So what does this mean for developers? Well it means at least an additional cost of $1000-$3000 per lot to deploy infrastructure which previously they did not need to pay for. While some developers did choose to deploy fibre networks (at their own cost) as a marketing advantage, the majority remained with deploying the free Telstra copper network.
But this legislation also means developers have a far smaller choice in telecommunication providers to be able to deploy their network. Previously developers could go to any carrier to have their network built (although most went to Telstra), but now with the new amendments already passed by Parliament in late March, residential networks must be built using an "open access, wholesale only" business model. This means Telstra, Pivit, BES, FuzeConnnect, Clubcom, TransACT, HaleNet, Broadband Multinet, and Geomedia Broadband - all who had previously built FTTH networks in residential estates - are now effectively outlawed from building new networks while they remain vertically integrated.
Now there are only a handful of carriers who are open access, wholesale only - namely Opticomm, Openetworks, Comverge and of course NBNco - which reduces competition (a benefit only for NBNco) and thus limits diversity in the market place. Consider what Carly Fiorina had to say about diversity when she was running HP:
"The value proposition for diversity is very clear:
- Diversity drives creativity.
- Creativity drives invention.
- Invention drives profitability and business success."
More significant however is the government is FORCING a cost impost on developers at a time when they can least afford to do so. It also creates more red tape to have their development approved which will only result in higher prices for land purchasers.
While the government may say by dealing with NBNco its only to be the cost of the Pit and Pipe infrastructure, it is actually much more than this. Firstly if a developer deals with NBNco the pit and pipe must be designed to NBNco standards (which is not the case if dealing with other providers); secondly it introduces a substantial project management overhead; and thirdly it lengthens the duration it takes to construct each stage of an estate due to NBNco's bureaucratic processes. These all add to a higher cost of construction and longer borrowings on their money for which the developer will want to place a margin on, thus pushing the costs of each new block of land up by about $1500 - $3000. All this at a time when developers are struggle for funding, having difficulty in some states with volume of land sales and when Australia's housing affordability is at an all time low.
5 comments:
- At 16 May, 2011 18:51 G said...
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Hi Stephen
Asking out of ignorance, not arrogance:
What would be your suggested model in this instance rather?
Is this not a good thing that the capital cost of the installation is not being recuperated on a monthly base? - At 16 May, 2011 19:36 Anonymous said...
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Opticomm general manager Phil Smith told iTnews that his company would be "an active competitor" to NBN Co for new housing estate developers.
"We'll provide a cost-effective alternative," he said.
"We still believe there will be a reasonable percentage of developers who will go private and we hope to increase our share of that market."
http://www.itnews.com.au/News/257375,nbn-co-greenfields-panel-goes-to-fujitsu.aspx - At 16 May, 2011 22:09 Stephen Davies said...
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What would be your suggested model in this instance rather?
There are a number of methods this could have been approached which were far better and created an environment which was more sustainable without wiping out a number of companies.
Firstly, it would have been much cheaper and easier for the government to have redirected the USO contributions (approximately $1000 per new home built in Australia) to the operators building the networks. At the moment, Telstra receives the USO but is now not building any network.
Secondly, the biggest cost impost to fibre operators is the backhaul; for two reasons, the cost to build the backhaul to the urban fringes is high and secondly the backhaul starts costing from day one but income is very low day one. I estimate that it takes 2-3 years before the revenue from services in a new housing estate is covering the cost of the backhaul. Considering NBNco is building Fibre anyway why not NBNco fund the construction of the backhaul (which they would own) which can be used in future for their own needs in surround fibre service areas.
Then there is the option where the developer could make a claim on the government (perhaps for the next 5 years) to pay for the mandated FTTH deployment. Add this to the USO (which is industry funded) and it would have been much cheaper for the Government than having to fund NBNco to build greenfields by approximately 1/4.
The cost subsidy could have been tapered so it starts to decrease each year after the 5 years up to 10 years when the subsidy stops.
In the current model NBNco is going to have to build a network in new housing estates are considerable expense for an indeterminate amount of time. This could be a drain on NBNco for many years. - At 17 May, 2011 03:32 G said...
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Sorry for the potential frustration, I'm writing from South Africa, trying to understand the Australian FTTH environment:
I wasn't aware of the USO contribution- in Africa you do it yourself, pay for it yourself and pray the government don't take it at some point for nationalization purposes (tongue in the cheek). It seems ludicrous however that this contribution is directed to one company only, especially if that company is not even serving the intention of the subsidy!
Would it not make most sense to direct this to a functional NBNCo and let this be used for backhaul/ fibre to the node? My maths says that $1000 is better spent on backhaul than last mile?
I believe that you are right that FTTH adds value to the individual property: What then is the implication for existing residential areas, if government is subsidising new developments' fibre rollout- would this not negate a case of unfair subsidization? The point is as soon as the upgrade is linked to one specific property as opposed to an area, won't you get individuals jumping up and down somewhere else, because their property weren't subsidized?
The last question is perhaps a very lengthy discusssion, but do you believe telecoms operators should be rolling out last mile or backhaul to the last mile?
Once again sorry if these questions seems silly or if it's been answered somewhere else on your blog, I unfortunately don't know what I don't know about your environment. - At 19 May, 2011 14:05 Anonymous said...
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Stephen,
I think you are being a bit generous describing the NBN Co as offering open services. Possibly a beter description would be minimum services ?. Off their ftth they are really only offering data (very cut down asymetric) and voice emulation, certainly not the sort of services we have come to expect from a fibre network. And even then they are forcing a bundling of voice with data - even if you do not want data. So in once sense of the word 'open", in that those RSPs who get over the hurdles can offer them, but in the true spirit of the meaning, a very limited minimal set of services.
