[AusNOG] Aust Govt will build National Broadband Network, no company will be awarded the tender.

Sun Apr 12 10:16:31 EST 2009

----- Original Message ----- 
  From: Matthew Moyle-Croft 
  To: Rick Jones 
  Cc: ausnog at ausnog.net ; 'Bevan Slattery' 
  Sent: Saturday, April 11, 2009 11:52 PM
  Subject: Re: [AusNOG] Aust Govt will build National Broadband Network, no company will be awarded the tender.

  As I've pointed out - the other stimulus package (the $900 one and other things) was $42b, that didn't have the expectation of "commercial return" etc.

  So on that basis, should the government build a new shopping centre in every town so that the taxpayer can subsidise cheaper groceries?
  That would be dumb

  And it ignores the fact that taxpayers are going to be taxed to the hilt to pay for it and the competition for investment funds will mean interest rates will go through the roof at some stage.  There will be a major hangover from all of his spending because it is not based on sustainable principles
  Regards

  Tim

  At least with this we get faster pr0n ...

  MMC

  Rick Jones wrote: 
    I think that this is a great idea, and I don't think it has anything to do with being commercial or otherwise.  Giving out billions of dollars in payments to the public didn't have a financial return either.  It was an incentive package designed to achieve non-monetary goals.  This has a component of this too.  Forget the spin.  Part of this is about spending a portion of public monies in order to kick start a decent fibre infrastructure in Australia.  At some point in the future, the government of the day will get out of it and leave it to the industry to take it forward.

    So, if we are going to do some sums, do it with a consideration that part of the money will never be repaid, not in the commercial sense anyway.  The taxpayers will pay it back in the future.  Now, I doubt that this will be sold this way, not so close to a federal election anyway.   But nonetheless there is an element of nation-building here, doing something because someone thinks that it is in the country's long term interests.

    From: ausnog-bounces at lists.ausnog.net [mailto:ausnog-bounces at lists.ausnog.net] On Behalf Of Matthew Moyle-Croft
    Sent: Saturday, 11 April 2009 11:40 PM
    To: Bevan Slattery
    Cc: ausnog at ausnog.net
    Subject: Re: [AusNOG] Aust Govt will build National Broadband Network, no company will be awarded the tender.

    So,

    What do you propose as a valid alternative?

    - FTTN is a crap idea (so crap that even Krudd and Conroy could see it).

    - The current Cu CAN is starting to near end of life and is straining to provide broadband at the speeds they want to everyone.  Even fixing this would require something looking much like FTTN anyway (eg. nodes to fill in black spots etc).

    - It's only going to get more expensive to do (inflation etc).

    I'm not convinced this is commercially infeasible, but it's a close call I'll admit (and mostly hinges on take up rates).

    But if the government wants to do something game changing then what's the real problem in doing so?

    Many people seem to be saying this is a bad idea and yet propose no alternative which has any real consideration.

    MMC

    On 11/04/2009, at 10:56 PM, Bevan Slattery wrote:

    MMC, 

    HFC, Telstra PSTN are run in the telecommunication height.  

      Electrical is above that.  Not sure why anything on the poles 

      would stop the electricity being upgraded. 

    Because pole infrastructure is designed with certain 'weight' loading
    ratings and wind loading ratings.  You start adding cables to poles that
    were designed for a purpose and in particular at perpendicular
    directions without a counter cable (such as a road crossing) you
    starting increasing the load and things can get past their designed
    limits at least with a certain margin for safety.  From my discussions
    with the guys here at Energex HFC cables put more stress on poles due to
    their size and weight that an ordinary local distribution cable.  I have
    had it known that Optus has had to upgrade quite a number of poles in
    Brisbane metro to run it's HFC back in the day.  Also that
    'telecommunications height you mentioned will get squeezed when there
    are three and possibly four cables in that space.  I understand the
    power companies will 'beat it up' quite a lot, but the day poles start
    'leaning' like they do in the US; my god the Local Authorities will go
    off their brain and the power companies will say I told you so.  I can
    also say that FttP fibre technology has come quite a long way in terms
    of fitting down existing conduits and lead-ins and this should not be
    ignored.

    Ha!  The energy providers should have had the sense to run 

      their own last-mile, but failed big time here in Oz.

    I disagree entirely.  I think the smart ones did the business case and
    it didn't stack up.  There was never a business case for it.  Heard of
    Transact?  What a disaster.  I remember the Commonwealth Bank had
    something like $50M in debt to the vehicle and was trying to figure how
    to get out.  Why?  Because the debt was worth more than the company.
    That could very well be the case with the new FttP/NBN.  Anyway, I'll
    leave that to others to discuss.

    I mean even when they had the duct and the rights of way (substations
    etc.) the power companies still sucked at it.  UeComm, Powertel, and
    ETSA all succeeded in blowing vast amounts of money against the
    proverbial wall.  UeComm was literally within months if not weeks of
    hitting the wall and racked up a $40M+ loss 2 months after it said it
    would have a $20M+ profit.  I even think there was an ASIC investigation
    to boot.  It wasn't until new management came in (and I think the
    interest free loan) that it was able to turn-around.  Powertel was a
    basket case having deployed $250k Cisco equipment in every basement that
    someone bought an E1.  It was only when they became a real telco got new
    management (and major shareholders), DTU sold out, went to a direct
    fibre/ethernet in the local and started migrating products to be
    delivered by copper they actually got somewhere.  ETSA really didn't
    make any money outside it's selling services to it's owners despite
    having access to the fibre too.  Aurora FttP? Western Power FttP?  They
    all showed that as carriers these companies were good at distributing
    electricity.

                It's going to be a hard road.  I sincerely hope that at 

      the very least a

                  new national backhaul infrastructure is created by amalgamating

                  infrastructure from existing providers and new 

      construction.  To me that

                  would have made this whole mess worthwhile.

      My understanding is that this is the plan.   Let's see what 

      happens if Telstra decide to tip in some of their 

      infrastructure - that might drive the cost down.

    Doubt that one too.  On the back of my envelope numbers that might save
    you a few billion here and there, but the cost is without question in
    the last mile access to the premises.  If the inverse were true then
    Telstra would not have paid Foxtel a lazy billion or so back in the late
    90's to stop the HFC rollout to the juicy and easier inner metro areas
    of our capital cities.  The agreement even included not forcing Telstra
    to connect any home even when it had a cable going past the front door!
    Maybe they'd change their mind.

    There is one other point about that statement, and those by many others
    which I find intriguing.  It is also important to note that if someone
    puts in asset for equity, then they will be expecting a return on that
    equity.  There is a cost for this.  By way of example.  If the
    Government puts in $22B and the remaining $22B comes from a combination
    of assets and debt (no-cash) then the projects total cost ISN'T $22B.
    It still is $44B.  All those organisations who put in assets for equity
    will require a return.  All those who put in debt will require a return
    (and guarantee).  There may be a delta between selling off spare
    capacity versus building, but the clever corporate types also know the
    replacement cost and will push the valuation of their assets closer to
    replacement.  In fact some may even push it to the replacement cost as
    there may be a premium for the certainty of the asset being in place and
    implied timing benefits. By way of example, do you think PIPE would
    simply vend in assets for equity because of our civic duty and not
    expect a return (even if not guaranteed, but implied?)  I was
    dumbfounded when I heard an interview the other evening when on the ABC
    Lateline the interviewer asked Sen Conroy "how do you get a return on
    $43B".  The answer was along the lines of "it's not that much it's only
    $22B we expect the rest to come in via network assets being vended in
    for equity and debt".  I'm sorry, but I respectfully disagree.  The
    amount you need a return on is $43B whether it be debt or shareholder
    equity (government or those who have vended in assets).

    Let's hope there is much, much, much more disclosure on the business
    case on how to get a return on the $43B.  We were promised it last time,
    but were dreadfully let down and dare I say mislead (or even worse).  My
    calculator says "No straight out commercial business case", but I am
    hopeful that there is another game afoot here and that new backhaul
    network can at least come into life.  I am also aware that there are
    broader social implications/benefits which could also be included in the
    business case for justification.  At this point I am just saying I
    cannot see anyway you can build this today and expect a purely
    commercial return.  No way possible.

    Cheers

    [b]

    -- 
    Matthew Moyle-Croft 

    Networks, Internode/Agile
    Level 5, 162 Grenfell Street, Adelaide, SA 5000 Australia
    Email: mmc at internode.com.au    Web: http://www.on.net
    Direct: +61-8-8228-2909                        Mobile: +61-419-900-366
    Reception: +61-8-8228-2999        Fax: +61-8-8235-6909

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