[AusNOG] NBN: "i want a pony! but can I afford it"

[John Edwards]

On 15/08/2010, at 9:55 PM, Grahame Lynch wrote:

> Genuine question here
>  
> If aggregation is such a possible and desirable outcome in the NBN world why isn't it happening now with Band 3 exchanges? I accept the economics of DSLAMs in band 3 are poor for individual access seekers but presumably a wholesaler who aggregated demand could make a case for Band 3 LSS deployments, especially given the complaints about TW. To the best of my knowledge the last 4,500 of 5,000 ESAs remain unsullied by competitive DSLAMs to this day....

Hi Grahame,

There are objections from both builders and retailers, which makes it difficult to reach a solution. What you're suggesting is probably feasible, but there are less risky ways to make a dollar in Australian telecommunications.

The DSLAM builder/retailer has the following reasons not to play
- first mover advantage
- mini-monopoly on the exchange area
- wholesale margins are thin, so it's hard to justify dedicated staff to do it properly
- if you put a proper margin on a wholesale port, retailers will complain about the cost of competing with you
- if there's a fault on a line, it requires no less effort to resolve than a retail service, without the margin to cover the support costs
- space constraints in exchanges lead to limit ports that are most profitable with retail customers
- limited DSLAM building resources are better concentrated on more profitable city areas

Retailers have their own issues
- limited footprint and/or varying wholesale prices makes it difficult to market/sell/provision/support multiple DSL providers
- additional costs for regional services are hard to administrate
- no first mover advantage - ever - the moment your wholesaler enables an ESA your targeted marketing is just part of the noise of every other retailer
- limited ability to resolve line problems through a 3rd party, at least TW can fix the copper if there's a problem
- no ability to get preferential treatment for VIP customers
- it's hard to compete with a DSLAM builder on price when they have a lower cost per port, so they're limited to smaller volumes of niche services
- predatory behaviour by the wholesaler, and contract clauses that have the wholesaler own the customer
- risk that a wholesaler will put their prices up, or be bought out by another retailer
- giving their customer list to a potential competitor


A Wholesale Only DSLAM builder has further issues
- No existing customers to migrate across to take the risk out of the business model
- No certainty that a 100 users won't just churn away one day to another wholesaler
- No direct relationship with end users means no local knowledge about demand or business environment
- A significant retail customer might build their own DSLAMs, and churn their users away
- The retail customers have to compete with other DSLAM builders, meaning they will have either risky or low-volume business models.
- Outsourcing a DSLAM build is about 3-4x more expensive than having your own staff manage the process once they're good at it
- Risk that potential retailers will be concerned about any of the retailer points raised above
- Risk that any of the wholesaler risks will deter retailers from committing to a smaller company
- No protection from competing new technologies
- Backhaul providers will be aware of these risks and price accordingly
- Backhaul providers make their money on competitors buying the same backhaul - no such business case exists where an efficient aggregator is in town
- Risk that the next-best-thing from the government will make your investment obsolete

John



>  
> Given the obvious opportunity for aggregation now and the reluctance of anyone to bite the bull by the horns, what specific drivers will encourage this to change when the implied "minimum bar" in terms of "volume"  transit and backhaul requirements in regional Australia (ie higher speeds, higher quotas) actually increase dramatically? (along with implied access cost - $25-30 NBN entry price compared with $2.50 LSS price today).
> I can't actually see where the incentive lies for a smaller carrier to stay in the market or to specifically go to regional Australia when they don't now....and I am aware of the new Nextgen cable (is that the solution???)
> On 15 August 2010 19:17, Paul Brooks <pbrooks-ausnog at layer10.com.au> wrote:
> On 14/08/2010 8:50 PM, Matthew Moyle-Croft wrote:
>> 
>> 
>> On 14/08/2010, at 6:49 PM, Paul Brooks wrote:
>>> 
>>> My main concern is not actually the NBN access network portion. My main concern is that most of the smaller ISPs won't have engaged with NBNCo and set up wholesale access arrangements, and set up network backhaul links to the POIs as they are established,
>> 
>> Just like now a lot of smaller ISPs will purchase access to the last mile via aggregators.  A lot of people buy TW tails via Optus or buy Optus via yet another layer of aggregators.   I don't see this changing.   It'll come down to individual levels of sophistication and an evaluation of "build vs buy".    But I'm pretty sure that any ISP who has customers will find a way of keeping that customer.   Aggregators will also want to keep their slice of the pie so will help ISPs who use their services.
> Nod - I hope people are engaging with aggregators that are  engaging with NBNco then :-)
> 
> P.
> 
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