Coalition takes NBN back to the drawing board

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Opinion: Might not get off the ground before 2020.

There are many flaws to the alternative plan for a national broadband network delivered by the Coalition yesterday.

The worst of these threatens the viability of NBN Co, and would take the Coalition, assuming it wins government in September, back to the drawing board on broadband competition.

The Coalition’s plan has been created without access to government records, including critical guidance used during the process that led to the current NBN design, as well as NBN Co’s commercial agreements and contracts. Without this information the Coalition is not in a position to rigorously compare its alternative plan with the existing NBN.

It neglects several years of negotiations between the Government, its regulatory bodies, NBN Co and private industry.

 Malcolm Turnbull told ABC 7:30 last night that he had discussed the proposal with Telstra and expects the nation's incumbent telco to agree to a payment of $1500 per premise when it is connected to the FTTN, the same amount that Telstra has agreed to when a premise is connected to the Labor NBN.

Gaining Telstra’s agreement would be the only way the Coalition can avoid cost overruns and delay.

Telstra’s CEO David Thodey has already provided guidance that Telstra would consider Coalition proposals put to it, but would not renegotiate existing arrangements if it meant accepting less than the current $11 billion deal.

Competition questions

Should the Telstra hurdle be overcome, there are bigger questions around competition.

The Coalition plan includes a provision for competition in the access network, which raises a series of important questions.

Will the Coalition permit Telstra to take the $11 billion that it will receive under existing agreements and build its own Fibre to the Premise (FTTP) network that targets the most affluent areas of the capital cities?

What happens if Optus has an escape clause in its existing agreement with NBN Co to shut down its Hybrid Fiber Coaxial (HFC) network and Optus decides to step away from the agreement? Surely Telstra's presence in the fixed access network is a threat that other Australian telecommunication companies could not ignore?

Indeed, would the Coalition NBN be viable at all if competitors offered comparable access networks in urban areas? Under the Coalition plan, by the year 2020, Australia could have a FTTN network run by NBN Co offering 50 Mbps connections, FTTP and HFC networks owned and run by Telstra and Optus offering 1 Gbps and a myriad of other networks based upon existing ADSL, fibre and wireless networks.

Critically, the Coalition plan states on page 10 that new access networks would be required to offer wholesale access for reference products at NBN Co equivalent prices. This clause implies that existing ADSL, fibre and wireless access networks would be permitted to expand, be improved and offer products from the network owner without the requirement to provide wholesale access to competitors.

Telstra would be failing its shareholders if it did not take every advantage of the Coalition plan and retain its dominance in the access network by retaining and expanding its HFC network and expanding its existing fibre access network. That network would not be deemed to be a “new” access network under the Coalition plan.

If NBN Co was still viable in 2020, a decision would need to be made as to how to move the NBN to FTTP – for the copper component of the FTTN network will continue to degrade and maintenance costs will increase. Would NBN Co be in a financial position to upgrade the FTTN network to FTTP?

And would this mean changes to the network design?

Future proofing

The Coalition FTTN network would utilise no more than 800m of copper cable. This means the fibre cabinets would need to be placed no more than 800m from any premise served.

A FTTP network design could be overlayed on the FTTN network, however the optic fibre length of the final section could theoretically be many kilometres in length. So it is possible that many of the FTTN cabinets required for the Coalition policy would be redundant if a future government pursued an FTTP rollout.  So while there is an upgrade path from FTTN to FTTP, there are likely to be additional costs associated with the network redesign.

The Coalition’s plan to utilise FTTN does not indicate anticipated additional maintenance costs for the FTTN system. FTTN is more expensive to maintain than FTTP, though the exact amount depends on a number of factors that would not be known until the Coalition NBN design is finalised.

For Australians in ADSL blackspots, those with poor copper connections or those who live in regional Australia and only have dial-up connections, there is the possibility that under the Coalition plan they would be either missed completely or forced to contribute to the costs of fibre installation – if fibre connections are to be made available in the area.

Under the Coalition plan when a NBN customer finds their network connection is sub-standard due to degraded copper, or if the customer needs higher bandwidths than offered over the FTTN, the customer would be forced to pay for the copper connection to be replaced with fibre – at a cost that is likely to be more than $10,000.

No magic wand

Another point that has been largely missed: the Coalition NBN policy is likely to be rolled out by the same construction companies that are currently contracted to roll out the Labor NBN.

The delays and cost overruns being experienced by NBN Co today are not likely to change if the Coalition wins the September election, unless the Coalition has a magic wand handy.

NBN Co opted to outsource the fibre network construction and this approach introduces uncertainty and a loss of control over the build. The argument over whether to outsource or not is a common discussion point at the water cooler, but difficult projects need to be closely managed and this cannot be done when outsourcing is added to the mix. Is it necessary to list the major state and federal projects over the past 20 years that have had cost and time blowouts where the finger has been pointed at contractors? This would take many more pages.

The Coalition’s NBN plan requires legislative changes to the existing Acts covering NBN Co and telecommunications. For legislation to pass through the parliament the Coalition will be hoping for control of the senate after the September election or if this is not achieved then the Greens and Independents will become pivotal. Yesterday Greens leader Christine Milne branded the Coalition NBN plan a “farce”.

Telcos will be worried

Whilst the plan is an ambitious policy, it is likely that Telstra's competitors will be concerned about the potential for the nation's incumbent to retain its dominance in the access network market. If this concern occurs it is possible that court action will ensue. Such action could delay implementation of the Coalition NBN for years.

Renegotiation of the Telstra contracts could take up to two years if past history is any guide and any new agreements would require sign-off by the Australian Competition and Consumer Commission (ACCC). It is important to note that after 18 months and three attempts, NBN Co has yet to get its special access undertaking (SAU) approved by the ACCC.

The Coalition claims that by 2016 Australians will enjoy NBN connections that are not less than 25 Mbps and by 2019 connection speeds will be more than 50 Mbps. Are these deadlines achievable? No.

The time required to renegotiate contracts and agreements with telecommunication companies, construction companies and to gain regulatory approval from the ACCC should be about two years and could take longer.

This leaves one year or less for the rollout to 71 percent of premises. If court challenges ensue - and there is a strong likelihood of this occurring based on statements made by Telstra’s competitors during 2006 to 2009 – then the Coalition NBN rollout may not start this decade.