Tuesday, 7 April 2009

100MB white elephant

Kevin Rudd has committed to a project of the utmost stupidity - a government owned, $43 billion network to the home.

I've left this comment over at Bolt's place:

According to the ABS Yearbook, there were 7.4 million households in Australia in 2001. Let's say there are 8 million today. This means it will cost over $5,000 to wire up each household, assuming it is provided to 90% of them.

Assuming 1 million are rolled out per year, by the time they complete the 3 millionth household, the technology that they started the project with will be obsolete. By the time the 8 millionth is completed, the first batch of equipment to be rolled out will be replaced with 3rd generation equipment.

Assuming no running costs, no interest costs and no requirement to make a profit (all utterly unrealistic), each household will have to pay at least $110 (+gst) per month in order to pay back the upfront cost of $5,000 over a 4 year period. That's assuming a 100% takeup of the new network.

Given that many Luddites like me will happily stay on the existing commercial networks, if they only get 30% of the market, then they'll have to charge over $400 per month for each connection. Do we expect Telstra and Optus and iinet and all the rest to sit around and do nothing whilst we wait for this bloated, government behemoth to get off the ground?

Faced with paying say $90 per month for a 24mb connection (which I can get now), or over $400 per month for a 100mb connection (which I can have in 3-4 years time), I know which service I will choose - stuff 100mb!

This thing is a disaster from hell. Are these people incapable of crunching some simple numbers in a spreadsheet?

Let's have a quick look at the announcement as it appeared in the SMH:

The Federal Government and private sector will invest up to $43 billion over eight years in a super-fast national broadband network, in the ''single biggest infrastructure decision in Australia's history''.

Under the new plans, the funding for the network offering speeds of up to 100 megabits per second will be provided by a national broadband network corporation in which the Government will be the majority shareholder. The network will be operated separately from retail telcos such as Telstra and Optus.

Notice those two cop-out words are used twice - "up to". What this means is that Rudd gets to announce a massive sounding project - $43 billion - yet they may end up spending only $3 billion, because the remaining $40 billion worth of options are judged as being totally uneconomic.

Also, speeds will be "up to" 100mb. That allows them to offer say 24mb where it is not technically or economically feasible to offer the full 100mb.

Personally, I can't see the point in 100mb to the home. We are on a 1.5mb plan here, with a 12gb monthly cap. At present, that is quite sufficient for our needs. If we wanted to upgrade, the fastest we can go right now is 8mb, because we have an old router that can't go any faster than that. If I wanted to go ADSL2 with someone like iinet, which offers 24mb in our area, I'd need a new router.

We happily run 4 computers over that link, and that includes J running an internet dependent business from home and me using it for remote access to work and so on. It does the trick. Yes, one day we will upgrade to say 8mb, but that won't be this year. There is simply nothing that we are doing on the internet that requires faster speeds. If J was processing video at home and needed to upload lots of video to her business website, I could see the point in a faster link - but we're not.

We use it for the normal bog-standard things I guess most people use it for - emailing photos to family, uploading stuff to Blogger and Faceplant, downloading podcasts, skyping and web browsing.

We're not online gameheads, but I believe the main thing you need for gaming is low latency, not high bandwidth - those are two separate things.

The fibre-to-the-premise network will run to 90% of homes and businesses. The Government will make an initial investment of $4.7 billion in the company but intends to sell its interest within five years after the network is fully operational. The network will be funded from Aussie Infrastructure Bonds while private sector investment in the new company will be capped at 49%.

Let me get this right - they are going to spend "up to" $43 billion, yet start with an initial invest of "only" $4.7 billion. Where will the remaining $38.3 billion come from?

Aussie Bonds. Assuming they have capital of $4.7 billion and debt of $38.3 billion, they will have a debt to equity ratio of 8:1.

If I remember correctly, Rudd was complaining about "extreme capitalism" recently. In my opinion, a facet of "extreme capitalism" (if you happen to believe in that term) is over leveraging companies with masses of debt. If that is the case, why is he advocating loading a company up with debt at an 8:1 ratio? Is that prudent?

And last of all, do we really trust that a government agency will wisely spend $43 billion, given the temptation to throw pork at marginal seats and pet projects? Has any government department since the time of King Solomon ever spent our money wisely?

In a major blow to Telstra, Mr Rudd said it was time ''to bite the bullet'' after years of neglect of the telecommunications sector.

''Years of failed policy have left Australia as a broadband backwater,'' he said.

"Neglect"? We have a fancy 3G network available in most locations. Many Australians can get 24mb at home right now, if they are prepared to pay for it. How do you define that as neglect?

As for a "broadband backwater", just because places like South Korea and Hong Kong have higher broadband speeds, it doesn't mean we have to have them as well. Remember, both those places feature high density apartments, which are really easy to wire up with fibre. But we don't have 90% of the population living in skyscrapers - we have urban sprawl. We get more living space, but slower internet access. That is a trade off I am prepared to live with.

The Government plans to start construction in Tasmania around the middle of the year.
What on earth is the point of wiring up Tasmania with a 100MB network? What use are they going to make of it? The only I can think of is uploading home made porn featuring members of the same family. Gee Kevin, like the world really needs more of that.

The real reason they are starting in Tasmania is because if it turns out to be a complete disaster and enormous waste of money, they can quietly close it down and hope that we forget about it. If they made a complete balls-up of it in Sydney or Melbourne, everyone would know about it. If they utterly screw the pooch in Tasmania, no one will ever be the wiser. They'll just quietly tip-toe away and announce something else.

This whole things just stinks.


bingbing said...

It probably has a lot to do with the size and population density of Korea (read: infrastructure costs), but this country gives you 100mb, with unlimited downloads and uploads for around 30 bucks per month - all with income tax at just over three per cent. What's going on in Australia would be funny if it weren't so tragic.

bingbing said...

Hmm, I may have gotten numbers wrong there. Put it this way, I've had stuff downloading at 1.5 gigabits per second sometimes although usually, a popular torrent might download at about 300-500 kbs. I think those numbers are right. I'm no tech wizz. Put it this way, an episode of Underbelly will usually download in less than five minutes and the five minute mark has been the case for more than one episode at times.

Unknown said...

like your post and agree with most points

think however you have underestimated the value in issuing govt bonds during the current economic climate, and also understated the value of faster speeds

before the first car was mass produced, ask people what they wanted and they said their horse was sufficient...

the point of wiring up tasmania is that they actually made a localised NBN submission so they have illustrated desire

in terms of however the nation being able to pay this back, or being able to sell the company.... hmmm

i think demand for the network is severly overstated, however if everyone does jump ship it could pay itself back relatively quickly.

remember that fibre optic once installed is sweet forever and with unlimited upgrade possibilities

u could amortise it over 50 years

but then again LTE is around the corner.... will be interesting to see what the intentions are in the wireless broadband space for the remaining 10% as the govt is taking an outside in approach

Boy on a bike said...

I don't believe fibre will last that long. I was under the floor in a data centre last month ripping out fibre that was 6 years old and replacing it with newer stuff.

The GBICs, or fibre drivers, have a fairly ordinary failure rate, and they are not cheap. Every company that I have ever dealt with has a drawer full of spares to replace those that fail.