Malcolm Turnbull, likely soon Communications Minister, wants to bring down cost
Julia Gillard’s Labour government is only a vote or three from falling and far beyond in the polls for an election next year. If the opposition Coalition takes over, Shadow Minister Malcolm Turnbull will likely be in charge. He’s serious about a “Cioffi flip,” canceling the fiber home build and using VDSL over copper for the home connection.
Turnbull made a forceful speech to the CommsDay event, asserting NBN as currently planned is “on the path to price gouging” due to heavy capex running fiber to 93% of Australian homes. They also are launching a satellite and building wireless networks for the remaining 7%. The budget is over $40B - $5,000/home for 8 million homes.
Turnbull is on target on one crucial point: $5,000/home is off the wall, given that the extremely remote will be served by satellite. Other large carriers are fibering for far less, even adjusting for the NBN goal of reaching 100%. Something is profoundly wrong with the NBN budget. The $11B+ being paid to Telstra to not compete is part of the problem. Turnbull wants that renegotiated; NBN is paying too much, apparently a bribe to Telstra not to fight the network.
A second cost escalator is a schedule that goes too fast at the beginning, before the field installers develop the skills they need. Verizon deliberately went slowly the first two-three years, developing systems and crew experience. They easily met every schedule milestone after that and constitently lowered costs. At Qwest, the more experienced teams could connect a home in half the time of those with less experience.
Much of the budget problem is clearly political choices made by a management unwilling to be tough to bring down the price. The Australian taxpayer deserves better.
Turnbull is also right that the NBN pricing is distorted for political reasons. NBN artificially is pricing moderate speeds low and the higher speeds much higher. The price on minimum service was deliberately set at about the price of current Australian broadband. The price for the higher speeds - which cost very little more to deliver - will be much more. That misses the whole point of the NBN, which is a faster Internet for all Australians.
NBN czar Mike Quigley did this to forestall criticism that "NBN will raise Internet prices." But there's little reason to build NBN if most users remain at lower speeds; Quigley instead should have fought to bring his costs down. In particular, using poles instead of digging in less dense areas would save a great deal of money. The cost per home of digging is so high I think it's reasonable to go aerial if people want a new network.
Not running fiber for the last kilometer or so would save money. I call this the "Cioffi flip" because John Cioffi, a key inventor of DSL, has been so vigorishly advocating VDSL/fiber as a way to save money compared to pure fiber. Vectoring, bonding and good system management has raised VDSL speeds over short loops to 50 and 100 megabits, as Origin Broadband is proving in England. http://dslprime.com/dslprime/42-d/4774-middle-of-england-dsl-live-speeds-of-80-120-megabits. From the point of view of a carrier maximizing profits in the near term, using DSL instead of fiber is very attractive. AT&T took this approach and saved a great deal compared to Verizon's full fiber. On the other hand, Verizon fiber is doing a better job winning customers from cable.
Without any announcement, both British Telecom and Deutsche Telekom have virtually eliminated fiber home from their new networks. Behind the scenes, France Telecom is fighting hard at ARCEP to reduce the fiber home build in favor of VDSL. While that may be best for company profits, a fiber build with a full gigabit service may be better for a country. Many of the benefits of the Internet are external to the carriers, especially where competition holds down the price they can charge. In addition, governments can think in terms of benefits over decades while companies rarely look even five years ahead. I'm on record supporting the NBN spending more for the fastest practical network because of the benefits to the nation over time.
Turnbull hasn't provided an estimate for how much would be saved switching from full fiber to fiber/DSL. We can make some estimates from costs claimed by other big varriers. Verizon is currently spending about $800-1,100/home for a full fiber network designed for 80-85%. The current (GPON) version is easily able to approach 1 gigabit/home nearly all the time. AT&T is spending $300-400/home for a DSL/fiber hybrid (FTTN) that is currently designed for 25 megabits down but easily upgradeable to 50-100 megabits with vectoring and bonding. The difference is $400-$800 per home. One expert believes Verizon's true costs are higher than the company claims; certainly some carriers are spending more.
Rural costs are of course higher but more difficult to estimate. The U.S. Broadband Plan did some pioneering work here. They discovered that the extraordinary cost of rural builds was due to an extremely small number of truly remote sites. Australia is reaching the last 7% with satellite and wireless. Most rural areas have the bulk of their homes either in small towns or along the main roads mostly in clusters, where the costs are reasonable. Only a very few homes have extreme distances, on larger farms or similar. Half the cost of 100% U.S.fiber would from the last 44/100ths of 1% of homes. The U.S. also plans to service the highest cost homes with satellite but for political reasons never says that. For this calculation, I'm using the Verizon $800-$1100 for the first 80-85%, so the problem is the cost per home of the next 8-13%.
Using satellite (and sometimes wireless) for the highest cost areas reduces the cost per home enormously. Rural builds in the U.S. typically run $3-10K/home, much of that because of the small scale of the little carriers and their projects. The engineering work for a single build of 2,000 or 3,000 homes is far higher. Equipment prices in low quantities are twice as expensive. NBN has the scale to get good prices the most expensive homes are getting satellite. So in NBN volume I'd estimate this last 8-13% of fiber homes should cost $2-4K/home.
I'm not sure how much cheaper it will be to run fiber to the node and then VDSL in these semi-rural areas. There's little public data on similar builds. I suspect most of the distances are beyond the kilometer or so that allows big savings from FTTN/VDSL but you'd need to dig into the NBN data in depth for an accurate answer. I'm guessing a $1,000/home saving would be high.
6.5M homes - the first 80% - at a savings of $400-800 each would have saved $3-5B. Another million homes at a $1,000 saving adds a $B. The construction has begun with fiber and more is contracted to fiber. Actual savings would be more or less depending on local conditions. A very careful survey and good engineering will be required to find the best choice for each neighborhood.
Australia apparently could save $billions by going for 50-100 megabits rather than a gigabit.