Analysis: The destruction of the NBN

Analysis: The destruction of the NBN

From one of Australia’s best political ideas to a smouldering mess of ideology trumping the good of nation, the NBN looks likely to fail in almost spectacular fashion.

The NBN has become the dying canary of grand political long term thinking in the era of the 24 media cycle. From its humble beginnings as a refresh of Labor’s ICT policy, it has since blown out to a staggering political hot potato, struggling to gain traction or respect as its masters continue to destroy it via a thousand small cuts. It’s amazing how a once-in-a-generation plan to revolutionise Australia’s communications system by pulling out centuries old copper assets and replacing them with a long term fibre solution has been destroyed by petty ideologies and biased reviews.

Destroying the NBN from the inside out

Labors’ original plan for an Australia-wide fibre network was ambitious but certainly not unattainable. It was expensive, sure, but the economic benefits would have been staggering – regions limited by their communications infrastructure would blossom as their intellectual assets were released by technology. Copper that had degraded over decades of poor maintenance or environmental degradation would be replaced by fibre that is much less expensive to keep alive and less susceptible to the ravages of the Australian landscape. NBN Co (now nbn™) would have easily returned a healthy profit for the government, over time.

But it was all for nought. As part of Tony Abbott’s campaign to win Government at any cost, he turned his sights to the single largest government project since Snowy Hydro, and enlisted one of his smartest assets to neuter it. After initially losing his fight to dissolve the project, he instead worked with Turnbull on a way to make it less effective by dismantling the inner workings of the company and separating its build into a vast number of disparate, obsolete, technologies. This worked wonders. Conservatives felt satisfied that the “lower cost, faster build” mantra would sell to sceptical voters and allow them to be looked at as a genuine option.

After the election, the flurry of proposed reviews and plans began, and it was of no surprise to anyone that they all supported the new government’s position. Labor’s plan was “dramatically” more expensive than the Coalition’s proposed “Multi Technology Mix” plan. It would, in fact, be cheaper and faster to build! But don’t worry too much about the dramatic loss of speed for around 38% of the population, who would be lucky to get 50Mbps for the foreseeable future. Nor the other 32% who would be stuck on aging, shared HFC infrastructure, relying purely on the fact that the government would continue to upgrade this over the next decade to keep up with the demands.

Instead, nbn™, now with a brand new leadership team and fancy new branding, had decided that it needed to start doing better PR. It flooded the media with positive thought bubbles about experimental technology like G.Fast. It cited small trials in other countries of DOCSIS3.1 and its ability to potentially deliver Gigabit plus speeds. It published the results of their own small trials as examples of what could be replicated across the country. “Don’t worry about the new plan,” nbn pleaded, “it’s just as good as the old one if we tinker with it a little”.

Hard truths hidden just under the surface

But those with knowledge of the existing network that was set to be augmented knew better. They knew that the state of almost every currently used asset was in awful condition. Optus’s HFC assets, and Telstra’s copper in particular, had been woefully maintained over the years since their introduction. It was well known in networking circles that unlike Telstra, Optus had barely kept pace with upgrades to ensure new customers were able to get their promised speeds. In most cases, equipment hadn’t changed at all since their original deployment in the 1990s. That said, Optus managed to offload it to then NBNCo for $800 million. The damage bill? - $375 million.

But it was the copper that would cause the biggest headache. Delimiter ran a piece way back in 2012 that showed a variety of pictures showcasing the actual state of copper in many areas. In most cases repairs were staggeringly shoddy – short term plastic caps (or even thin bags in many cases) along with crushed ducts, collapsed pits, exposed wiring, decades old switching equipment and loose, unorganised or labelled nodes. Telstra initially wrote these pictures off as nonsense, claiming that the network was largely fine and that the pictures were simply cherry picking.

nbn™ later paid (promised) Telstra $11.2 billion for the rights to access the aging network, believing Telstra to a point that it assumed it would only have to pay a few thousand dollars per node for remediation. So it was again a surprise to almost no one paying attention when it was recently revealed that the repair bill alone would cost a whopping $641 million, almost 10 times what was originally estimated during the original “strategic review” the federal government used to justify keeping the status quo.

It’s these, and a number of other factors, that have ballooned the potential final completion cost from the planned $41 billion to between $46 and $56 billion, likely sitting around $51. Labor’s revised build cost in 2012 after pressure from the Coalition listed this as $44.1b. At the very least, now, the Coalition’s basket case of technologies is likely to cost at least a few billion more than a full-fibre rollout, not less.

So it won’t be cheaper. How about faster? Probably not. The cost overruns on remediation and overbuild are likely to stretch out the build far past the target of 2020. This isn’t taking into account the continued issues with funding (the Coalition is only directly funding nbn™ to the tune of $29.5b, hoping to raise private debt for the rest) nor the fact that a staggering 24,544 nodes will need to be built.

Is there any silver lining?

Regardless of how poorly this issue has been handled by the Coalition, there are still some silver linings. nbn™ is still full of some fantastic network and civil engineers; simply looking at the technical white papers shows this. They have proven very capable of making lemonade out of lemons and I have no doubt that if anyone can pull some magic out of our aging infrastructure, it’s them. The second part is that, well, nbn™ still exists at all. For many people, especially in regional areas, whatever they are given is likely to be whatever they would ever get. Let’s not forget that if the Coalition had won the 2010 election, it wouldn’t.

The other is that as more issues rise up, particularly around copper and HFC, fibre again becomes a value proposition. If a particular area is going to cost hundreds of thousands just to replace copper, what’s the point? My only hope is that, again, ideology does not trump common sense and that fibre does become the rule in these situations rather than the exception. This was the original plan as part of the mix, although internal documents show FTTN/FTTC narrowly trumps fibre on a dollar for dollar basis.

But in many parts of Australia the situation is so dire that thanks to changes made by the Coalition in order to encourage private investment, small, start-up ISPs offering Fixed Wireless connections are dropping radios with fibre backbones on large buildings, providing users with the 30-50mbps products without needing to wait for the government to get there. Although this does present a quandary – what happens when Fixed networks hit their limits? What happens when nbn™ is eventually sold onto private hands and promises are made in regards to customer numbers?

The final twist

After all of the crowing, it seems like the new Turnbull government isn’t willing to put up with the political cost of this MTM they put themselves into. The AFR reported on Friday that the government is already in talks with large telcos (which we can assume to be Telstra, Optus, TPG and M2) to offload the existing network for as low as $20b, which would constitute a staggering loss and basically re-establish a private monopoly between Telstra, who has been sourced as the likely bulk bidder, and two smaller ISPs – I would likely guess TPG and Optus.

The communications minister, Senator Fifield, has appeared to pour cold water on this claim, saying that “There are no plans to sell nbn”. But let’s face it – these sources exist. It’s not entirely unlikely that the government could flip on this claim after the election. The seeds have already been planted and there were always plans to sell the network once it was finished in order to recoup its capital costs.

So, If true, this would basically ensure the destruction of any, true, national broadband network. Although unlikely to pass the Senate, enough concessions could be made in a post-election environment to ensure passage. These measures, like those made on Telstra post privatisation, would gradually be loopholed and bypassed over time to a point where we would be back in 1995 all over again. Telstra and TPG have shown keen interest in fibre and would likely roll it out (at a premium) in city areas, but the regions would again suffer. Wholesale access would come at a much higher cost and prevent competition from truly flourishing.

I would hope that this doesn’t occur. But Labor’s gradual relaxation on the state of the project does not give me faith, as it would take an enormous push to keep the network afloat at this rate. The cost pressures will not help, nor would the lack of faith taxpayers have in the government to keep thing going. With all political capital slowly leaving the project, what was once one of Labor’s greatest ideas is looking likely to be left like a car wreck on the side of the nation's political highway.

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