a Giant Douche or a Turd Sandwich" episode.

      I'd love to have a really complex voting system, where you just pick the policies instead of the parties. Against immigration? Check that box. Want NBN? Check that box. More public holidays? Check that box.

      We're using the same voting process from 100 years ago - lets get all technological and shit.

    A car with 450 ks on the the clock for $10000 or a new car with future proofing for $15000 ? Seems obvious

    https://www.lnp.org.au/campaign/contact/
    Anyone who wants to vote LNP let them know what you think FTTN.

    FTTN will be just as fast for anyone who wants it. All they have to do is pay for connection to the premises themselves, instead of expecting the taxpayer to do it for them. Sorry guys, I'd rather my taxes got used for hospitals and schools than to subsidise everyone's movie downloads.

      Hi. Just so you know, the funding for the NBN isn't coming out of tax revenue. It's coming from government issued bonds (at a low interest rate) and not all at once either (the capital is drawn down over time). That's why it's classed as "off-budget", because it is classed as an investment under the budgetary guidelines (i.e., it will provide an investment return to the government). Think of it like building a new investment property using a 100% loan, where the interest rate (about 4%) is less than the rate of return you will get when you've finished building the place (about 7%).

      I work in the education system and I can see MASSIVE benefits for schools and hospitals if everyone had access to proper, reliable broadband. I believe the FTTN network is the wrong direction to go down (not so reliable, no guaranteed service and expensive to maintain), but I also think that the way that the FTTP NBN rollout is structured is also not very efficient or cost effective. We need someone more rational making decisions on how the NBN should be done. For some great, rational info on this, check out this video:

      http://simonhackett.com/2013/07/17/nbn-fibre-on-a-copper-budget/

      and this one...

      http://simonhackett.com/2013/04/09/cd-syd-2013-problem-with-fttn/

Join the discussion!

Trending Stories Right Now