Our updates, free in your inbox:

or click here to talk to us about securing a better financial future

NBN gossip

NBN 1-dot-0 is dead: Long live NBN 2-dot-0. So says NBN non-executive director Justin Milne who this week spoke candidly about the genesis and transmutation of Australia’s largest ever infrastructure project.

His insights were his own opinion and don’t necessarily reflect the vision and strategy of NBN Co. today but his thoughts were highly revealing. In fact, it might have been the financial market equivalent of a tell-all story that would rival the likes of Adam Boland’s tittle-tattle tome on the machinations of breakfast TV at Channel 7.

To refresh your memory, when former Telstra hombre Sol Trujillo refused to play ball on the Labor government’s request for proposal to build a national broadband network back in 2008, the Communications minister of the day, Stephen Conroy, ejected Telstra from the game.

It’s fair to say that the relationship between the biggest telco in the country and the government had gone a bit pear-shaped.

Sol packed up his sombrero on 26 February 2009 and headed back to el rancho in the USA.

But things were about to get worse for Telstra when on the 7th of April 2009, PM Kevin Rudd and the minister for bacardi (BCDE: the Broadband, Communications and Digital Economy) Senator Conroy waved their napkin showing the plan to build a $43 billion national broadband network that would take fibre directly to the homes of 90% of Australian home and business from Parramatta to Perth.

Telstra’s share price was $3.26 at that time.

Justin Milne described it as a “really, really super dumb idea” to throw out the old copper network and completely replace it with a brand new network. He suggested the NBN would have cost way more than the mooted price tag and probably never would have been finished in the form first proposed.

That view was corroborated by the Scales review in August this year of the original process which was described as “chaotic, rushed and inadequate”.

Former Alcatel COO Mike Quigley was quickly appointed as the NBN’s first chairman. He said the network would be: “Not too sexy – but absolutely reliable” and that it would be built in 8 years.

Mr Milne described how Quigley became the centrepiece of a board and management that lacked any real telecommunications experience – himself aside. That quirk was driven by a “white hot hatred” for anything Telstra and showed why few former Telstra executives were engaged in a project that was straight up their alley.

The NBN management “all drank the company cool-aid” and espoused the government line that the NBN was better than sliced bread. Indeed, Quigley gushed that digital television over the internet would be a key service delivered by the network.

The Future Fund was drinking something else and decided to offload 684.4 million shares at $3.47 each reducing its shareholding from 16.4% to 10.9%. It would keep selling until it reached 0.8% in August 2011.

By June 2011 Telstra ($2.96 per share) had agreed an $11 billion deal with the government for access to its ducts, pipes and pits through which the NBN fibre would be rolled out.

Telstra shareholders eventually ratified the deal, supported by an Independent Expert report that also gave it the nod.

Mike Quigley eventually jumped ship in July 2013 shortly before the Coalition was returned to government in September that year. New Communications Minister Malcolm Turnbull put the bacardi back on the shelf, commissioned a raft of reviews of the project and NBN 2.0 was christened.

Version 2.0, as Mr Milne described it, was not one but five new networks. Fibre to the home for (nearly) everyone was deemed unnecessary, impractical and too expensive. The new regime would roll out a combination of fibre to the node, satellite and fixed-wireless technology supplemented by use of the already strung out HFC wires thrown up by Telstra and Optus during the early broadband wars.

By using a combination of more appropriate technologies, old and new, NBN 2.0 would be rolled out more quickly, cheaply and efficiently than its predecessor. Mr Milne acknowledged that while there’s not much to show for the new approach just yet, there has been plenty of work going on behind the scene that would bear fruit over the next couple of years.

For example,

  • Copper within 600-800 metres from the nodes would be able to run very high speeds. About 1,000 nodes are currently being built, in conjunction with Telstra.
  • Buying the HFC networks from Telstra and Optus will allow the network to run past 3.2 million homes, most of which are passed aerially so that connecting and converting this to NBN 2.0 becomes a much quicker proposition. Upgrading the HFC networks (which aren’t quite identical) to DOCSIS 3.0 technology will enable speeds of 100Mbps.
  • Two new satellites are being launched in early 2016 that will provide a 25Mbps service to those in the bush who currently are lucky if they even get dial-up service.
  • Fixed-wireless service can be run up quickly in locations like Wagga Wagga where a single tower can have a line-of-sight of 40km. This is practical where rolling out FTTN or HFC is not.

Perhaps more importantly, Minister Turnbull has done a reasonably good job of de-politicising the network rollout. His pragmatic approach is focused on getting the job done so that by 2020 it could be substantially complete.

Mr Milne noted that the early metric of reporting the number of homes passed was meaningless as few homes were actually being connected. Running fibre past a premise was relatively easy compared to the “helluva job to get past the dog, dig up the roses, and get inside the house at a time convenient to the owner to connect a box.”

Whatever the NBN finally costs taxpayers, it will have a better chance of being commercially viable and the government could contemplate selling parts of it back to private enterprise, according to Mr Milne.

The revised NBN deal with Telstra is taking time to be renegotiated. Telstra boss David Thodey said it might even drag into 2015 but reading the tea leaves, it looks like most of the hard stuff has been worked through.

NBN 2.0 won’t be the monopoly wholesale provider of broadband technology the Rudd government set it out to be as a small loophole has allowed TPG Telecom to sneak through a canny fibre-to-the-basement play. The Vertigan review said this wasn’t illegal but it may end up being a declared service thus taking some of the shine off TPG’s original idea to snatch loads of customers from under NBN’s nose.

Nearly all the retail internet service providers now have NBN packages in the market but it’s too early to say if they are succeeding with these or not.

As we know, Telstra’s share price has survived its near-death experience during those NBN 1.0 days and has arguably come out the other side even stronger.

Mr Milne was a close observer and participant throughout this period and his frank views were very illuminating.

 

Minister for Bacardi – Stephen Conroy

Conroy

 

Minister for the last mile – Malcolm Turnbull

turnbull

 

The first amigo – Sol Trujillo

sol

 

 

 

Leave a Reply

Your email address will not be published. Required fields are marked *