Friday, September 23, 2011

NBN Pricing

I provided a detailed analysis of the coalition claims about NBN prices today for iTnews. I step through each of the three claims made, the one based on a top od the range ADSL vs NBN prices from Internode, the bottom of the range comparison for iiNet and the mythical 5% price rises.

I also touched on the underlying issue of people unable to comprehend how that much capital can be spent without needing dearer prices and the myth that it has been competition that has reduced prices.

In my earlier drafts I had a comment that the tech media had largely ignored the comments, but today a few decided to prove me wrong.

First off the blocks Stan Beer asserted that the NBN would cost you more - entirely based on the monopoly argument.

Stan concedes the point that 70% of premises get their broadband from private monopoly twisted copper - but then in a leap of illogic says prices are kept down because it is heavily regulated and subject to competitive pressures. The level of downstream competition in the NBN vs ADSL world increases not decreases due to structural separation. The NBN is as heavily regulated as the copper network.

The HFC networks are not being mandated to shut - they are doing so as commercial transactions. The Government is prohibitting competitive overbuild just as, by the way, every Government on the planet bar Australia's did for HFC. The network is sub-additive in costs and competition is therefore inefficient.

Finally there is no mandation that wireless can't be sold in competition to the NBN, neither Optus nor Vodafone are constrained. Telstra is only narrowly constrained by the limitation on marketng wireless as an alternative to fixed line broadband during switchover. These last two points I made in last week's iTnews column.

Another rambling set of non sequiters was later published on iTnews today. It asserted that announcing prices now was providers playing politics and sucking up to the Minister. Certainly there was a degree of the reverse - fighting NBN pricing - in the original Internode prices but they did get CVC price reductions.

But there are prospective customers soon (none of the release sites are yet accepting commercial customers) and so providers need prices. Also providers now it is much harder to increase rather than decrease prices - I guarantee they are not low-balling.

The article otherwise made assertions that the NBN Co must experience cost blow outs siting the BER, though the auditor-general found the BER worked well.

It also relied on the hand waving about competition.

Then dear Renai le May commented about the total price construct and asserted that it was too much framed by ADSL thinking while the NBN is really a "giant LAN".

The problem is that the NBN is exactly like ADSL in overall network architecture - each ISP is a hierarchy of star networks of CVC and backhaul costs. They interconnect at 2 or 3 points not all 120 POIs. That means the cost model is just the same as it is for ADSL and speed and download are proxies for the cost of CVC and backhaul transmission required for each customer.

I actually had coffee with Market Clarity's Shara Evans yesterday. She was showing me her NBN Bandwidth and Price Scenario Model. Anyone really wanting to understand the cost structure of NBN services should consider acquiring the model (it is quite reasonably priced given the model complexity).

It has been said that the only certainties in life are death and taxes. To that I would add NBN FUD.

Novae Meridianae Demetae Dexter delenda est

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