Tuesday, September 09, 2014

How not to do Corporate Affairs

The results of a trial of a new approach by NBN Co to deploying fibre to the premises show that the NBN Co Strategic Review has over-stated the cost of this option. NBN Co now faces a new set of data in determining the most cost-effective way to build the NBN.

The Age on Saturday reported on the trial in a Fibre Serving Access Module in Melton included the use of small diameter cable and small footprint multiports. They were among a number of initiatives that the Senate Select Committee on the National Broadband Network noted had been ignored in the preparation of the Strategic Review even though the management of NBN Co has used them for the development of the Corporate Plan 2013-16.

More on the implications of this later, but the initial response from NBN Co's Corporate Affairs head honcho Karine Keisler was to jump onto twitter to deny the existence of the trial.

@NickRossTech @theage Nic it's an inaccurate report. Note the absence of NBN commentary. No such pilot. MTM NBN is cheaper and sooner.

In a statement released on Monday NBN Co claimed that it was untrue that the technology in Melton would make a fibre roll-out cheaper than previously estimated. NBN Co said the efficiencies applied in Melton - such as smaller diameter cables and smaller multiports (or splitters) - are already being employed in the NBN build across Australia. 

This resulted in an hilarious article from Richard Chirgwin in The Register that began

NBN Co has issued a press statement assuring media that in spite of what looked like a favourable assessment of its fibre-to-the-premises rollout procedures, things really were dreadful until the new government commissioned the Strategic Review.

Or perhaps things weren't dreadful, but they're really, truly, definitely better now, trust us. Or something.

Fairfax Media then ran an online story in which NBN Co admitted the paper existed but that it was "written by a well-meaning member of staff and was misguided." The article quoted the NBN spokeswoman as saying the report hadn't been endorsed due to "shortfalls in the methodology and metrics." 

But it went on to note that the spokesperson "acknowledged some of its findings had merit and had already been adopted in parts of the network rollout where applicable.  This included the use of thinner cables and smaller footprint multiport equipment."

This is where life becomes really messy for NBN Co. On the one hand they are trying to defend their roll-out as being efficient and adapting changes that can reduce costs and time. However, they also need to defend their own Strategic Review.

The report of the Melton trial compared the deployment to the average of 20 FASAMs completed in the Ballarat area. Telstra remediation works for the trial commenced in January 2014, though many of the initiatives being trialled had been identified prior to September.

The FSAM was completed 70% faster than the comparable FSAMs and at a cost per premise of 50% less than for comparable completed FSAMs.

However the technology choices being trialled were only included by NBN Co in version 13 of its 2013-16 Corporate Plan. This version was presented to he September 2013 Board meeting at which the bulk of the directors retired.

In preparing the "Revised Outlook" for the Strategic Review NBN Co elected to use only the architecture and technology as used in the 2012-15 Corporate Plan. As the Senate Standing Committee on the National Broadband Network noted this substantially increased the costs over the expected costs under the previous management team. 

The Senate Committee recommended that the Strategic Review be redone comparing only a fibre to the premises roll-out using the revised architecture and the Multi-Technology Mix once real costs of copper and HFC were known.

The Government's official response rejected the recommendation, stating that the Strategic Review was prepared to "evaluate the position of NBN Co and to inform decisions on a revised Statement of Expectations." The response also advised that "more detailed view on the issues arising in respect of this recommendation" in the Government commentary posted to the Minister’s blog.

That commentary only questions whether the previous management could have achieved the lower costs, not whether lower costs could be achieved. It is a circular argument that says "my proof of the assertion that the previous management was incompotent is the strategic review, and the strategic review did not include improvements because the previous management were incompetent." 

The only other justification is that the improvements were not consistent with the Corporate Plan. 

NBN Co's best response to the story was to simply ignore the concerns raised about the Strategic Review - to defend it was to defend a document that has been tainted with politics. The only reason why the question of what the impact of the technology changes would be is that the Minister has used his $73 billion price tag claim ceaselessly. 

The Melton study simply shows that this is an artificial over statement of the cost of building FTTP.

NBN Co management needs to be as disciplined as the previous team was - that their task is to implement the objectives of the Government as communicated in the Statement of Expectations.

The next instrument that will come from NBN Co of relevance is the Corporate Plan 2014-17. At the annual results briefing NBN Co CEO Bill Morrow said the Corporate Plan had been submitted to the Government but indicated the company is still revising the outer years. Some of the recommendations from the still unreleased Volume 1 of the Vertigan expert panel apparently have implications for the plan. 

Morrow also advised that the targets to June 2014 are still based on an almost exclusively FTTP roll-out.

In finalising its Corporate Plan NBN Co must acknowledge two simple facts. 

Firstly, an FTTP network can be built faster and cheaper than assumed in the Strategic Review. 

Secondly, concluding the agreements necessary to implement the Multi Technology Mix is taking longer than planned.

Ultimately, the Plan needs to deal with the fact that replacing one technology (FTTP) with four (FTTP, FTTB, FTTN and HFC) is only making an already complex project more complex. That complexity will ultimately be resolved at the level of the business rules for technology choice. The Government’s Statement of Expectations issued in April states:

NBN Co will ensure the business rules it establishes to determine which technology is utilised in each locality are transparent to the community, and periodically updated to reflect technological and commercial developments
The Minister, NBN Co Board members and NBN Co management have all claimed the benefit of the current Government’s approach is that NBN “should be built in a cost effective way using the technology best matched to each area of Australia.”

The Melton trial is another valuable component in making these decisions. In his letter to Australians published on the day after last year’s election, the Prime Minister said:

We will deliver a new business plan for the NBN so that we can deliver faster broadband sooner and at less cost. I want our NBN rolled out within three years and Malcolm Turnbull is the right person to make this happen.

The Minister broke the promise to provide all Australians with 25 Mbps by 2016 when he released the Strategic Review. He claimed that NBN Co was in worse shape than he expected; even though his Strategic Review’s worst case was still $20 billion less than had been claimed by Mr Turnbull in April 2013.

NBN Co in its response to the report of the Melton trial, once it got beyond trying to deny its existence and conclusions, rightly noted that the Multi-Technology Mix allows the company the ability to make its own technology choices based on which is cost effective.

As the Minister said in April last year “We know that fibre to the premises is the best technological solution and if you can build it cost-effectively you should do so. If we're able to build more of it cost-effectively then we would do so." 

This is the promise the Minister  must not break; the promise to let NBN Co make its own technology choice to meet the Government’s objectives. 

And the NBN Co Corporate Affairs team needs to be focussed on promoting the company, not defending the politics. It doesn't need to trumpet that "MTM is cheaper and sooner" as appeared in the tweet - just that the Government has provided NBN Co with goals and flexibility of technology choice and NBN Co will do whatever it can to do that in the most efficient manner possible. 

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