[BITList] NBN mess: Blame laid squarely at Turnbull's feet

[John Feltham]

The man who led NBN Co from day one until he quit in July 2013 following a change of government lays the blame for the present mess largely at the feet of one man: the current Prime Minister and former Communications Minister Malcolm Turnbull.

In a detailed interview with iTWire, Mike Quigley refrained from mentioning names. But he was quite categorical in his assertions – and if anyone should know, then he should.

Quigley also said that the network would have to be upgraded after completion, at a cost of many billions of dollars. He said there was no practical way to turn back the clock now, and that he was not surprised that the NBN Co was not committing to stopping the FttN rollout and replacing it with FttDP.

"The challenges are not trivial in putting active electronics into the small pits reverse powered from a premise," he said.

He was interviewed by email.

iTWire: Would it be correct to say that the NBN as originally conceived made an error in trying to make the network profitable so early in its lifetime?
Mike Quigley: The original plan as detailed in the December 2010 Corporate Plan forecast being EBT positive in FY 2021 and Levered Free Cash Flow positive by 2023. So there really was no attempt to be profitable too early. Profitability and CF positive was not anticipated to happen until after the build was complete.

The IRR was going to be about 7% over the 30-year business case. So this was not a “commercial” project in the sense that a commercial entity would undertake and fund this project. That is why the government was doing it – because they were happy with a return above the government bond rate in order to solve the industry structure problem (see ACCC speeches at the time) and produce the societal and economic
benefits that would flow form ubiquitous high speed broadband.

Can you outline the crucial points in the lifetime of the NBN — from 2009 to the present —which have resulted in the current mess?

From mid-2009 the project was proceeding as you would expect any big complex project like the NBN to proceed - remembering that in mid 2009 the company NBN Co did not exist. There were challenges on a regular basis but these were overcome one by one.

The current situation is a result of the change to the MTM with its totally unrealistic timetables (every premise in Australia to have at least 25Mb/s by the end of 2016) and unrealistic financials (peak funding to be $29 billion, now $46-49 billion).

The original project was, of course, made more difficult by the unrelenting attacks on everything that NBN Co did in the 2009 to 2013 period. Statements were made by the then Shadow Minister that: two satellites were not needed as there was already plenty of satellite capacity, that the projected take-up rate was way too optimistic, that the ARPU projections were ridiculously high.

He has proven to be wrong on every one of these issues as he was on the MTM costs and timing. He was equally wrong on his statements that the original FttP would have needed $94 billion in peak funding - where he got that number from I have no idea.

Unfortunately, almost all of his pronouncements were treated as well-informed criticism by much of the media at the time.

Would one be correct in saying that it is the AVC and CVC charges that put gigabit connections out of reach for Australians price-wise?

No, the AVC and CVC charges were designed to provide subscribers with a better service (25/5 Mb/s) than they could get with a ADSL2+ service for about the same retail price. This was achieved as the data demonstrated. It is not unreasonable that if people want a Gb/s service then it would cost a bit more. Remember, the ADSL2+ services were riding on the copper network that had been depreciated many years ago.

The MTM and use of FttN and HFC means that it is no longer possible to guarantee speeds as you could with FttP. This limits people's willingness to order higher speed services and hence use more capacity and hence NBN Co revenue – making it harder to bring down CVC prices as rapidly as would have otherwise been possible

Would it be correct to say if it comes to an upgrade after the scheduled 2020 completion, most FttN cabinets would not have the fibre to supply the homes they are connected to with FttP?

It is correct to say that the FttN cabinets will have no value when the time comes to upgrade from FttN to FttP. I also have heard statements from NBN Co to say they will be useful. I wish someone in the media would ask them to please say exactly how they would be used – and then check if this makes any sense.

And further, that all new fibre runs will be needed from the closest fibre switch — usually the exchange — in order to upgrade, at a cost of $10 to $20 billion?

Yes, the fibre for an FttP GPON service would sensibly come from a FAN site (equivalent to an exchange). The upgrade cost is not known but it would be many billions of dollars as both the local network (from the optical splitter(s) to the pit or pole close to the premise boundary) and the connection (from pit or pole to premise) would have to be built - this was the largest parts of the original capex costs for FttP.

What, in your opinion, is the best route for the NBN to traverse now? Is there no way of changing direction to provide gigabit connections to at least most of the remaining homes that are not wired, in order that the cost of an upgrade is kept to a minimum?

There now is no practical way to turn back the clock and recoup all of the money that is being spent on the MTM. It is not surprising that NBN Co have not committed to stopping the FttN rollout and replacing it with FttDP. The challenges are not trivial in putting active electronics into the small pits reverse powered from a premise. That is why Verizon at OFC last month said they would not deploy FttDP.

Why is it that New Zealand, a country that Australians often poke fun at, has been able to get its NBN right and provide fibre to most residents? What is it that prevents Australia from getting its act together?

New Zealand originally started with FttN but then made a change to FttP in 2012, if my memory is correct. What prevents Australia getting its act together? That question can only be answered by the folks who initiated the MTM instead of continuing with FttP – which is now the most widely deployed fixed line broadband technology in the world. Using FttN made some sense for an incumbent telco who had a reasonable copper network to leverage. But for a government entity to use someone else’ copper network to build a new network across Australia starting in 2013 and then say this is a good long-term business decision is not credible.

If you were the Communications Minister right now, what course of action would you follow to get the best out of a fairly bad (in my opinion) situation?

I think that at the last election there was an opportunity to change course from the MTM to maximise the use of FttP but given the outcome that is not going to happen. I think you would have to be very optimistic to think there is going to be any change in direction now.

What role do you think the media has played in contributing to the path the NBN has taken?

I think significant parts of both the print media and radio played a major role in criticising the original NBN based on completely spurious “information”. By way of example, two amusing instances were:

A national broadsheet saying that it was going to cost between $3000 and $6000 for every home in Australia to be re-wired for the NBN; and

A well-known radio host saying we were wasting time and money laying fibre because a German research centre had just demonstrated a terabit per second link using “lasers”.

It would be an interesting exercise to trawl back through a couple of newspapers in the 2010 to 2013 period and see what nonsense was written about the NBN.

And finally, do you think that we will ever have the bandwidth to use 8K video when it arrives a few years hence?

This is not an easy question to answer and it will be quite a while before 8K video will have any significant penetration. But the issue is not 8k, it is the multi-person household with different people streaming video concurrently – not necessarily all for entertainment.

Chorus have a neat demonstration that shows that to get good response times for rewind and fast forward when streaming high-definition content, you need quite high peak speeds (around 100Mb/s).

The Chorus FttN network has a very broad distribution of peak speeds across the different length lines. I have not seen NBN Co provide the distribution of peak speeds achievable on the FttN lines they have so far connected. It would be an interesting plot to see.




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