Friday, February 19, 2016

MTM: the Road to Nowhere. Waste on a truly grand scale.

The widely reported Feb-2016 Australian Infrastructure Plan, resulted in a piece on The Register ("Calls for sale - in pieces - to promote competition, plus reveal of bush services' costs").

This is a repost of my comment, and a couple of follow-ups (here and here) in response to a comment claiming a 'Fail', copied below.

Two good friends contributed off-line feedback:
  • Just like buying a power tool. A good one last a lifetime and a poor one lasts for a couple of sessions with it.
    • I'd phrase as: Professionals find it cheaper to buy & maintain expensive tools that JFW’s (Just Works), not a throw-away for every job.
  • Sometimes I wonder if anyone actually gets the basics of network design and deployment. So many people think in the ultra-short term rather than in the medium to long term. Every dollar spent now saves potentially hundreds in the future when it comes to network design and deployment.
    • It's the difference between buying a cheap TP-Link router and a Cisco router for business. One might last a year, the other will last a decade.

I responded to this comment:
Labor's NBN: headlines with zero substance
> How does the built-network ever get upgraded? It can only be overbuilt, not reused.
Labor Spin: 1Gbps FTTP network
Labor Prediction: In 2026 1% of FTTP connections would be 1Gbps, while 50% connect at 12Mbps
Today: 1Gbps has been available wholesale since Dec 2014, but not one RSP will offer it as a retail plan. 79% on fibre connected at 25Mbp or slower and 16% connected at 100Mbps (down 3% in 12 months)

MTM: the Road to Nowhere. Waste on a truly grand scale.

The Infrastructure Plan and Turnbull's MTM both suffer from an appalling gap:
- How does the built-network ever get upgraded? It can only be overbuilt, not reused.

Both the FTTN & HFC components can only be upgraded by "Forklift Upgrade", or full replacement.
NOTHING of value can be extracted from the sunk investment. Nothing...

We're not just on a road to nowhere, we're deliberating creating an expensive removal & remediation problem plus won't get a cent of value from the current investment. It's not just worthless in 10 years, it will cost us to pull out.

That's because:
a) Fibre is installed in long (20km) runs, as two-ended loops (survives a single cut), and
b) for Passive Optical (GPON or NG-PON2) you need to install high-count fibre cable everywhere.

The FTTN & HFC NBN rollouts are star-networks (hub & spoke), not loop, and they've not installed (in the docs I've seen) any of the high-count cables necessary for a subsequent upgrade of the network to GPON/NG-PON2.

When we want to upgrade the Customer Access Network to "Full Fibre", nothing that's currently being deployed in the MTM-NBN can be reused. Another lie in Turnbull's 2013 "Broadband Plan" was "50% Capital Investment reuse". Only it's zero...

But its worse than that:
in the future, we the taxpayer, will have to pay to rip out these crappy Nodes and pull out that obnoxious coax. There's a (high) cost in removal and site-remediation of all this new MTM work.

Every Node has lots of new 200-pair cable being rolled out to connect it to the many DA's (Distribution Areas, served by a 'pillar') it connects. They're big, heavy and expensive.
But more importantly, they fill up 100mm conduits quite quickly. The Telstra standard is conduits are only to be filled to "70 %". [Does that count the empty space between cables, or the space above?]

The legacy of the FTTN network will be full conduits, forcing a PON Fibre rollout to either route around those full conduits or be forced into civil works (the really expensive part of the rollout) to parallel.
What happens to all those thousands of tonnes of old copper, hidden in the ground and overhead, after they've been bypassed?
Do we leave them there to rot for 100 years (literally) or do we try to remove them?

If the new Fibre shares the same pits, pipes and conduits, it must've been laid on top of the old copper (for those services to remain active in the 18-month cutover), so how do we remove tonnes and tonnes of old, decaying copper from _under_ new Fibre cables without damage or disrupting services?

If you thought the "Asbestos Pits" debacle was a big problem, wait until the 'nbn' Co and the political classes "discover" that a) Copper is toxic and will leach into the groundwater and b) to remove it all, means ripping up every single metre of buried conduit and replacing the existing fibre.

If you thought the big problem with nodes was lousy speeds and highly congested uplinks, "you ain't seen nothing yet". Not only will ALL this new equipment have to be decommissioned well before it's service life is finished, a waste of money in itself, every node and every metre of copper-pair and coax will have to be laboriously removed and disposed of. It costs us coming and going, to do a rubbish job.

The sting in the tail of the Infrastructure Australia report is pretty significant as well:
- who gets to own and operate (maintain, upgrade, replace) the common parts of the NBN: the transit network, Points of Interconnect, Software (Billing, Monitoring & Provisioning) and standards, testing, integration and co-ordination / planning activities?
- how do those necessary internal services get paid for by the 'fractional operating companies'?
- How will individual operators fund the replacement of their whole operating asset? That's economic suicide, no sane business would consider it, no sane Bank would lend them $$$ to do it.

The plan that Turnbull, Vertigan and now Infrastructure Australia is promoting is not just terrible, its catastrophic.
Once balkanised and split into 100 different, small and aggressively competing 'operating companies', there can NEVER be, ever, a single common-access network in Australia.

Selling off the NBN assets will result in a complete and permanent road-block to Communications Infrastructure development in Australia.

Proof: look at all the incompatible State Railway gauges operating in Australia after nearly 150 years.
There is precious little 'standard gauge' (common access) running in the other states, making trans-shipping impossibly expensive. Rail should trounce road transport because of its dedicated right-of-way and incredible physical & economic efficiencies. Instead, it a terrible service, uncompetitive and always making a loss or close to it.

That's the future of Australian Communications when these plans to carve up NBN assets are implemented. It's almost the worst possible outcome that could be planned.

Absence of Evidence isn't Evidence of Absence: don't confuse the data.

Good point. Looks bad, eh?
You've confused a Retailer problem with an NBN problem.

As well, where's "multicast" being sold? It's apparently built within the NBN network, so why aren't Retailers pushing it?

NBN Co aren't the people who set the Retail pricing nor do they provide network services & interconnects to customers.

Why no 1Gbps?
That's the retailers either not offering it, or pricing it too high.
[NBN is a wholesaler without control over retailer price offering. Their profits "get clipped" by the Retailers as well. Who'll get rich off the NBN services? the retailers not the common wholesaler.]

NBN, IIRC, didn't offer a CVC holiday on 1Gbps either, nor would any backhaul owner.

RSP/ISP's have to run backhaul from 121 PoI's, each dimensioned to support 1Gbps. Expensive.
A shout-out to the ACCC for that bizarre decision. Never been able to understand how that improved either Competition or promoted Consumer Interests.

Internode (simon's blog) is on record in Tasmania as discovering mixed lo-&hi-speed connections require different dimensioning rules for backhaul (they had a few 100Mbps mixed with many 12/1 IIRC).
Internode had constant complaints from everyone (lo- & hi-speed) about hi latency, freezing and 'congestion', when their link utilisation figures didn't support that.
I'node then increased the backhaul to cope with _two_ simultaneous 100Mbps connections and normal service was restored.

For 1Gbps, this 'midget & giant' effect is going to be much worse.
To offer 1Gbps services, RSP/ISPs need to dimension PoI interconnect and backhaul for a minimum of 2Gbps, on all 121 PoI's.

I haven't checked prices recently, but I'd guess currently $300M-$400M/year for all 121 PoI's.
Telstra and possibly Optus are the only ones who have the infrastructure to offer that, and neither have shown any interest in pushing new fixed-line services, not unless they can extract a premium.

So, how's that a problem of the wholesaler?
I see a failure of the Private sector and a larger Policy failure from the Government.

It's all about PROFITS, not Costs: Ledgers have two sides, not solely 'Expenses'.
Today: 1Gbps has been available wholesale since Dec 2014, but not one RSP will offer it as a retail plan. 79% on fibre connected at 25Mbp or slower and 16% connected at 100Mbps (down 3% in 12 months)
Retailers, not NBN Co, set pricing and select the default plan offered to customers.
That explains the initial high take-up of 100/40Mbps and the latest 3% contraction.

Thanks for making this point for me: its essential for understand the _Economics_ of Fibre vs Copper.

What's the difference in cost to NBN between supplying 12/1, 100/40 and 1000/400 services?
Almost NIL.
They may need to bring forward planned expenditure on the internal Transit network if demand for higher access rates runs ahead of their plans, but that's more than offset by the increase in profits being generated. [Upgrading links is changing out the GBIC for a faster one, or adding another WDM colour, possibly putting a spare fibre into service. Fast, simple and very low cost.]

Essentially, there's ZERO input cost difference for NBN for all services, any additional charges for differentiated services are pure PROFIT.
[I'll use 2013 pricing, I haven't bothered learned the new price sheet.]

NBN Co could've done what ISP's did with ADSL and offered everyone the maximum speed for the same price. It costs them NOTHING extra and might even get them a little more CVC traffic.

But there are two massive problems with that approach:
- as previous note, it places an intolerable backhaul cost on the RSP/ISP's, esp with 121 PoI's.
- it's Economically naive. The company can make _much_ higher profits with tiered pricing. [The 2012/3 Business Plan did make AVC pricing for 12/1 to 100/40 identical after 10 or so years.]

The concept is "Consumer Surplus", when the _same_ product (or nearly same) is sold by the Producer for multiple prices.
Customers with a willingness to pay more for the same service can select a higher price and get a 'premium' version of the product. Sellers make their money on the 'premium' sales.
The seller doesn't "leave money on the table".

[Google Fiber is only offering three services. 'Entry level', 1Gbps Internet and 1Gbps Net+Cable-TV. They're operating nearly on a cost-recovery basis, not trying to maximise profits or pay off expensive loans. If a low-cost player like this shows up in Australia, they will "disrupt the market" in a way that will surprise most.]

Do you recall the first ADSL-1 offerings from Telstra?
They did exactly this, 3-4 offerings up to 1.5Mbps.

Its Good Business, both offering steep discounts to those that prefer 'cheap' and extracting high profits from those that are willing to pay, for whom that 'top' service provides that much value.

Quigley et al priced (2013) 12/1Mbps at $23, 100/4-Mbps at $38 and 1000/400Mbps ~$150,
although they ALL cost NBN Co _exactly_ the same to deliver.

If they made $2 from the 12/1Mbps service, they were making $17 from each 100/40 Mbps service.
Profit wise, they increased Earnings very quickly (the thing that good businesses focus on), if more than 6% customers selected the 'top' plan. [again, NBN is the wholesaler, the retailers aren't forced to pass on savings to consumers.]

Something buried in the Ergas/Vertigan report is the Price Elasticity of Demand.
At 1Gbps, it "-60" (negative sixty). I can't recall Elasticity for 100/40, maybe -20.

The Elasticity is the changes in sales made or lost for every $1 _change_ in the price, either up or down. Normally sellers _raise_ prices, so highly elastic markets are very bad for them.
But high Elasticity also works to your advantage when you can, like in Tech & Telecoms, drop prices over time.

By dropping the price by $1, total Revenue is increased $60 (1000/400) or $20 (100/40).
That's a 59-times and 19-times increase in PROFIT.
When the input costs of the services are identical, this a way to dial-up profits on demand.
As in previous note, NBN Co is a wholesaler, not retailer.
While they can charge low prices to Retailers, they cannot affect what the Retailers charge.
If Telstra and Optus don't pass on the discounts, NBN Co won't realise the revenue.

This is another Economics effect that savvy Retailers, especially in the Tech Industry (think Apple) use to drive PROFITS into the stratosphere, and at the same time, be applauded and thanked by their customers. A win-win for everyone: cheaper prices _and_ higher profits for shareholders.

By passing on _part_ of the cost savings, from The (organisational) Learning Curve, Scale Efficiencies and Moore's Law, Tech companies can drop prices and stimulate demand over decades.

We've seen that for PC's and HDD's and international telephone calls.

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