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NBN speeds throttled by business model

The Australian Financial Review published a piece today going into the core issues of the NBN business model and the CVC dramas.

There are a couple of quotes and opinions from me on the fact that this is an economics problem rather than a technology problem.

But NBN Co’s pre-occupation with fighting political battles saying Australians don’t need higher download speeds is conflicting with the necessity of promoting higher speeds to achieve there revenue targets.

This week I published two blogs to cover this topic in more detail.

These blogs are available here and here.

Making the best out of the NBN CVC predicament

Yesterday I posted about NBN Co’s conflict between promoting higher quality broadband (ie. higher speeds and higher downloads) to help it achieve its revenue targets and its political mandate to say Australians don’t really need the higher speeds possible under a FTTP network.

This underlying conflict is making it hard to solve the CVC pricing problem that is now threatening to force NBN Co to write off a large part of its investment in the network.

NBN Co needs to start fully promoting the speed of its network rather than shy away from this issue.

The first step would be to release the database it apparently has on the “theoretical” maximum speeds available to all consumers.

Currently, customers have to rely on their RSPs to obtain information about the maximum speed available. Obviously most people don’t trust this information, especially when it comes from someone who is trying to sell them something. The ACCC has been lax in following up behaviour in this area for years but is now trying to claw this back. It is probably too late and NBN Co needs to get on the front foot.

NBN Co could inform customers of their “theoretical” maximum speeds with the address search tool on its website. NBN Co  is also able to prevent RSPs ordering speeds higher than this “theoretical” maximum speed.

Being more transparent on speeds and making sure customers are not oversold is a no brainer first step for NBN Co to win back some trust from the customer. It would stop more embarrassing situations arising such as Telstra’s forced downgrading of speeds to 8000 customers after they were oversold.

The next step would be for NBN Co to publicly release information about the amount of CVC bandwidth RSPs are purchasing. A relatively straight forward “contention” or “quality” index could be used to benchmark RSPs in different areas.

This could also be made available on NBN Co’s website with the address tool so that a customer can see which RSPs are serious about quality broadband and which are just looking to sell the cheapest low quality plan.

NBN Co must re-orient itself towards consumer protection when it comes to information that is shared with the consumer. The ACCC should support this and any issues around confidentiality and commercial issues should be debunked as soon as possible. NBN Co needs to be more aggressive in standing up for customers and ensure transparency in network dimensioning. Relying on the ACCC’s broadband speed benchmarking exercise will not be enough as this will inevitably be a national result rather than a local outcome related to the customer’s service area.

Thirdly, NBN Co should publicise its plan to reduce the CVC price in line with the increase in average monthly downloads across the network. NBN Co should not be seen to be “gouging”customers because of increased usage due to media streaming consumption or other applications.

Usage increases have minimal impact on NBN Co’s FTTP and FTTN cost structures (but do impact HFC, Fixed Wireless and Satellite networks), so increasing consumption should be broadly revenue neutral.

The whole point of the CVC is not to make more money as usage grows, rather it is the way that RSPs can offer cheaper plans to lower usage customers compared to higher usage customers.

We should remember that customers have no effective choice for their fixed broadband network. If NBN Co has a flat price regardless of usage then low usage customers will move to the only other alternative – mobile broadband. Mobile operators will see this as an extra revenue opportunity and seek out lower usage customers to bring to their networks.

This is not in NBN Co’s interest and will result in mobile networks being congested as they chase the low usage fixed customers.

If NBN Co cannot make the CVC revenue neutral over time and achieve its ARPU projections it should write-off the necessary part of its investment to make this happen. Relying on more revenue as usage increases is a fallacy. The revenue won’t come and the users will find alternatives. The whole point of the NBN hinges on this fundamental issue.

NBN Co’s CEO Bill Morrow has announced ($$$) a review of its pricing structure as part of its image problem fix. But changes to pricing are difficult and will require involvement of the ACCC if drastic changes are contemplated.

The above steps can be done without the ACCC’s sign-off. In fact the ACCC should actually encourage NBN Co to do all of the above to help with its role of protecting consumers.

It will be interesting to see whether NBN Co grasps this opportunity to lead with speed, quality and transparency rather than fight old political battles.

 

 

 

 

 

Is speed NBN Co’s enemy or friend?

NBN Co have got themselves into a bit of a pickle lately with complaints over the cost of the CVC charge becoming louder and louder.

At the heart of this issue is the need for NBN Co to achieve its revenue objective of $52 per month per connection which will give them total revenues of around $5 billion in 2020.

In its last half year results NBN Co’s CEO Bill Morrow highlighted the need to sell higher speed services to increase the average revenue per user (ARPU).

But all the focus is on the cost of the CVC with RSPs complaining that the high cost is causing them to provision less bandwidth resulting in congestion during peak periods.

At the core of this problem is NBN Co’s need for retail broadband plans to have higher prices for higher quality broadband (ie. higher speeds and higher usage limits). NBN Co is expecting the ARPU to rise over time as more applications and services require higher quality broadband. Without this increase in ARPU for higher quality services it is unlikely that the revenue targets set by NBN Co will be achieved.

However, NBN Co has also been messaging to the market that higher speeds are not that important. After the change in the technology mix to FTTN and HFC (as opposed to FTTP), NBN Co has been very loud in saying that higher speeds are not in demand. It has for instance made it very clear that Australians do not have a need for Gigabit services. Of course politics is behind this “no need for speed” messaging so as to justify the move from FTTP to FTTN and HFC.

NBN Co wants higher speeds to increase revenue but is also saying that speed is not really important.

Naturally the market is confused!

Higher speeds are also linked to higher downloads. If customers pay for higher speeds it stands to reason they will also consume more data and hence NBN Co will also achieve higher revenues.

At the moment RSPs are focussed only on selling broadband at the lowest price point they can sustain. This comes from the need to manage a transition from previous ADSL and cable broadband services in a way that minimises risks of market share loss.

Naturally consumers don’t want to pay more at the best of times. The confusion, controversy and contradictory messages from NBN Co makes it even harder for the RSPs to sell higher quality broadband.

The result is most customers going for lower plans. Why lock yourself into a 24 month contract for a higher speed plan when there is no clear guarantee you will get the higher speeds because of technology, congestion and political uncertainties?

NBN Co needs to re-assess its whole message to the market. Does it want to provide a high quality network that drives higher quality applications and services that RSPs can sell at higher prices?

If not then NBN Co will have to be satisfied with lower ARPUs as RSPs demand lower prices (eg. CVC) as they compete with each other on price alone.

The end result of the latter scenario is that Australia will have spent billions of dollars building a network that is reduced to a lowest common denominator marketing message that promotes basic broadband at the cheapest price.

Of course it doesn’t have to be this way.

The first step is for NBN Co to recognise that speed is its friend not its enemy.

 

NBN Co clarifies larger Satellite downloads come from extra spending

NBN Co has clarified, in a response to questions raised by CommsDay ($$$) following my blog post, that the 2nd SkyMuster satellite was not originally intended as a “dormant backup” as per the original NBN Co press release.

Source : CommsDay 12 July 2017

Source : NBN Co

According to CommsDay the NBN Co spokesperson said :

“NBN had planned to adopt a one-to-one load balancing between the two satellites in terms of offering redundancy although the second satellite capability would have also provided some extra capacity in some of the more heavily utilised spot beams. However, in December 2015 we were able to modify our plans to invest around $300 million to extend the fixed wireless and fixed broadband networks, which enabled us to reduce the number of premises to be served in the more heavily populated Sky Muster spot beams.” (Emphasis added)

“This in turn allowed NBN to use our second satellite to primarily deliver additional capacity rather than redundancy and NBN was able to launch commercial Sky Muster services in April 2016 with a fair usage policy that enabled 30GB/month average peak downloads for end-users. With over a year of operations under our belt and some key optimisation processes in place NBN has now been able to further increase the overall capacity available on the Sky Muster platform which has in turn allowed us to increase average peak downloads for end users to 45GB/month,” the company explained.

UPDATE : You can now access the full CommsDay article which has been released on Twitter :

So, based on these statements from NBN Co, the recent increase in average peak downloads from 30GB/month to 45GB/month was primarily as a result of an extra investment of $300 million in the fixed wireless and fixed broadband networks. This has enabled some users to be moved from the satellite footprint to the fixed wireless or fixed broadband footprint.

This contrasts with the original reported comments of Bill Morrow in May 2016 where he said, “It doesn’t make much sense to have a $200-to- $300 million insurance policy up in the sky. So we have repurposed it for capacity.”

In short, the extra capacity is from NBN Co spending more ($300million) rather than the “repurposing” of an under-utilised resource (i.e. the 2nd satellite) costing at least $300 million.

All we need now is for NBN Co to make sure the politicians get this message as well and we don’t have a continuation of the following misleading comments :

Source : Press interview by Minister for Local Government and Territories, Fiona Nash on 10 July 2017 Courtesy : Seven Network

 

Setting the record straight on NBN Co’s 2nd satellite

NBN Co have made some recent announcements about increases to the wholesale data limits available on the SkyMuster satellite service. This is good news for those Australians located in remote areas unable to take advantage of other NBN technologies (ie. FTTx or Fixed Wireless).

Source : NBN Co

NBN Co is justifying this increase on the back of some recent re-engineering to bring into use the second SkyMuster satellite for this extra capacity rather than keep it as a “dormant backup” satellite.

In particular, the NBN Co press release of 27 June 2017 quotes Bill Morrow as follows:

“Late last year we made the decision to re-purpose our second satellite, previously slated as a dormant backup service to actively share the load in delivering more data to customers on the Sky Muster™ service. After spending the last year reviewing and testing the capabilities of the service, we are now comfortable that we have the capacity to offer increased data packages to retailers.” (Emphasis added)

As I was the CTO of NBN Co during the period in which the planning, design and procurement of the satellites for this services was undertaken I would like to put the record straight.

It was always NBN Co’s plan to use both satellites, once successfully launched and commissioned, to provide services to remotely located Australians in a load sharing configuration.

This was not the first time Mr Morrow publicly stated that the second satellite (launched in October 2016) had originally been “slated” as a backup satellite to be used only in the case of failure of the first NBN Co satellite (launched 12 months earlier in October 2015).

I was actually in the audience at the CommunicAsia conference in Singapore on 31 May 2016 when Mr Morrow made a similar statement. The SpaceNews website reported Mr Morrow’s speech as follows :

“That second satellite was originally intended to be there for reliability and redundancy,” Morrow said. “As the satellite people will know, the probability of something going awry after a certain period of time drops down to almost nothing. It doesn’t make much sense to have a $200-to- $300 million insurance policy up in the sky. So we have repurposed it for capacity.” (Emphasis added).

These statements imply that the original NBN plan involved spending a substantial amount of taxpayer’s money as insurance only for a catastrophic failure of the first satellite and that the current NBN team has just worked out that the second satellite can be put to good use.

The most obvious proof point is the fact that NBN Co from the start pursued multiple orbital locations (or “slots”)  in geosynchronous orbit from which to operate the two satellites. This was a hot political issue back in 2012 when the Shadow Minister of the time raised questions regarding NBN Co’s ability to secure the orbital slots.

In fact NBN Co pursued four orbital slots in order to ensure two suitable slots were obtained. In a response to Senate Estimates question on notice NBN Co clarified this in May 2012.

Source : Senate Estimates Broadband, Communications and the Digital Economy portfolio Budget Estimates May 2012 NBN Co Question on Notice No. 333 (http://www.aph.gov.au/~/media/Estimates/Live/ec_ctte/estimates/bud_1213/bcde/nbn_288-345.ashx)

If NBN Co was planning on using the 2nd satellite as a backup then only one orbital slot would have been required. Both the active and backup satellites would have occupied this one orbital slot. If the active satellite failed then the backup would have been in the right position to take over operations. Importantly all of the operating satellite dishes installed on rooftops around Australia would not have to be re-pointed to a different location in the sky.

But with two satellites in two separate orbital slots NBN Co would be able to use both satellites to deliver services in a load sharing configuration.

But further proof comes also from various public documents from both Quigley and Morrow NBN eras.

Firstly, there was the 2011-2015 NBN Corporate Plan which clearly states that “To meet this requirement [of 200,000 users], NBN Co will need to launch two 80Gbps Ka-Band … satellites”

Source : NBN Co 2011-2013 Corporate Plan released on 20 December 2010 page 71 (http://www.nbnco.com.au/content/dam/nbnco/documents/nbn-co-3-year-gbe-corporate-plan-final-17-dec-10.pdf)

Secondly there was NBN Co’s SAU submission to the ACCC with its original SAU in December 2011 which included a document on NBN Co Network Design Rules. This document provides an overview of the NBN Co’s technologies and includes the following in terms of the satellite design :

Source : NBN Co Network Design Rules (provided to the ACCC in support of NBN Co’s Special Access Undertaking dated 19 December 2011 page 27 (https://www.accc.gov.au/system/files/NBN%20Co%20Network%20Design%20Rules%20%28public%20version%29%20%2819%20December%202011%29.pdf)

There is no mention of the 2nd satellite being used as a “dormant backup” for the 1st satellite. Both satellites are required in order to provide the necessary capacity to users.

Thirdly, NBN Co engaged consultants from Boston Consulting Group to conduct an independent review of the Fixed Wireless and Satellite projects in 2014. After Bill Morrow joined NBN Co as CEO in April 2014, a report was issued on 7 May 2014 that covers covers the satellite project in significant detail.

The report confirms the need for 2 satellites to provide broadband services to regional users in a number of places. There is no mention of the 2nd satellite being deployed as a backup.

Source : NBN Co Fixed Wireless and Satellite Review – Final Report release 7 May 2014  page 26 (http://www.nbnco.com.au/content/dam/nbnco/documents/nbnco-fixed-wireless-and-satellite-review-07052014.pdf)

In  “Section 4.4 Proposed Actions”of the report recommends a delay to the launch of the 2nd satellite for operational reasons but highlights that “This timing [ie. delay] should also not impact the end-user rollout as the additional satellite capacity [of the 2nd satellite] should not be needed until this time given the speed with which the industry can connect end-users” [See page 40 of the report].

And if these statements were not proof enough, NBN Co commissioned the consultancy firm Ovum to do a global satellite comparison in April 2016. This report clearly states that NBN Co is using two satellites to deliver the capacity for 200,000 homes and businesses.

Source : Ovum Satellite Broadband : A Global Comparison 27 dated 28 April 2016 page 3  (http://www.nbnco.com.au/content/dam/nbnco2/documents/Satellite%20Broadband%20-%20A%20Global%20Comparison%20-%20FINAL.pdf)

The NBN Co Satellite program was always controversial and highly political. The orbital slots were a point of controversy as mentioned earlier. Private satellite operators that subsequently collapsed ran campaigns slamming NBN Co’s satellite engineers and overall program.

Despite all these distractions the NBN Co satellite’s have been launched successfully and are delivering what was always intended from two load-sharing satellites.

Let’s hope NBN Co are not continuing to play these political games by making misleading statements of the original purpose, designs and plans for NBN Co’s two SkyMuster satellites to be used to deliver broadband to remotely located Australians.

TPG Telecom turns to mobile after fixed broadband investment blocked

TPG Telecom has acquired 2x10MHz of national 700MHz spectrum in Australia for $A1.26 billion. The unit price is approximately twice that paid by Telstra and Optus to acquire similar spectrum in 2013. TPG Telecom have announced they will spend an additional $A600 million to build a mobile broadband network to cover 80% of Australia’s population.

This development is no surprise. I wrote back in August 2016 that TPG Telecom, after being blocked by the Coalition’s crack down on competitive fixed infrastructure to NBN Co, would consider moving to wireless broadband. This would avoid the regulatory imposition to split wholesale and retail operations and also the NBN tax of approximately $7 per month flagged by the government.

The cost of this has been significant to TPG Telecom and in-directly to Australia’s telco consumers. The planned $A1.86 billion investment in wireless broadband will likely still only achieve relatively slow speeds compared to a fixed network investment. TPG will have effectively 40MHz of spectrum in capital city areas (20MHz in 700MHz band and 20MHz in 2.5GHz from an earlier auction). This will be sufficient to provide good mobile broadband speeds. More competition in mobile is a good thing for consumers but Australians already receive some of the best mobile broadband services in the world.

 

 

 

 

 

 

 

 

 

 

 

However, this new investment comes at the expense of investment in fixed broadband due to the Government’s desire to protect NBN Co from competition.

Australian fixed broadband customers will continue to rely on NBN Co which has steep financial mountains to climb in order to pay back the Government’s equity and debt investment. This is leading to higher prices for fixed broadband at slower speeds.

The Government has achieved a windfall price for the spectrum it has sold to TPG Telecom. But a win for the Government coffers is a loss for consumers and taxpayers who have missed an opportunity for private investment in fixed broadband.

This is all while Australia slips further down the international broadband rankings.

 

 

Australia’s Broadband Experience – A Case Study in how Government Broadband Policy can go horribly wrong

I was given the opportunity at Broadband World Forum Asia (in Hong Kong on 11-12 April) to present some of my views on Australia’s Broadband Policy disaster.

It seemed to provoke lots of good questions and interaction from the audience.

Telecom Times published the piece below – the full article is available here.

The presentation is available below.

 

Vodafone’s call for Gigabit Society applies equally to Australia

The Vodafone Group recently commissioned a paper on the benefit and need to develop a Gigabit Society based on Fibre to the Home (FTTH) and 5G networks.

The paper, prepared by consultancy firm Arthur D. Little, provides a strong justification of why deep fibre networks are required for the fixed and mobile broadband services of the future.

However the foreword by Markus Reinisch, Group Public Policy Director of the Vodafone Group, provides a very compelling call to action for European policy makers.

This call to action applies equally to Australia’s politicians and broadband policy makers. While NBN Co is focussed on rolling out its Multi Technology Model until 2020, Australia needs to think deeply about the next phase of investment in deeper fibre networks to support fixed and mobile networks to support the Gigabit Society.

The foreword, with highlights of particular points relevant to Australia, is reproduced in full below.

Why Australia’s internet is so slow?

In this recent YouTube clip the Australian’s Business Editor, Chris Kohler, puts forward three reasons why Australia’s internet performance has dropped to 57th in the world behind even Kazakhstan (see Akamai’s Q3 2016 State of the Internet report).

The reasons can be summarised as follows :

  1. Australia is a big country with lots of remote and isolated communities.
  2. Australia has reasonable infrastructure already unlike others that are starting from scratch.
  3. Australia’s internet companies are on an investment strike waiting for the NBN.

These three reasons are no more than convenient myths.

The core reason is vested interests are protecting their long held dominant positions and government policy that has entrenched these positions rather than promoting competition to promote investment in new technologies.

New technologies have driven huge change in telecommunications infrastructure around the world. In Australia we have embraced mobile technologies through infrastructure competition between mobile carriers.  The result is Australia is one of the best served nations in the world for mobile broadband. For fixed broadband it has been a sad, sad story of vested interests conspiring with government to protect their positions.

My blog has plenty of articles outlining these issues.

But let’s take each of these “reasons” stated by Chris Kohler and expose them for what they are – convenient myths.

Myth 1 – Australia is a big country with lots of remote and isolated communities

There is no doubt Australia has a big land mass and lots of remote towns and farms. When compared to Singapore and Hong Kong it understandable this will be taken as a reason why broadband is better in these “city states”.

However, Australia is also one of the most urbanised countries in the world. According to Wikipedia, Australia ranks 23 of 203 countries with 89.4% of the population living in urban areas. This compares to the United States ranked 41st (with 82.4% of population) and the United Kingdom (with 79.6%). Despite these higher rates of urbanisation the United States (global ranking of 20) and United Kingdom (global ranking of 28) have far better internet speeds.

But the best comparison is Canada with extensive social, economic and geographic similarities to Australia. On the urbanisation rankings Canada sits at number 43 with 80.7% of the population in urban centres (so significantly less urbanised than Australia) with a global internet speed ranking of 30 (significantly higher than Australia).

In fact Canadians experience average peak downloads speeds of 62Mbps compared to Australians who get only 46.9Mbps on average.

Furthermore, 52% of Canadians achieve better than 10Mbps average download speeds while only 28% of Australians reach this level of broadband service.

In short geography is not a compelling driver for Australia’s broadband experience. In fact being one of the more urbanised countries means Australia should in fact find it easier than many other countries to achieve better fixed broadband rates.

Australia’s mobile networks operate with the same geographic constraints but as stated earlier Australia has some of the best mobile broadband performance in the world.

Myth 2- Australia has reasonable infrastructure already unlike others that are starting from scratch.

This myth seems to be in the excuses list to overcome the embarrassment that some developing countries are achieving better internet performance results than Australia.

Countries such as Romania, Kazakhstan, Latvia and Slovenia are seen as countries that have “leap-frogged” older investments in copper telephone networks.

However, this myth does explain how this is an advantage. The cost of building new fibre cabling networks in countries without existing infrastructure is likely to be higher. New duct routes, poles and central office sites have to be built from scratch rather than repurposed.

The advantage may be that these countries have more incentives to improve their infrastructure to “catchup” to more developed countries. But this not a reason for Australia’s worsening internet performance rather an exposition of Australia’s lack of urgency when it comes to maintaining its international digital competitiveness.

This myth highlights more clearly than the others that Australia’s vested interests are not motivated by Australia’s international rankings but rather maintaining their current dominant positions in Australia’s telco landscape.

Myth 3 – Australia’s internet companies are on an investment strike waiting for the NBN.

This myth actually has some truth in it. Australia’s telcos are not investing in fixed broadband infrastructure.

But this is because the Australian government is actively discouraging investment. The previous Labour government put in place legislation that would force builders of new fibre networks aimed at competing with the NBN to offer their services on strict regulated wholesale-only terms.

After the change to the Coalition government in 2013, in response to the competitive “threat” from TPG Telecom, the government extended these mandatory provisions to all existing broadband networks (except those being sold to the NBN) and has flagged a new levy to be paid by all competitors to NBN Co for high speed broadband services.

In reality there are significant amounts of private investment that are ready to deploy more fibre based broadband to Australians – but the government is actively regulating and taxing to protect NBN Co from competition to presumably maximise its value under any future privatisation.

So there is indeed an investment strike – but it is because the government is regulating any investment to be non-commercial not because the NBN will meet all future consumer demands.

Summary

So there you have it – the myths about Australia’s growing broadband deficit will continue to be espoused by the vested interests while Australia falls further and further behind the rest of the world.

The NBN investment, in VDSL and DOCSIS technologies, will improve the situation. But after the rollout of this investment in 2020, Australia will have effectively caught up with what the majority of the developed world had achieved in 2010.

We will still be 10 years behind and wondering how we are going to fund the next tranche of investment so this does not blow out to 20 or 30 years over the next few decades.