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NBN Fibre Network Slammed By US Expert He Calls It Fibre Mae

By David Richards | Tuesday | 11/05/2010

A leading US telecommunications expert has described the proposed National Broadband Network (NBN) as a "Fibre Mae" broadband policy that will fail like the Fannie Mae mortgage operation in the USA that is currently chasing $8.4 Billion from the US Government in handouts.

Scott Cleland who writes the Precursor Blog in the USA describes the NBN proposal from the Minister for Broadband, Communications and the Digital Economy Senator Stephen Conroy as a project that would not work in the USA

He said "It is a hugely expensive proposal in an exceedingly tight budget/financial environment that would generate very little incremental additional benefit over the current competitive trajectory; and that it is not sound policy because it pursues the wrong policy emphasis and structure, which could have the perverse result of falling behind in broadband leadership which is the exact opposite of the intended result". 

He said that while it may have superficial and nostalgic appeal to some, upon close scrutiny and analysis it is not an applicable, practical or a sound broadband policy option".

He said "I dub the Australian approach the "Fiber Mae" model because of the creation of a new Government Sponsored Enterprise to deploy Government-subsidised fibre infrastructure to all Americans would be structurally similar to other Government Sponsored Enterprises (GSEs): Fannie Mae, Freddie Mac and Sallie Mae".

These are organisations that now have to be bailed out by the US Federal Government due to the recent Economic Crisis.

He says that unlike the U.S, Australia does not have national wire line broadband competition. In the U.S., cable passes 95% of American households. In Australia, the cable company Optus, passes only 29% of Australian households.

He also points out that the U.S. has encouraged and successfully developed widespread facilities-based broadband investment and competition, consequently, the U.S. private sector has responded with over $200b in facilities-based broadband investment over the last several years. 

On the other hand, Australia started to build two broadband hybrid-fibre-coax networks for cable broadcast services, one by Telstra, the other by Optus, but regulations ultimately stymied that original idea for facilities-based competition between networks because regulators required the incumbent, Telstra, to resell broadband service at below-cost prices for unbundled elements.

For example, the broadband wholesale resale price has been set so low for the incumbent Telstra, that Optus, its cable competitor with facilities in 29% of the country, routinely resells Telstra broadband service rather using its own facilities, because reselling Telstra's plant is cheaper than using its own existing hybrid-fibre-coaxial infrastructure plant.

As a result, Telstra's largest competitor, Optus, ironically is also Telstra's largest customer, and has little incentive to complete the build out of its facilities to achieve national facilities-based competition.   
He says that what is on the government's drawing board in Australia is already being delivered by private sector competition in the U.S. without taxpayer involvement. The central impracticality of the Australian example is that it has simply been overtaken by events on the ground in the U.S.

Recent observations from the McKinsey and KPMG implementation study, of the national broadband network, are that costing has been done on the basis of no competition from Telstra.

There is also mounting speculation that with or without Telstra the deal is not viable.

The study based it's assessments on acceptance rates for the NBN services at 50%. The study also failed to address potential cost blow outs in the building of the network. By 2015 it assumes 50 per cent of households will be passed and 31 per cent to 35 per cent will be activated. The report also claims that by 2020, 100 per cent of premises will be passed and 54 to 63 per cent activated. By 2035, 75 per cent to 90 per cent will be activated.

If these figures are reached and there are no alternative offerings from competitors like Telstra Australia will become one of the most successful fibre broadband networks in the world. Japan has had 100Mbps fibre-to-the-premises for a decade and it still services less than half the market. In South Korea, where they've had massively government-subsidised high-speed broadband for a similar period, the take-up rate is still less than 40 per cent, Business Spectator recently reported.
In other words, the study, and the $42.8 billion cost, is predicated on take-up rates about twice those experienced elsewhere.

Questions are also being raised as to whether consumers will actually bother to connect to the fibre network if they are forced to wear the cost of connecting from a fibre network in the street to a home. 

They will also have to put up with their garden dug up, and several visits from electricians and cable technicians and the inside of their homes re-wired, to make use of the service.

Analysts claim that many Australian consumers will simply but ADSL or wireless services which many observers say will be capable of delivering the same speeds as the fibre network by the time the new NBN network is fully rolled out in Australia.
Only last week CISCO executives in the USA said that they were confident of being able to deliver speeds of over 100Mbs on a wireless network. While some networking Companies are already talking of 1GB per second over an  ADSL copper wire network.

Scott Cleland is a precursor, a prescient analyst with a long track record of industry firsts. Cleland is President of Precursor® LLC, which consults for Fortune 500 clients; authors the "widely-read" PrecursorBlog.com;

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