Month: November 2015

NBN lets down Tasmania, again.

Kenneth Tsang 7 Comments

Tasmanian communities of Queenstown, Rosebery, Zeehan and Strahan will be forced onto an already “severely oversubscribed” satellite beam.

The company building the National Broadband Network (nbn) has revealed that they will no longer provide a fixed-line or fixed wireless solution to major settlements located along the west coast of Tasmania.

Up till July this year, nbn has released various rollout plans showing the towns of Queenstown, Rosebery, Zeehan and Strahan as candidates for the Multi-Technology Mix (MTM) and Fixed Wireless rollouts which would have seen Fibre to the Node be rolled out to the majority of premises.  The area was also expected to receive a Fibre to the Premises rollout under the previous all-fibre NBN policy.

  • Queenstown: 1,300 FTTN
  • Rosebery: 600 FTTN, 300 FW
  • Zeehan: 500 FTTN
  • Strahan: (originally planned for NBN Fixed Wireless)

However, when questioned by Senator Anne Urquhart at a Senate Estimates hearing last month — nbn‘s chief executive Bill Morrow revealed that they have re-allocated premises in those areas to be serviced by the recently launched NBN Satellite.  Citing high costs of up to $20 million to build out a second fibre path to the west coast towns, the executive said:

Because of the cost to provide fibre services in the backhaul sense to serve within the FTTN. The area only has one fibre path going out to it, and you need to have two for redundant based services. The cost—and we have looked at it a number of different times—to provide fibre out there in a different path makes it exorbitantly expensive.

The move to satellite has also been independently confirmed using NBN’s internal technology modelling.  However, the towns affected are all currently being serviced by Telstra ADSL/ADSL2+ services, with Queenstown having access to the Telstra 4G network as well.

“Severely Oversubscribed” Satellite Beams

The beams servicing this area, number 54 and 56, has also been identified by NBN’s Fixed Wireless/Satellite Strategic Review as being “severely oversubscribed” prior to the redesignation of the fixed-line footprint in July.  Adding another 3,000 premises would not improve the satellite congestion anticipated in those areas.

NBN Long Term Satellite beams
Diagram showing NBN Co satellite beams. Red beams are severely oversubscribed, yellow is oversubscribed. (FWSat SR, 2014)

However, given the availability of existing ADSL/ADSL2+ services in those towns, it is unlikely that residents will switch to the National Broadband Network due to increased latency.  As revealed last month, nbn will implement a fair use policy for the NBN satellite.  While the final policy is yet to be confirmed, the first version released saw a standard quota of 75GB per month… a far cry from the current data quotas on comparable ADSL plans.

Microwave backhaul

A report written by Engineers Australia in 2010 stated that the affected towns (amongst others) were serviced by Telstra using microwave backhaul links rather than fibre at the time it was written.  However, the testimony given by nbn executives at Senate Estimates suggests that a single non-redundant fibre path has been built since the report was written.

Originally, it appears that nbn had planned to build its transit network out to Queenstown (see diagram below, published in March 2014) using a single non-redundant spur fibre path from Sheffield or Burnie.

NBN Co's transit network
NBN Co’s transit network as at 31st March 2014

Opinion

$20 million to build a redundant path to service ~3,000 potential customers does seem unreasonably high.  I don’t think it’s wise to go ahead to do spend that money.

However, it does beg the question why NBN cannot use their own microwave links as the redundancy path to service the west coast communities.  Given there is supposedly already a single fibre path that nbn can utilise, using microwave links as a redundancy path would surely be cheaper than fibre — right?

nbn has effectively neglected these communities. I doubt anyone who lives in an area with existing, well-established communications infrastructure like ADSL/ADSL2+ connections and Telstra 4G mobile reception would opt for a NBN Satellite connection given their smaller data allowances (compared with fixed-line DSL) and higher latency.  This is most unfortunate, given National Broadband Network is supposed to fix and improve connectivity around Australia — not offer a degraded version of it.

I’ve seen isolated cases like this in the past — people able to access existing DSL broadband but placed on the satellite… but not to this scale.  Not entire communities like this.

Yes, nbn‘s current Government policy is to build the network out “at the least possible cost”… but that doesn’t mean putting   thousands of premises into an already severely congested satellite beam!  Our former communications minister, now PM’s buzzword of being “agile” seems to be lost at nbn.  Surely as a special case, there can be alternative arrangements made for the redundant path?

M2’s wholesale nbn could increase aggregation competition

Kenneth Tsang Leave a comment

The introduction of M2’s nbn wholesale offering could spark increased competition in Layer 2 and 3 wholesale broadband market

This week, the M2 Group announced the launch of their new “NBN Connect” offering for Layer 2 and Layer 3 providers.  “NBN Connect” will provide three core products to resellers and layer 2 service providers, helping them connect to all 121 NBN Points of Interconnect: “Brand Connect” which is essentially a whitelabel service, “Reseller Connect” an end-to-end Layer 3 network offering and “Network Connect” — a Layer 2 aggregation offering. This comes as nbn appears to be developing an AVC trunking product to help smaller service providers reach more points of interconnects.

M2’s offering competes directly with AAPT’s National Wholesale Broadband product, who also provides Layer 2 or Layer 3 services to retailers over the NBN.  After the closure of Nextgen Network’s NBN “Virtual Connect” offering around twelve months ago, AAPT became appeared to become the Layer 3 provider of choice with many virtual service providers.

M2 could also have a competitive edge with its wholesale offering with its “Brand Connect” product — a bespoke solution which could help manage billing, provisioning and customer service for to end-user customers.  This could be a dealbreaker for customers like major supermarket chains who may not necessarily want to run their own support staff.

One thing’s for sure — increased competition in this space is a welcome sight for virtual ISPs who presumably run on razor thin margins anyway.  The planned M2 and Vocus merger, which recently received ACCC approval, could translate to better performance in the currently debatable quality of the M2 network. Hopefully this translates to greater savings for consumers in the long run.

Revenue targets: why NBN should be doing more to promote higher speeds

Kenneth Tsang 11 Comments

By actively discouraging users and downplaying the need for high speeds, nbn’s media strategy is killing its own business case

(opinion) The national broadband network is all about bringing ubiquitous, high-speed broadband to all of Australia — regardless of where you live.

However, with the shift to the multi-technology mix and in the introduction of the Fibre to the Node technology into the network — nbn is doing its best to downplay the importance or the need for speeds beyond 25 Mbps download in order to justify its technology-of-choice.

Yet, as the company reveals itself, it will rely heavily on these downplayed high-speed users 5 years time in order to meet the required revenue targets to make their Multi-Technology Mix work.

nbn’s own figures: 100/40 Mbps expected to be most common by FY2021

By the end of the rollout, nbn expects more customers will take up the 100/40 Mbps speed tier than any other speed tier on the national broadband network. (nbn has only provided FY2021 figures here, but end of rollout is expected to be the end of CY2020)

According to their own figures provided at Senate Estimates this year, 30% of all fixed-line customers are expected to take up the 100/40 Mbps tier followed closely by 29% taking up the lowest tier — 12/1 Mbps.

(N.B The following calculations assume a 100% take-up.  While the latest corporate plan only assumes a 73% take-up, magnitude (and weighted %) should not be materially affected.)

(FY2021) FTTN FTTP HFC Aggregate
% takeup Approx. premises % takeup Approx. premises % takeup Approx. premises Approx. premises Weighted %
12/1 Mbps 31% 1,395,000 25% 600,000 28% 1,120,000 3,115,000 29%
25/5 Mbps 26% 1,170,000 27% 648,000 28% 1,120,000 2,938,000 27%
25/10 Mbps 10% 450,000 4% 96,000 2% 80,000 626,000 6%
50/20 Mbps 11% 495,000 7% 168,000 5% 200,000 863,000 8%
100/40 Mbps 22% 990,000 35% 840,000 35% 1,400,000 3,230,000 30%
250/100+ Mbps 0% 0 2% 48,000 2% 80,000 128,000 1%

Source: nbn AVC profile – Question on Notice 118 (Senate Budget Estimates, May 2015)

100/40 Mbps accounts for most revenue by FY2021

But if you look at revenue figures, in user access (AVC + UNI) revenue alone, the 100/40 Mbps users account for $1.47 billion dollars per year.  At an average 1:80 contention ratio, it could amount to a total of $2.32 billion in revenue if current CVC costs of $17.50 per Mbps is retained.

The expected revenue in the 100/40 Mbps tier is expected to be double of the next highest tier in revenue terms — the 25/5 Mbps.

(FY2021) Approx premises (millions) AVC per month AVC revenue (annual, bn) CVC 1:80 revenue (annual, bn) Annual revenue (AVC + CVC, bn)
12/1 Mbps 3.12 $24.00 $0.90 $0.10 $1.00
25/5 Mbps 2.94 $27.00 $0.95 $0.19 $1.14
25/10 Mbps 0.63 $30.00 $0.23 $0.04 $0.27
50/20 Mbps 0.86 $34.00 $0.35 $0.11 $0.47
100/40 Mbps 3.23 $38.00 $1.47 $0.85 $2.32
250/100+ Mbps 0.13 $70.00 $0.11 $0.08 $0.19

Source: AVC and CVC pricing based on nbn’s price list released on 2nd November 2015

While magnitude of pricing may be altered due to pricing changes and lower overall take-up, assuming take up profiles are met — the importance of promoting higher speed plans cannot be understated.

If nbn knows what’s good for them, they shouldn’t be focusing energy on discrediting the need for speeds beyond 25/5 Mbps.  Those are simply short-term political defences which could eventually harm the revenue capabilities of the company in the long term.

It is more important than ever to promote the higher speed tiers to customers who can access the speeds, given the MTM rollout by nature will prevent some customers who want the higher speeds from getting it (I’m looking at you, FTTN).

Beyond 100/40 Mbps

Unlike the 2012 Corporate Plan which predicted ~10% of customers will take up a 250/100 Mbps service by 2020 — nbn is now predicting that by fiscal year 2021, the take up of services above 100/40 Mbps will only be at 2% for both FTTP and HFC (0% for FTTN) — or in real premises figure, around 128,000 homes or businesses.  This amounts to roughly $190 million dollars in annual revenue.

This is a substantial downgrade in forecasts and it seems the only explanation that nbn is giving is that there is not current demand for speeds above 100/40 Mbps:

“… the services that we sell, 80 per cent is 25Mbps or less, yet we offer up to a gigabit per second … this is an indic­ation, right, of what people actually are willing to pay for and what they really need.”

Bill Morrow, June 2015

Yes, the company is using current take-up information to model demand in 2020.  It seems nbn might be having some trouble understanding the broadband demand and the market in Australia.

Are executives aware that there are currently no service provider who provides speeds above 100 Mbps on a residential connection? (There are 100/100 Mbps symmetrical plans using the 250/100 tier)

There is a few reasons behind this, but firstly, nbn‘s own CVC pricing is the key inhibitor in enabling these services.  Saying “market is speaking in Australia” but not recognising they are they key inhibitors in the market is a bit of a self-fulfilling prophecy — right?

You might as well jack up all nbn access costs to a million dollars per user and say: “The market is speaking! By 2020, no Australians will want any broadband from nbn!“.  It will most undoubtedly be a true statement if the company decided to go with it.

We also need to understand the extreme costs of buying backhaul to the nbn Points of Interconnect ruled by incumbent monopolies.  Plus, there’s the high cost of IP transit in Australia (that’s the cost of connecting to the actual Internet) compared with places like the US or UK because of the large bodies of water that separate us from the rest of the world.

However, market competition means that the latter of the two (backhaul and IP transit) will likely fall as demand increases.  But CVC costs?  That’s entirely controlled by the nbn as it’s not a competitive market.

So whether or not Australia will want gigabit speeds is almost entirely dependent on nbn, and judging by the tone used by this management, it seems they neither want to promote the speed nor get the revenue — which is a pretty stupid strategy in my opinion.

Concluding thoughts

So… dear nbn,

Stop dissing users who demand high speeds.  As a taxpayer who’s tax dollars are being used to fund the project, I want it to succeed in the long term — not just politically in the short-term.

According to your own numbers, the take-up of higher speed services is paramount in ensuring the return of investment to the Government and in turn, the taxpayer.

Saying there is no demand for speeds beyond 100/40 Mbps is another one of those dangerous, broad statements that reflect the short-sightedness of the company.

When telcos worldwide are spruiking to their customers about the wonders of gigabit connections, we are special in Australia.  We are somehow unworthy, and “unneedy” of these higher speeds.

Let’s play common sense, and promote things like any sane, commercial company would.  After all, we all just want this investment to succeed.