Will Fiber Get Voted Out?

Posted on Aug 29, 2013 in Industry News, News

Barring a miracle or an especially ingenious “October surprise,” Australia’s government-backed NBN is about to get a makeover.
With a comfortable lead in the polls, the conservative opposition looks set to cruise into office with a promise to dump the Rudd government’s fiber-centric project in favor of a copper/VDSL alternative.
It has costed its plan at A$20.4 billion (US$18.4 billion), well below the current scheme’s official costing of A$38 billion ($33.8 billion).
In its current form, the NBN is aimed at bringing fiber to 93 percent of all homes and small businesses, using wireless or satellite for the remainder. The alternative plan from the Liberal-National coalition would reduce that to just 22 percent, with the other 71 percent serviced by fiber-to-the-node (FTTN) plus copper.
David Kennedy, Ovum’s Asia-Pacific research director, describes the coalition plan as realistic and “not that different” from the VDSL being deployed in many European markets.
As well as the lower price, the coalition’s pitch is helped by the delays and controversies that have beset the NBN, which is now two years behind its original schedule.
However, its biggest problem is that it has been a political project from the start.
When he ran in 2007, candidate Kevin Rudd promised a relatively modest A$15 billion ($13.3 billion) next-gen network, backed by A$4.7 billion ($4.1 billion) in government funds.
Post-election that all changed. In short order, Telstra Corp. Ltd. (ASX: TLS; NZK: TLS) and the government butted heads over the cost, Telstra was ejected from the project but, with no other carrier willing to take its place, Rudd’s team went back to the drawing board and came up with the current grand scheme. A new state-funded company, NBN Co Ltd. , was to be formed to build and operate the wholesale network. Telstra was allowed back in as a retailer, but would have to shutter its copper and cable TV access networks.
Today, four years into the project, NBN Co says it has passed just 220,000 homes with fiber — a fraction of the total target of 12.2 million homes and businesses.
No-one seems to take this figure seriously. Tony Brown, senior analyst at Informa Telecoms & Media, says “probably 30 percent” are not connected to the network.
In the original corporate plan, issued in December 2010, NBN Co. expected to pass 1.3 million homes by June 2013, with 500,000 users signed. It revised that last year to 341,000, but has since conceded that even that target was beyond its reach.
The problem goes back to the formation of NBN Co. Having made an end-run around Telstra, it has been forced to build this enormous new network as a greenfield operator without the expertise and resources of the incumbent.
This might have worked in the tightly packed neighborhoods of Hong Kong and South Korea, where challengers have overtaken incumbents, but not anywhere else.
Brown says that when formally established in June 2009 NBN Co. had “a logo and Mike Quigley” — referring to the CEO and former Alcatel-Lucent (NYSE: ALU) COO. “It expected within four years to build a network to 1.47 million homes. That’s a ridiculous target.”
At peak rollout period in 2016 it was forecasting connections would reach 30,000 a week, or 6,000 a day. Not even the Singapore NBN tried to do that.
It didn’t help that most of this took place during a mining boom, which drew semi-skilled labor to remote locations on A$100k+ salaries. Brown estimates NBN Co. was paying wages as much as 40 percent below the market rate, leading to a series of disputes with sub-contractors.
Even with the much-reduced fiber rollout, NBN 2.0 still poses some thorny challenges for the incoming government.
The biggest of these will be to renegotiate the government’s 2011 deal with Telstra and its shareholders. The coalition has one carrot to offer, which is to abandon the current plan to turn off the Telstra fiber-coax cable TV and data network.
But it has the tricky task of coming to terms with Telstra over the copper access network, which is supposed to be deactivated 18 months after the NBN is switched on.
Malcolm Turnbull, the opposition communications spokesman and the likely new communications minister, says he doesn’t need to pay another cent to Telstra for the copper network. Right now Telstra is getting compensation payment of around A$1,500 ($1,335) per household for deactivation.
Ovum’s Kennedy says there will need to be an agreement on the price of the sub-loop — the line between the customer premises and the node — to compensate for the loss of shutdown payments.
When it comes to building the network, the coalition is giving itself more options. Kennedy thinks Telstra is likely to be brought in as a major contractor, citing some work on the transport network it had already done for NBN.
The coalition plan also calls for the exploration of public-private partnerships with other telecom operators.
But it could take some time. Besides the renegotiations of terms, a number of the senior political appointees at NBN will have to be replaced. Plus, the coalition is planning four separate inquiries into the NBN project.
“It could take up to a year before they start building again,” predicts Brown.