Tuesday, June 30, 2009

Never let it be said I'm not generous ... plus my crazy idea!

A sign of generosity is giving publicity to views you do not share. I was alerted buy Communications Day to a site started by Todd Hubers opposing the Government's plan for an FTTP national broadband network. The site, noNBN.org, largely promotes the view that the $43B network is unaffordable, provides more capacity than is needed (and hence for which there is insufficient demand to justify the investment) and that it will take a long time to deliver.

This is all very interesting, even though surely the last two criticisms can't both be valid - isn't one of the reasons the capacity is so much greater than current demand based on the fact that it is being built for the demand in eight years time?

The site shows the classic weakness of having IT professionals from the user side engaging in discussions on the structure of public networks. An example comes in the promotion of various forms of mesh networks over more centralised switching. A claim is made that the latency issues of a mesh can be overcome by designing the entire route at the first switch. This is interesting but while it saves routing calculations at each step, it doesn't save the actual time taken by a router to receive and retransmit the bits, they never "pass through". It also ignores the reason why we use routers the way we do, to find a path when the obvious path is congested.

However, in fairness, the discussion does raise some important questions of overall IP connectivity architecture and whether the existing model is broken, as previously discussed.

I have some sympathy for the view though that wireless can deploy some speed upgrades more rapidly, especially to those not well served in metro areas by DSL. I remain hopeful that Government will understand that and aim to deliver more wireless earlier. But I also have sympathy for the calculations of John Ellershaw that by the time the 90% FTTH is completed it will make sense to continue that further. At this point wireless moves to the point of its major advantage, portability and mobility. We should not waste the radio space on services that can be delivered in fixed mode.

Later in Communications Day there was a further expansive piece from Kevin Morgan on a similar theme. It is written in the same engaging style as Kevin's submission on NBN regulatory reform. It poses to propositions, that this is our Kevin's "Field of Dreams" and that the structural element is distorted and based on no evidence. I don't propose to cover the structural stuff again here, but it is time we addressed the big cost question.

Various efforts have been made to relate a potential $43B build to a price per service. I've attempted my own version recognising that the $43B is for everything, not just FTTH, that there will be various price pioints, and there will be business grade and residential grade services. I could actually make it pay at a 10% discount rate and existing retail price points. A critical element is in the "take-up" rate, how many customers acquire a service. The higher the take-up rate the easier the case is to make (and the ower the price per customer connected).

But there is an entirely different approach to paying for the NBn that I've touched on before. To consider this alternative let's think about what has happened in the past when Government has installed new infrastructure - the example has to be local or State Government.

If you have ever been in an area newly serviced by a town water supply or sewerage you will know that you are not given an option about whether you connect or not, it is a requirement that you connect. And the connection does not come free, there is still a connection charge.

The logical extension is to say that when the FTTH NBN is provisioned to a location that householders have to pay a fee for the fact that the service is now available. There is a certain logic to this. If the NBN is available to house A but not to house B, then there will be sufficient potential purchasers of house A that will value the availability of the NBN that A will command a hgher price in the market. Is it reasonable that this householder achieves a private benefit from a public investment?

The clearest case of this is the greenfield estate issue where the puchaser will pay the whole cost of provision of fibre, whereas their neighbour in a brownfield estate is expecting to get an NBN delivered by the Government.

It is, of course, difficult to demand that householders pay for a service they might not consume (though many local Governments apply various levies to pay for general community programs), especially when the value is only realised on a subsequent transaction. For this reason the Government would be advised to provide a special purpose funding structure that the householder could effectively mortgage the property for the value of the NBN connection fee at a low (bond rate?) interest rate. The mortgage would need to be discharged when next the property is sold.

The scheme can significantly underwrite the capital cost of the NBN, thus dramatically reducing the monthly fees required for connections. In the extreme monthly fees could be limited to the need to pay ongoing operational costs (includingmaintenance and depreciation), plus any financing costs of the scheme.

The scheme could, however, also be used to drive take-up of services. The fee above is just for the NBN pssing the house. An efficient scheme would provide that the actual connection to the house is free if completed at the same time as the area is provisioned. his is only a viable option with the house servicing fee above.

As the Australian Government only supplies telecommunications services, not power or water, it has limited experience. For the last fifty years at least telecommunications provision has been about meeting unmet demand, not building in advance of demand. This makes the idea of a mandatory services levy seem like a crazy idea. But it isn't that crazy. It is capable of being administered, it is actually equitable, it imposes no burden on an individual now that they can't defer and it dramatically reduces the extent to which any funding is an un matched addition to Australian Government liabilities.

More importantly, while the idea is "crazy" I haven't had anyone tell me why it shouldn't be done.


Anonymous said...

Two points:
(1) the notion of a 'mortgage' suggests a substantial amount of $ - otherwise the transaction / administration costs will surely kill it - loan establishment fee anyone? And if it is that substantial, surely it will kill the public image of broadband, which to date has not been a product so great you want to mortgage your house to get it!
(2)Passing by (as Menzies said quoting the Elizabethan poet Thomas Ford, "I did but see her passing by, and yet I love her till I die") - but the devil lies in the last few metres for some - multi-unit dwellings to be specific, where to date cable and fibre rollouts continue to pass on by ... will unit dwellers have to mortgage their units too?

David Havyatt said...

Many thanks to johnnyz for dropping by.

I don't think people should get too hung up on relating the mortgage referred to here as the standard mortgage. It is nowhere near the size and the Phrase "mortgage your house to get it" implies the connotation of the same size as the oan to buy the house. The second is that the "establishment fee" on the mortgage covers lots of contractual activity that doesn't exist in my model. Think of it more as "an annotation on the title records that there is an amount of NBN levy owing to the Commonwealth that must be discharged if the asset is transferred".

The MDU problem is a challenge in any configuration. The simplest way to describe it is that reticulation from the common MDF to individual units is part of the common property of the body corporate. If the upgrade is normally financed each unit owner needs to make an extra contribution to the body corporate for the work.

Actually my crazy idea could be used to solve this problem as well, as the cost to connect can be defined to include any common property upgrade with the same process that each separate property title winds up with a charge to be paid in the future.

As I said above don't think of it as "unit dwellers having to mortgage their units" as "unit dwellers having the option to defer the cost of connection to when they sell he unit, such deferral to be recorded against the property title".

Todd Hubers said...

Very sensible and constructive comments about NoNBN.org. Thanks, Todd Hubers.

I must say, I haven't had much time of late to update the website to best reflect my understanding of the issues.

To say the least I have two thoughts on my mind now:
1. FTTN - The argument of upgradability is moot, when you consider this topology is much cheaper and can achieve 100Mbps. The difference can be spent in 10 years when faster ubiuitous speeds are required or on a case by case basis. Overall, leading to a lower peak debt, and cheaper access to consumers which equals more uptake and better financial viability, etc...

2. Wholesale LTE - Why 3 overlapping networks with up to 98% coverage, why not a single one with 100%?