FTTH vs FTTN

Comparison

What should we pay for?

Outlined Costs

FTTH FTTN

Upfront


Over Rollout Period
  • Peak funding required: $44.1 Billion
  • Capital cost: $37.4 Billion
  • Government contribution: $30.4 Billion
  • Cost of rolling out fibre is split amongst private investors and taxpayers.
  • With this method, investors (Early adopters and businesses) subsidise connections for the rest of the country, making it cheaper to rollout fibre on a per premesis basis.
  • Peak funding required: $29.5 Billion
  • Capital cost: $20.4 Billion
  • Government contribution: $29.5 Billion
  • Cost of rolling out fibre is offloaded onto those that wish to pay for it.
  • With this method, the cost of rolling out fibre is postponed over a longer period and those that have no choice but fibre (digital divide) will face more exorbant costs then those living in metropolitan areas.

Hidden

  • Cancellation of contracts

    Approximately $4.8 billion
    (at least $1.7 billion of which belongs to telstra)

  • Buying the infrastructure from telstra

    NBN Co is in a contract with Telstra quote:

    "Telstra retains ownership of all infrastructure assets, except for those lead-in-conduits used by NBN Co which will become NBN Co property once used."

    If just access to the infrastructure is valued at $5 billion (see p30, marked p26 in the agreement) how much will it cost to actually buy the asset?

    In 2011 the ACCC valued telstra's infrastructure at $17.75 billion.

  • Commercial Review with in 60 days
    (How quickly the NBN can meet the objectives)
  • Audit Labor NBN
  • Independant Study (including CBA of Coalition policy)
    Examining current telecommunications needs and those of the future

Ongoing


Current costs for maintaining telecommunications are estimated to hit $2 billion annually by 2015. Of this the copper network is $1 billion and is increasing as the network ages and becomes plagued with issues.

Using a conservative estimate of 35% savings
  • Initial OPEX will be cut due to the use of fibre backhaul network (labor), however the longer copper remains in the last mile of the network the more OPEX will be required.

    While these figures cannot only be attributed to maintaining copper alone as evidence to increase OPEX overall:

    Telstra 2010 annual report: "Total labour expenses $3.707 billion"
  • Telstra 2011 annual report: "Total labour expenses $3.916 billion"
  • Telstra 2012 annual report: "Total labour expenses $4.061 billion"
  • See Graph

Upgrades


Post Rollout
  • 22% of people still get FTTH (liberal policy)
  • The remaining 71% (8,968,000) that would've otherwise had fibre will have to pay a fee (Fibre-on-demand, FOD). This cost will depend on how far away you are from the node in your area.
  • Lets be very conservative and say that 2/3 of the population live within 200 - 399m of the node the other 1/3 are 400m or greater.
  • 8,968,000 x 2/3 = 5,978,667 x $3000 = $17,936,001,000
  • 8,968,000 x 1/3 = 2,989,333 x $3,730 = $11,150,212,090
  • $29.086 billion to upgrade to 93% fibre footprint
    (50% NBNCo funded, 50% on the consumer)
  • Read more about affordability

Totals

  • Even with the touted claims of a 40% increase for sub-contractors that only raises the cost to:
  • $60 - $70 billion
  • Read more
  •    $29.5 billion
  • + $4.8 billion
  • + $17.75 billion (minimum)
  • = $52.05 billion for the FTTN rollout
  • This does not account for:
  • The cost of fibre backhaul laid under labor
  • The OPEX of maintaining copper
  • + $29.086 billion (minimum)
  • = $81.136 billion to get the same 93% fibre footprint
  • This does not account for:
  • Manual labour costs rising

How are we Paying?

Primary funding is achieved through government bonds (equity) however note the difference between the two is $900 million. Sounds like a lot right?
When measured against tax revenue's for 2012-13 ($376.1 billion) it accounts for 0.24%.

So what does this government bond thing mean? The Australian government funds the NBNCo through tax payer dollars in the form of government bonds. Those bonds have a fixed interest rate of 4%. To be paid back by the time the rollout agreement ends.

The expected return on investment for shareholder equity remains slightly above 7%. In other words as long as the people invest in the NBN it pays for itself over the course of the next 30 years, or sooner depending on takeup rates. On top of which the government sees a return of 4% on their fixed bonds, therefore there is no impact to the budget.

In addition there is a 3% surplus in ROI that is used to pay off things like telsta decommisioning copper, OPEX costs, etc. On top of which there is a 10% contigency already factored into the plan.

"It's like a company selling extra shares in the business. Except, instead of gaining additional control over the company, you get a promise of 4% fixed interest returns on your investment."

Even if you account that 45% of australian's don't pay tax

  • Australia's current population: 23,200,000 / 2 = 11,600,000
  • $900 million / 11,600,000 = $77.59 per tax payer
  • $77.59 / 10 years = $7.76
  • Therefore the difference between FTTH and FTTN to the average tax payer is $0.65 cents per month.
  • It should be noted however while FTTN is a 3.05% decrease in cost from FTTH. $30.4 billion / $29.5 billion x 100 = 103.05%.
    Even if 25Mbps could be acheived over FTTN it is a potential 4000% decrease in speed from FTTH 1000Mbps guaranteed (1Gbps).

The important thing to note is not how expensive the network is, but how quickly we can pay it off / how many people take up the technology.

Fundamental philosphical difference

So what is the difference between FTTH vs FTTN plans. A number of experts, telco's and the ACCC have said that the future of networking is fibre, even Malcolm turnbull has shares in a telco in france endeavouring to roll out fibre.

So the government came up with a model based on this conclusion that everyone will be getting fibre, a reasonable assumption.

Do you pay more upfront to waste less money in the long run, create equal opportunity in regards to upgrade capability and get a network that can carry us through to the next century?

Or do you embark upon only making marginal gains that wont mean much in a few years anyway and have to reinvest capital over a longer period of time?

Can we afford it?

The current deficit will stabilize regardless of who's in government as has been the trend over the last 40 odd years. Put bluntly without some really big effects coming into play such as a second and perhaps a 3rd GFC there is no way our debt will remain a deficit regardless of political standing.

With one of the lowest goverment debts in the world, and being some of the earliest adopters of technology in the world yielding take-up rates for the NBN of approximately 50% in some area's within the first 6 months. Absolutely we can afford it.

Opportunity Cost

No fibre? What will we miss out on?

Environmental Benefits

How much paper and ink would we save per year if:

  • Newspaper content was delivered over digital subscription.
  • Law firm, Hospital, Council and other documents were digitised and hosted on a cloud service.
  • Maps are all viewed digitally.
  • Faxing becomes obsolete.

Carbon and greenhouse gas emissions could also see a significant drop due to:

  • An increase in comunications capability, Greater numbers of people teleworking rather then commuting.
  • Less power being consumed, TV, phone, internet all over one fibre line that's passive and takes no energy to propagate signals.

Note the power saving as detailed in the 3rd video (by alcatel lucent), both ADSL and VDSL use roughly 12 Watts per user, over 12 million fixed lines this equates to 144,000,000 Watts. This number is a minimum and could very well rise when dealing with retransmissions caused by data loss (due to attenuation and other issues over the copper lines).

Contrary to this a full fibre optic network (GPON) is just 0.35 Watts per line. Over the same amount of 12 million fixed lines, power consumption is reduced to just 4,200,000 Watts. This represents a 97% saving in power consumption. Plus You have higher bandwidth capabilities and less power wasted on retransmissions as fibre does not face the same attenuation issues as copper.

Efficiency

Productivity

The environmental benefits of saving paper are pretty obvious but what about in terms of efficiency? With documents being stored in the cloud and ubiquitous superfast access and the right service, human interactions with these important files are cut down to a minimum, as a result:

  • Modifications are easily made.
  • These updates are universally received by all parties involved with the files in question.
  • Records of who made modifications are easier to maintain.
  • Much more difficult to misplace files/records

You can see the amount of human error that can be reduced to a minimum and sharing / collaborative powers can be increased infinitely.

Commuting vs Communicating

A fast reliable telepresence experience allows people to do achieve things remotely which would otherwise be immpossible or impracticle, however what are the benefits of removing travel to and from work?

  • Less money spent on fuel.
  • Reduction in road maintenance costs.
  • More efficient deployment of public transport resources.

Take a look at the following scenario, presented by verizon, one of the primary telco's in the US rolling out fibre

Note that while a percentage of devices in the home might be wireless, all of them will still require a fast internet connection (fibre backbone) to keep in touch with management software in the cloud.
If you were to try to use this system you would have to have a dedicated server installed in your home to get the same functionality which as you can imagine would not come cheap.

Property Values

Remote locations would increase in property value, not needing to be close to the city to work would be appealing to some people preferring to live in that atmosphere or at the very least give them another option to living in cities. The fibre for all group in the following video states their concerns as to what property disparity caused by an FTTN rollout might have an impact on.

Other Benefits

All of the above points deal with with large scale effects measurable on a national level however superfast reliable broadband will improve efficiency, reliability and other factors in almost every facet of our lives, some of which cannot possibly be forseen.

This is the reason why a comprehensive cost-benefit-analysis was not done, analysis on the impact of superfast broadband access to nearly everyone in the country would take a lifetime to complete not withstanding new developments using the infrastructure.

In other words even if you could forsee all possible developments, by the time you finished it, 10 new technologies would've been created using the infrastructure, so you have to update it again taking into account those technologies. By the time you've finished updating it for those 10 another 10 have been released and the cycle continues.

For an example, look no further then our current copper network, do you think the people that implemented it in the 1900's forsaw the development of the internet and the need to facilitate large scale data transmission? Using methods like:

  • ADSL
  • SDSL
  • SHDSL
  • IDSL
  • HDSL-2
  • VDSL
  • GLite

Clips in this playlist examine what other nations perspective of FTTH investments have done. Note that Singapore / Malaysia currently have the highest concentration of FTTH connections anywhere in the world (95% coverage).

Note other benefits that could be facilitated are dependant upon what applications we implement use of FTTH in, some potential applications are shown on the homepage.