What the NBN will look like in 2020

The second phase of the National Broadband Network (NBN) rollout has commenced and it is now less than five years until the Coalition government has indicated the rollout will be completed so what will the NBN look like in 2020? One possible scenario is discussed in Business Spectator and you might be surprised by what will happen to the NBN.

Read the full article below

The national broadband network should presumably be rolled out by mid-2020 and the end result will inevitably dismay some and amaze others. It’s likely that the talk of selling NBN Co will be back on the agenda by then, along with a wholesale recognition of what this shallow version of the NBN truly represents.

By mid-2020 the NBN will have become critical infrastructure that underpins Australia’s slice of the $US1.36 trillion added to the global digital economy by the increased use of digital technologies globally. It’s a slice that will be significantly slimmer than what could have been garnered, courtesy of the deliberate manner in which the original NBN was hamstrung.

Public-private partnership

The NBN has polarised the nation and will fuel discontent for decades to come. It will certainly be seen as an object lesson in whether or not a government can be trusted to embark on large infrastructure projects without the overwhelming support of the major participants in the industry sector and a private industry partner.

Would an industry partner have agreed to a shift from a fibre access network overbuild of the existing telecommunication access networks to an upgrade of the existing copper access networks after the 2013 election?

Equally perplexing is the question of whether an industry partner would have agreed to embark on the more ambitious fibre access network overbuild, preferring instead to upgrade the copper access networks to reduce technical risk and financial exposure?

NBN is a government business enterprise. It might be assumed that information about what is happening within the company would be released to the public, but as has become the norm for government or public private partnership infrastructure projects, there is almost no information of substance available.

Any skerrick of public trust in NBN is likely to evaporate well before 2020, unless it is able to meet the time and cost projections stipulated in the myriad of reviews and audits carried out during 2013 to 2015, the ridiculous Corporate Plan for the period 2016 to 2018 that blatantly offers up figures that are found to be wrong only months later and the outrageous denials related to the flood of bad news leaks coming from within NBN.

Missed opportunity

While the Coalition’s version of the NBN, once completed, will provide a significant uptick in connectivity to many Australians, the price paid will be heavy indeed — not just from a fiscal perspective but from the lamentable waste of a prime opportunity.

Australia missed the boat by failing to upgrade the copper access network during the early 2000s from ADSL2+ to Fibre to the Node (FTTN) using VDSL. The reason this occurred was the failure of successive governments to take the initiative, split Telstra into two companies, wholesale and retail and then regulate the telecommunications market to increase competitive pressure.

The piecemeal approach adopted by government to telecommunications market reform has failed to create the competitive tension necessary to drive investment in new and upgraded infrastructure and has resulted in a litany of missed opportunities.

This left Australia with a telecommunications market largely dominated by one company that saw no commercial advantage from investment in upgrading or replacing fixed-access network infrastructure other than the bizarre situation where Telstra trucks followed Optus down most streets as the HFC network was rolled out.

Telstra seized the opportunity to invest in the poorly regulated and protected mobile cellular market and, over time, built the largest mobile cellular network capturing about 60 per cent of customers. In doing so, it increasingly attracted larger hand-outs from the state and federal governments for mobile cellular towers in black-spots and areas of interest to the governments.

The Labor Government stepped into this mess in 2010 with a brave yet ultimately flawed plan to wrest control of the access network from Telstra without addressing the underlying problems in the Australian telecommunications market.

While the idea behind the NBN would address the intransigence being displayed by Telstra, there were and remain too many unaddressed problems facing the telecommunications market for the NBN to gain universal support and so it became a political football. As we will see in 2020, the game will continues.

A tangled network

NBN Co’s task is herculean for no other reason than everyone expects it to fail. To gain an understanding of what the NBN will look like in 2020, we need to consider the two intervening federal elections.

Based on historical precedent it’s unlikely the Coalition will lose the 2016 election, though with a tilt at an unjustifiable hike in the GST while multinationals pay little or no tax and offshore trust funds continue to be used by wealthy Australians to minimise tax, there is a chance, albeit small, that the Coalition could be trumped.

If the Coalition wins the federal election the outcome of the 2019 federal election will have a marginal effect on the NBN by mid-2020.

By the end of 2020, if not earlier in the year, the government of the day will declare the NBN to be completed, whether it is or not. There will be little to be gained by continuing with a national infrastructure project and maintaining a government business enterprise that can be sold off and provide important revenue needed to reduce the national account deficit, which modelling shows will continue to grow if government cannot raise more tax or reduce spending. (The latter appears to be highly unlikely as the nation’s population grows beyond our apparent means.)

How much the government gets for the NBN will depend on the debt incurred by NBN building the network and whether or not a buyer that will take on the task of overbuilding the copper access network technologies can be found, a task that should have been completed in 2020 but now is unlikely.

In 2020 the NBN should be connected to most premises in Australia with about eight per cent using satellite and fixed wireless, 20 per cent Fibre to the Premises (FTTP) in greenfield areas and pre-2013 FTTP rollout areas, 38 per cent FTTN/B and 34 per cent HFC.

Performance of the FTTN/B and HFC copper based access networks will continue to be an issue in 2020 and for about 30 per cent or more of customers the performance of their NBN connection is likely to be far below what they expected and unless there is a titanic shift in thinking in the telco industry a key concern will be increasing congestion during peak periods.

Meanwhile, by 2020, many of our competitors in the global digital economy are likely to be have completed national rollouts of FTTP using NG-PON2 that will provide customers with reliable gigabit or faster broadband connections to premises with a network capacity that Australians could only dream of.

NBN will not be able to compete with the quality of service offered in other countries. If it’s not careful competing local telcos will also cherry pick high value customers by offering FTTP or high speed wireless broadband connections.

In the lead-up to the 2016 federal election, the Coalition Government, in conjunction with NBN, is likely to announce that Fibre to the Distribution Point (FTTdp) or a variation will be used to provide improved broadband connection speeds to people found to be more than 700 metres from nodes in FTTN regions.

Similarly, the announcement will include a statement that an upgrade to the HFC network to DOCSIS 3.1 should commence in 2017 or early 2018, depending on when the refurbishment of the existing HFC network is completed and fully integrated with the NBN.

Any chance that the government would reverse course on using FTTN (VDSL) technology effectively disappeared in late-2015 when it became apparent that Malcolm Turnbull would not instruct NBN to return to a FTTP rollout in areas marked for FTTN.

Competition increases

The shift to a multi-technology mix NBN in 2013 brought about a shift in thinking among telco executives and a number of telecommunication companies commenced infrastructure rollouts in direct competition with NBN.

The most important telecommunication infrastructure rollouts commenced after the 2013 federal election were Telstra’s national Wi-Fi network and TPG Telecom’s FTTB network.

Telstra’s decision in 2014 to rollout a national Wi-Fi network to supplement its mobile cellular network was a strategic decision par excellence, and by 2020 Telstra’s wireless network dominance will be a major concern as it corners growth in the internet of Things, vehicular machine-to-machine and other mobility markets.

NBN was not in a position to adequately address the competitive pressure being applied while it struggled with the copper access network technologies, a realisation that the two satellites providing broadband to remote regions was not enough and one or two more satellites are needed and failure to offer wholesale wireless technology products while the competition got an unassailable headstart.

The cost and delay blowouts are likely to continue right through until the rollout is deemed completed in 2020. The final cost for the NBN will be far higher than the upper limit of $56 billion recently forecast by NBN. Could the cost for the NBN actually reach the lofty $90bn identified by the Coalition as being the true cost of Labor’s NBN? Unlikely, but bear in mind that the MTM NBN is a poor technology solution and has been implemented only because it was purported to be cheaper and quicker to roll out than the full-fibre NBN.

Whatever the final cost, rest assured that Malcolm Turnbull will be on hand to point out that Labor’s NBN would have cost $30bn more.

The increased operational costs, maintenance and other factors including the complexity of the IT systems needed to support the MTM NBN will further degrade NBN’s bottom line.

By 2020, the technologies being used by NBN will have resulted in it having a much smaller wholesale access network market share than envisaged in 2010, making the economics of the NBN much harder to justify to prospective buyers.

Universal Service Obligation

NBN’s hope for revenue growth from a decision for the NBN to become the infrastructure of choice for a revised Universal Service Obligation was dashed when a government-sponsored review conducted in 2016 opened the way for mobile cellular and other wireless technologies to be used in preference to the fixed-access network and, in a surprise move, the government contracted with Telstra and NBN for the provision of the USO, which was enhanced to include a low-bitrate (25/5 Mbps) broadband data connection.

Under the deal, Telstra and NBN offer wholesale USO related products with Telstra agreeing to offer wholesale wireless broadband over its national mobile cellular and Wi-Fi networks. NBN’s failure to offer wholesale wireless products including mobile cellular and Wi-Fi was seen as a key reason for Telstra’s successful negotiations with the government that has led to projections that Telstra’s revenue from the USO will double over the period to 2032.

NBN was not the only loser from the government’s decision to not scrap the 20 year contract entered into in 2012 for Telstra to continue to provide the USO using pre-NBN technologies. Optus, Vodafone, TPG Networks and other telcos are likely to be consigned to retail service provider status because of their inability to compete with the universal coverage offered by Telstra and NBN.

Unravelling the legislative and regulatory nightmare

In 2020 the NBN debate will have moved on from discussion about the second-rate fixed access network that now exists in Australia to one of how to sell off the NBN so that we can try yet again to fix the telecommunications market.

Unfortunately, based on the current track record of successive governments, the one that exists in 2020 is unlikely to have the determination to unravel the legislative and regulatory nightmare that will exist.

The Turnbull Government is likely to attempt to strip the Australian Competition and Consumer Commission of its monopoly infrastructure regulatory role. If this occurs, the task of creating a fair and open competitive telecommunications market may become even harder to achieve.

For NBN, the end of 2020 is likely to see its demise. It will either be disaggregated and sold off or sold off as a single entity, depending on which party forms the government, and whether the Senate decides to agree with the sale process and any legislation put forward attempting to provide the new owner(s) with regulatory certainty.

It will be end of a torturous journey for an ambitious infrastructure project that could have delivered benefits if we had the political will to stay the course. Instead NBN will be the one big opportunity that got away, vandalised by a collective lack of vision from our politicians.