NBN too expensive, TPG wants to move customers.

Recently TPG announced its full-year results. Like many others in the industry, the company saw a decline in profits and like others, TPG also claimed that on COVID-19.

But under the motto “never waste a good crisis”, TPG has come up with a plan to save costs. As I have mentioned time and time again, the high wholesale cost that NBN Co is charging is squeezing the Retail Service Providers (RSPs).

No wonder that when your chips are down you would be looking at where you can save costs. TPG has indicated that it will be able to save $50 million if it can entice 100,000 of its users to switch to their own network — the main technology it is planning to use for this is 5G. The company will soon start offering its fixed-wireless 5G service. Looking at TPGs advertising campaigns, I am sure they will aggressively move in that direction.

This is underpinned by an issue that has highlighted the high costs of the NBN and the core of many of the problems the industry has with the Federal Government and NBN Co.

The Sydney Morning Herald (SMH) recently published an article titled: Secret figures show full fibre NBN may have cost $10 billion less than claimed. SMH asked me for comments on its findings — that the Coalition could have made those savings if it had stuck to the original NBN plans and adjusted them with new technologies, like those – as predicted – which arrived over the following decade.

This is the sad story behind the fact that we as a nation could have saved all that money. The industry discussed the rollout of a national fibre-to-the-home (FttH) network back in the late 00s. Already at that stage, there were clear indications that both at a level of the hardware needed for the rollout as well as in relation to infrastructure work (laying cables), technologies were underway that would reduce the rollout cost further down the track. 

The industry, together with the then Labor Government, discussed this in the context of a potential underestimation of costs. If that would be the case – as there are often blow out costs in such projects – these costs could potentially be neutralised by cost savings that would become available later in the rollout.

These flexibilities were well-considered at that time. Based on those technology realities, the then Labor Government estimated the total rollout costs at around $43 billion. If we look around the world (for example New Zealand) then it is clear that this scenario has indeed played out over the last ten to 15 years. New Zealand has been able to benefit from ongoing cost savings during the rollout of its fibre-based broadband network.

In Australia, the then Opposition (now, Coalition Government) made it a political issue — it was dead against the NBN with then Opposition leader Tony Abbott (later Prime Minister) wanting to kill the total NBN project. When the Abbott Government took over, it wanted to show the worst possible NBN picture and was not willing to take these future savings into account, as it wanted to come up with a price tag as high as possible. It happily spruiked the scare message that the FttH network would cost more than $90 billion.

Former Prime Minister Malcolm Turnbull used that to paint the picture that Australia could not afford this and he then embarked on a different plan concentrated around upgrading existing copper and coax infrastructure. Turnbull initially estimated that his solution would cost $25 billion.

What the Turnbull Government most likely did not consider was the ageing nature of the existing infrastructure and the extra remedial work that was needed for their fibre-to-the-node (FttN) and Hybrid Fibre Co-Axial (HFC )networks. It rapidly figured out those costs would be more than double (approximately $53 billion). All of this was well known by the industry.

It was also clear that FttN was only a half-way house and that eventually, it would need to be upgraded to FttN/FttH (something the Turnbull Government denied at that time, but we have since seen a backflip on that). 

The message from those in the industry who were brave enough to speak up was loud and clear — that it would be cheaper to continue with the original FttH plan, especially as in the meantime fibre-to-the-premises (FttP) technology was maturing.

What happened, was that the Coalition had to spend extra money to fix up the old infrastructure (including retiring most of the HFC network). Then it built an FttN network, which, as mentioned, would involve a significant amount of stranded assets — eventually, the NBN would have to be based on FttH/FttP.  Obviously, if you take these two elements into account the Coalition could have avoided the remedial work and most of the extra costs of the FttN network if it had stuck to the original plan.

It makes sense that once financial experts started to do the sums of all these costs, they would come up with estimated avoidable costs.

I think that the $10 billion amount quoted in the SMH article is certainly not over the top and more on the conservative side. And while some in the industry claim that these papers were not all that secret, the reality remains that the Coalition could have saved costs.

Paul Budde

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