Another big misconception about the NBN is how it will be paid for. So, in simple terms, here is an explanation of the public funding:
The $27.5bn Government component of the NBN is funded by debt, through the issuing of Australian Government Bonds. That is, the Federal Government offers our AAA-rated bonds to investors, at an interest rate of about 4% (depending on the term).
The NBN however, will provide a return of about 7%. This means that (once the network is operational), the NBN will begin repaying those bonds at a higher rate than what Government is paying on the debt. By 2034, the entire Government investment (including the interest) will have been repaid by the users of the network, leaving the Government owning a valuable asset (the NBN network) and no associated debt. Big users of the network (those who choose the high speed and high volume plans) will contribute more towards repayment of the debt, and actually subsidise those on smaller plans.
Taxpayers don’t really have anything to do with NBN funding. It is users of the network who will pay to build it, whether they are taxpayers or not.
This is completely different to the majority of Government spending, which doesn’t earn any return. To borrow (and modify) an analogy I read on an internet forum:
Think of the NBN as an investment property….
You are borrowing money to build the property at an interest rate of 4.9%pa. But the tenants will be paying you rent which is the equivalent of 7%pa. So once the house has been finished and the tenants have moved in, the mortgage won’t be costing you anything because you’re receiving more in rental income than you are paying in mortgage payments. Then, fourteen years after the house is finished, the tenants will have completely paid off the mortgage. You can then choose to sell the house for a very large amount of money, or keep it and continue to receive the rent as income.
Can the NBN money be redirected to flood relief or other spending?
The opposition’s Tony Abbott and Andrew Robb have begun calling for the NBN to be scrapped in order to help fund the rebuilding of Queensland following the floods. As both of them well know, such claims are non-sensical, and are simply an opportunistic (and rather offensive) political attempt to stop a network they have opposed from the outset.
Because the NBN is funded by debt, and it provides a return which is higher than the cost of that debt, there is no impact on the budget from its funding. If the Government diverted the debt slated for the NBN to flood relief, then the return would disappear and it just becomes debt with an interest bill. Financially, there is absolutely no benefit in doing this over simply borrowing more money and using that for the flood relief. The cost to Government would be identical, but there would be no NBN network at the end to show for it. A lose-lose situation.
Tony Abbott: “You don’t redo the bathroom when your roof’s just blown off”.
Ignoring the funding issue, let’s not forget that the “bathroom renovation” has already begun. Parts of it are finished. We have already purchased many of the materials for the renovation, and begun employing people to do the work. Our material suppliers have spent money upgrading their Australian factories and employing hundreds more staff to make the “tiles”, on the understanding that we will purchase them. If we stop now, then we’ll be left with about half of the total materials needed for the renovation, but no money to install them. We’ll also have to pay the suppliers compensation for their outlay upgrading their ‘tile’ factory, and explain to their employees why they will lose their jobs. We may well cause some of our suppliers to go bankrupt, because they have invested millions of dollars on their factories after we awarded them contracts.
Unlike most Government expenditure, the NBN is a project that will not only deliver improved infrastructure, but it will do so while providing a positive return on investment.
Shouldn’t we spend the money of better health or education?
In a similar vein to the above, there are often statements along the lines of “the NBN money would be better spent on health or education” etc.
Again, since the NBN returns its investment, one can’t simply redirect that money to health or education unless that spending also returned that investment. For example, if you built a hospital with the money, then you would have to charge people to use the hospital to the extent that every dollar spent was returned, plus 7% per annum. Of course, that would not tie in very well with our “free” medicare system!
But, for a moment let’s forget about the NBN’s return and assume that it does not generate any revenue at all, and the entire 10-year, $27bn Government investment is not returned. How does that compare to Government spending on health and education?
Well, over the same 10-year period, Australian Governments will spend over $1.2 Trillion dollars on public healthcare. They will spend over $500 Billion dollars on public education. They will spend over $200 Billion dollars on defence.
Put another way, the Government will spend more on public healthcare every three months than they invest in the NBN over ten years.
If it provides a return, why not let the Telcos build it?
Private sector companies demand a far higher return on investment that the 7% provided by the NBN. Typically, they demand 15-20% return. This means that any private sector alternative (even if they were willing to build it) would result in enormously more expensive monthly pricing than the NBN will provide. For an example, you only need to compare the Internode’s pricing on Telstra’s South Brisbane Fibre rollout to their pricing on the NBN.
NBN MYTHS 
That is the best explanation of the National Broadband Network funding that I’ve ever read. Why can’t Conroy make it that simple?
Indeed Frank, but when he, quite successfully to my mind, did just that at the National Press Club last year, he inadvertently dropped the “F” word, during a response…Guess what totally occupied the media’s attention.
This is a poor analysis. NBN “will” repay 7%? No, it is expected to repay 7% with the risk being on the downside.
The government is funding this as the equity proportion of the capital structure meaning that once the senior bond holders are paid on the cashflow then what is left is going to the government. If the Government funds the equity at 5% but half of the equity is underwater then on a cashflow basis the taxpayer will be worse off.
Seriously poor attempt at a financial analysis here.
Sean, can you give a quick financial analysis, taking into account the debt cash flow and return? or at least link one?
At the moment your comment only adds to doubt without helping provide facts. I would like to look at fact based arguments from both sides.
It’s been a few months since I have been here but sure, I can put together a financial analysis. Project finance is not my speciality but I can put it together and have you guys critique it. I’ll need to recheck the NBN company to see if they have released any additional info.
In any case, it does not take a genius to see where the problem is with the assumptions built around the cost of funding and the expected returns.
Still waiting Sean.
As Frank said “this is the best explanation of the National Broadband Network funding that I’ve ever read.”
Why is the obligation on Sean to provide a proper analysis? That is NBN’s obligation.
Sean has already exposed the major flaw being the suspect 7% quoted. NBN are not entitled to the benefit of the doubt on that 7% figure. I want some substantiation, please.
Goldie, I want your gold plated re-assurance that it definitely will be 7%. I want NBN’s gold plated re-assurance that it definitely will be 7%. Not giving it? You know what, I don’t believe you, Frank or NBN. I believe Sean. I am betting 7% is a lie.
NBN Co have a publicly available corporate plan which details the figures and assumptions they used to achieve the projected “bond rate+3.5%” return. KPMG-McKinsey stated that such a return was achievable in their implementation study, and Greenhill-Caliburn reviewed the NBN Corporate plan and found the assumptions therein to be reasonable.
I’m not sure what more you expect of them, and if Sean wants to say that the projections are not reasonable then I think the burden is on him to identify on what basis he has come to that conclusion.
OK Tom, to help you out, I now give you my gold plated re-assurance that it will definitely be 7%.
Why is it so difficult to understand what Sean has said. Ok, baby steps:
1. NBN.co says it will produce a return of 7%. There is no guarantee that this will happen. If they fall short, then its the Australian tax payer who must pay the bond yield. Simple!
2. How well can we trust what NBN.co has to say and their projections? Not very well at all. For example, again making financial projections we have:
“NBN Co’s corporate plan reveals that it expects to earn $3 million this financial year, increasing to $509 million by 2014, when it expects to have 5 million households connected to its fibre, wireless or satellite services.”
Wow! The NBN more than half completed by 2014?? I think not.
Remember, the NBN is to service around 13 million premises. Not all of those will actually take up those services, so the above figure of 5 million would mean that the NBN is around 3/4 completed. They LOVE to throw around impressive numbers…. without thinking.
We know this to be far from the truth because:
“The National Broadband Network will be available or under construction to 3.5 million premises by mid-2015”.
Now, thats not 3.5 million completed and returning revenue, its only “Network will be available OR under construction”. How many will actually be connected and returning revenue? and one year later than the previous projection? 500,000? 1 million? 1.5 million (very generous). Ok, lets pretend that they actually complete the 3.5 million (which they themselves say they won’t). With the take up rate being around 15%, thats 525000 connections returning revenue.
It is very very likely that yes, Australian taxpayers will be forking out for the NBN
Take-up is currently MUCH greater than expected.
Take-up of the more profitable 100Mbps plans are MUCH higher than expected.
These are two of the key items they use to forecast potential profit.
Since they are both better than expected – the 7% ROI could well be higher – and this is also predicted in the nbnco documents 7% was the conservative figure – as all start-up forecasts should be.
So far so good. Just need to get that roll-out back on track.
Just to clarify: ““NBN Co’s corporate plan reveals that it expects to earn $3 million this financial year”.
That was for 2011, not 2012. What do we actually have? The figure for 2011 was in fact $356,000 –
http://www.zdnet.com.au/nbn-co-rakes-in-356k-in-2011-339335702.htm
So, since NBN.co have shown that their real returns are in fact a little over 10% of their projections, that 7% return is in fact 0.7%
Tax payers, your wallets are getting warm!
There have been many changes since the 2010 corporate plan, which I’m sure will be reflected in the updated version due this year.
However, none of this makes it more likely the NBN won’t earn the projected 7% return.
The project has been delayed certainly, primarily because of the delay in reaching the agreement with Telstra. So while revenue is below expectations at this time, so is expenditure. The construction delay may well delay the provision of the return by a year or two, but that’s all.
There are three key assumptions making up the financials:
Takeup;
Average revenue per user (ARPU);
Construction costs.
ARPU is initially expected to be ~$33 per month. Just looking at the NBN’s revenue for 2011 indicates that they are well on track to achieve the required level, since they earned their $356k despite only charging for services from October and having 4,000 active connections as at 31/12 (but an unknown number at 1/10). On the available figures, it’s quite likely that ARPU is already above the required level to achieve the 7%.
The takeup rate is already over 15%, despite the numerous current (or just rectified) barriers to connection (eg: ISPs representing over 60% of the market not counted, no phone service/number portability, no IPTV). The average in the trial sites is now over 20%, with some sites already reaching 30%. Even if numbers don’t grow naturally (which of course they will. Just look at ADSL with its initial 3%-after-18-months takeup), once the Telstra copper network is switched off and customers migrated to the fibre network they are essentially guaranteed to achieve the expected customer numbers.
Finally, construction costs…. NBN Co have now signed on-budget contracts for nationwide greenfield and brownfield fibre rollouts for the next 2 years (with options for another 3), plus nationwide wireless until completion, plus most of the satellite portion.
So, with these three key points essentially covered, on what basis do you claim the return target is unlikely to be met?
“The $27.5bn Government component of the NBN is funded by debt, through the issuing of Australian Government Bonds.” – NBN Myths
As somebody who purports to be debunking myths, who do you spend so much time propagating them.
Lets just look at some facts, shall we?
Of the almost $17 billion that is being thrown at the NBN to 2015, only $300 million of this is coming from government bonds and securities. Please take the time to read the budget papers and aquaint yourself with FACTS.
So, the fact is that over $16 billion is coming from elsewhere and is money that belongs to the Australian people, rather than debt from bonds (which also taxpayers are liable for, since there is no way the NBN.co can pay the interest or maturity on those bonds)….. no ifs, no buts….
You’re going to have to try harder than that.
The initial $300m was from the 2010 budget, see this report. In May 2011, the Govt announced a further $2.7bn bond issue for the NBN. See this report. Further issues will take place in the future as equity is injected.
Thats all well and good, only $15 billion more to go to 2015 projections. DO you know how much in TOTAL the government raises in bonds each year? I think you had better go and have a look…….. the fact is that most of the money is budgeted from OTHER than bonds…. please start publishing the true facts, not your “its all being paid by bonds” guff.
They are hardly going to issue the bonds before they need the equity, are they? That’s just ridiculous. As they did in 2010-11 and then in 2011-12, they will issue the bonds as they inject the equity into NBN Co. It’s not rocket science.
SO here we go again, more obfuscation from NBN Myths.
How about some facts? Please tell the World how much thus far has been raised from bonds for the NBN. Then tell the World how much thus far has been SPENT on the NBN….
It is pure guff to say that “all the money is coming from bonds”, the fact is it is not. MOST of the money spent thus far on the NBN has come from PUBLIC FUNDS, not bonds. To say otherwise is to out and out lie.
Well said Backslider. If it smells like a white elephant, earns like a white elephant and obfuscates like a white elephant, it is probably a white elephant.
Its just sickening Tom. We are supposed to believe that if money doesn’t come DIRECTLY from tax revenue (as per the budget), its not tax payer’s money. This is just pure guff! Shuffling money from the future fund and contingeny fund IS using taxpayer’s money. If that money does not belong to the Australian people, I don’t know who it belongs to…?
Fortunately it does none of those things then, huh Tom? The ARPU so far is well above expectations, with the takeup of services overall being above expectations and the takeup of high speed (and therefore higher ARPU) speeds being massively above expectations. See: http://delimiter.com.au/2012/05/29/higher-100mbps-uptake-will-spur-nbn-price-cuts/
I’m not sure how much more info you’d like to have on the NBN. There is a corporate plan which has been out for almost 2 years. NBN Co is reviewed by Senate Estimates and the NBN Parliamentary Committee on a regular basis. Their pricing and contractual arrangements are subject to ACCC regulation. NBN Co was deliberately subjected to FOI laws even though GBEs are usually exempt. I doubt that any Australian GBE has even been subjected to such scrutiny. What more would you like to see?
Thanks for the facts NBN, I find it hard to understand why people want to stay in the dark ages of technology.
The article explains why the NBN’s cost is treated off budget, but what I am interested to know is, do we know for sure that when it starts paying back, will it still be treated off budget? It seems too tempting for the government to just take that money into the general revenue and use it pay for new schemes, which would put the tax payer back on the hook.
I was really hoping this would be a well researched, unbiased view that most lay people could read and get the real facts about. IT ISN’T! Please research the real facts, there is a lot of it about.
Would you care to provide some examples of “real facts” for assessment?
Having lived in this great Aus for 5 years now, I see a serious debilitating sickness. It’s a sickness of doubt being spread without facts or without looking at the facts.
Micka2013, your comment is a prime example of it; saying that the ‘facts’ should be researched, which this article indeed did and tried to explain in layman’s terms.
Any business has future forecasts, most businesses raise capital on big projects, a lot (if not most) projects go over budget, most big projects eventually gets completed for the better of the nation.
-If the issue is a business issue, should we not listen to the experts in business about the facts and projections? vs listening to politicians?
-If the issue is a science issue, should we not listen to the scientists about the facts and projections? vs listening to politicians? (I refer to climate change)
NBN Co posts $932m operating loss. Average of more than 35 per cent of premises passed had taken up an NBN service.
http://www.news.com.au/national/breaking-news/nbn-co-posts-932m-operating-loss/story-e6frfku9-1226749304222
Not only are we paying for the bonds issued we’re now picking up the loss tab. You people who think you know how business works really need to stick to your armchair. Thinking you speak for others is the worst mistake, 35% take up rate!
NBN just doesn’t make sense in such a huge landscape – 4G+ on the other hand does.
Steve,
You’re demonstrating your absolute lack of knowledge of even basic business. Of course NBN Co are making an operating loss. They are spending money building infrastructure. It’s not forecast to make an operating profit until 2021 after the network build is complete. Name a single infrastructure project (worldwide) that made an operating profit 2 years after construction began, and 8 years before it was completed. Telecommunication. Road. Railway. Mining…. Anything. I’ll wager you can’t do so.
On takeup rate, you’re also showing a total lack of knowledge on the topic. A 35% takeup rate is excellent after such a short period. Some areas of the NBN where it’s been available for over 12 months have about a 60% takeup rate. Both of these figures are ahead of almost any similar project anywhere. The takeup rate of ADSL in Australia was 3%, 18 months after the rollout. The takeup rate of Optus cable is 20%, 10 years after completion. Even the takeup rate of your touted (Telstra) 4G was just 10% within the footprint, 12 months after the network was activated. I suggest you research the “technology adoption curve” and educate yourself.
4G (or any wireless) is not an alternative to fibre, it’s complementary. No wireless tech is capable of carrying the loads of the fixed network in urban or suburban areas, which is why there isn’t a single country on the planet replacing urban/suburban fixed network with wireless. Perhaps you’d care to explain what you know, that every telco in the World doesn’t?
Then there’s the price…. The average fixed connection in Australia now downloads about 45GB/month. On the NBN that could cost as little as $40. On Telstra 4G it would cost $360, and on Optus 4G it would cost $670. That’s why the volume growth on fixed networks is far outstripping the growth of wireless.
It not an infrastructure project its an ideology project – labor was trying to regain control over the telecommunication network by building their own. As such, it should be measured on ROI which it will fail miserably. By 2021 it would have cost somewhere in the order of $100B.
I’m glad PRACTICAL people that understand business are now running the country. The overwhelming majority of taxpayers have no need for speeds greater than broadband so there is no point in wasting our taxes on a Rolls Royce solution. Just like you don’t get a five star hotel experience when you go to hospital etc. Unless of course you pay for your own quality above the taxpayer funded system.
Australia is 100’s of times the size of countries (with less population density as well) with fixed high speed connections. Implementing the NBN is like trying to wire several European countries a task we just cant afford and when its done will be surpassed for wireless alternatives. We need smarter solutions for our situation, comparing us to highly populated small countries and wanting their solution is just silly.
4G is already faster than broadband and future generations will be even faster. Giving people outside of highly populated areas wireless is a better option and focusing on that solution will bring price’s down.
I get it – you want a GB connection for your gaming or porn / TV show pirating but the reality is the overwhelming majority of households have absolutely no need for it and this is reflected in the take up rate. If “everybody wanted it” the take rate wouldn’t be so slow. Next you’ll be lobbying for 6 lane super highways out to Alice Springs etc because every wants it.
You can always spot a weak argument when you resort to logical fallacies rather than factual debate. But let’s discuss the few points you did make:
1. The fact is that the NBN is infrastructure, whether you agree with it or not. Therefore it will take a long time to repay the investment. Your $100bn fantasy cost has been debunked.
2. Both the Coalition and Labor NBNs are GBEs, set to be sold upon completion.
3. 10 years ago, people like you would have said 128kbps ADSL1 would be more than enough for most people. 20Mbps ADSL2+ would have been the “Rolls Royce”. Do you seriously think that our needs in 10 years will be the same as today?
4. Those who choose the top end plans on the NBN are subsidising those who choose lower speeds, not the other way around.
5. There are over 60 countries in the World doing fibre. Both higher and lower population density than Australia. Also, Australia is one of the most urbanised nations on the planet. Under Labor’s NBN, fibre only went to cities and towns with >1000 dwellings. Outside that footprint where it’s feasible to use wireless due to low population density, that’s what the NBN is. Wireless or satellite.
6. The term “faster than broadband” makes no sense. What sort of broadband? ADSL? SHDSL? VDSL? Cable? Fibre? They are all broadband, and provide speeds between 1 and 1000Mbps.
7. 4G (and all wireless) is a shared medium. The speed it delivers depends on the number of users. eg: Telstra 4G is currently a 150Mbps system. So one user on a tower could get ~150Mbps. But 100 users could only get 1.5Mbps. Wireless only carries 6% of volume right now. How do you think speeds would go if it were carrying 90% of traffic?
8. The price of wireless is high specifically to reduce usage. Because more users require more spectrum, which is expensive. You clearly have absolutely no idea what you’re talking about.
9. As advised, the takeup rate of the NBN is exceptionally high, not low. It’s 3x higher than the takeup of Telstra 4G within each network’s respective footprint. Perhaps you failed to comprehend that info in my last reply.
I wonder whether you have asked yourself why, if your wireless concept is indeed the way to go, there is not a single country or telco on the planet proposing such a scheme. Including your own “practical” Coalition Government?
How much has been spent on the NBN to date. And how many homes are connected? If it is a “business” why are the populated areas not being connected for many years?
Dave,
I don’t know exactly how much equity has been injected into NBN co to date, but it is approximately $6.5bn. However, whatever the figure is, it’s not in any way relevant to divide that figure into the current number of premises connected, or even premises passed. This is because much of the cost of the NBN goes into backend networks and systems that must be built in an area first, in order for premises to be connected. There is also considerable cost in constructing satellites and ground stations, and wireless towers that must be built before anyone can connect to them.
The NBN is being concurrently rolled out from the 121 Points Of Interconnect located across the country. Some of these are in metropolitan areas, some are in country areas. Simultaneously, there are also two satellites under construction and about 2,000 wireless towers. Data from May 2013 shows that the takeup (and therefore revenue) in the regional NBN areas is generally higher than in the metro areas, so the presumption that metro areas achieve a faster return is incorrect. For example, the two NBN sites of Minnamurra (NSW South Coast) and Brunswick (Melbourne metro) were activated at around the same time. The takeup rate in Minnamurra is 64.4%, while Brunswick is 32.5%.
Thanks for your reply. I do understand about the infrastructure spend. I feel that a 30% take-up in a highly populated area is a better economic proposition. It’s disapointing that so many people are not able to connect.
Why doesn’t NBN Co. raise all the required capital from the debt markets? If the business case is so economically viable, it should have no problems raising its funding from the capital markets.
Chuck, you’re right. According to this propaganda blog, there is no cost to the taxpayer because it is funded by government bonds. How naive and misleading. NBN Co. would never be able to obtain capital from the debt markets – with its risk profile and shoddy business case, the returns would need to be closer to 70% compared to the forecast 7%. So the taxpayer is subsidising the venture by at least 63% for decades into the future, in addition to any overruns in cost or shortfalls in revenue.
And that is not the only cost to the taxpayer. When governments issue bonds for these large amounts, it reduces the supply of capital for other purposes, including for other government borrowing and for private borrowers, which puts pressure on interest rates. So every taxpayer with a mortgage, business, or debt will pay twice for this, once through the tax system and secondly through higher interest rates. In addition, government borrowing for high risk ventures like the NBN when it already has $400bn in debt puts pressure on our AAA rating,on the currency which puts further pressure on interest rates and inflation. Lastly it undermines our global business reputation, reducing foreign investment into the country. The NBN in its present form is an unmitigated disaster.
Ignoring all the rest of the errors (which have already been covered in the post, and other comments)… you say that the NBN “undermines our global business reputation, reducing foreign investment into the country.” Really? Perhaps you could explain the comments on the NBN from the absolute cream of international ITC businesses then, such as Google, Microsoft, Apple etc as shown on the “What do the experts say?” page….
I think that the name of this website is very appropriate. It is designed to promote the myths we are all supposed to blindly swallow as to how good it all is.
Global warming anyone???
This propaganda blog says: “Think of the NBN as an investment property….You are borrowing money to build the property at an interest rate of 4.9%pa. But the tenants will be paying you rent which is the equivalent of 7%pa. So once the house has been finished and the tenants have moved in, the mortgage won’t be costing you anything because you’re receiving more in rental income than you are paying in mortgage payments.”
This is wrong on so many levels.
Firstly, which bank would lend money to NBN Co. at any rate, let alone 4.9%p.a.? Where is NBN Co., an entity with no assets, no income, no track record for building complex infrastructure, no track record as a telco, no credit history and no credit rating going to borrow $44,000 million dollars at 4.9%?
Secondly, which bank lends 100% of the building costs plus 100% of the operating costs with no deposit and no security? That would be like the bank lending me 100% of the building costs for my investment property plus 100% of my living expenses for 10 years. Which bank does this?
Thirdly which investment property takes at least 10 years to build and is the only one of its kind in the world?
Fourthly, which bank defers all loan payments 10 years until the house is finished and enough tenants have moved in? Who pays the loan payments for the 10 years of the build and until enough tenants have moved in?
Fifth, what happens when once the house has been finished, there are few tenants willing to move in at the listed rent? What happens when despite dropping the rent 34%, the house is under-occupied because tenants prefer a different, more modern type of house. A house which although smaller and slightly more expensive, is more mobile, more convenient, more cool – a house that can be taken with you wherever you go? Who pays the bank then?
Who pays? The good old taxpayer, that’s who. The same taxpayer who after 10 years is already paying higher interest rates on his mortgage and his business due to the higher costs of finance, the same taxpayer who is struggling with inflation and higher import costs due to the lower currency, the same taxpayer who is struggling with his unprofitable business due to lower consumer demand and business confidence, the same taxpayer who is paying higher taxes as foreign investment reduces and Australia’s AAA credit rating is downgraded.
“Then, fourteen years after the house is finished, the tenants will have completely paid off the mortgage. You can then choose to sell the house for a very large amount of money, or keep it and continue to receive the rent as income.”
Sure, you can then choose to sell the house for a very large amount of money, or keep it and continue to receive the rent as income – as you watch pigs glide through the sky.
Or more likely – you can choose to try to find a buyer for your white elephant for a very large loss or you can continue to borrow to keep it running while wearing the losses for the sole benefit of the gamers, pirates, porn addicts and tech heads, who are your only tenants and your devoted fanboys.
According to the NBN’s own figures, in 2010 13% of Australian households were wireless only. NBN Co.’s revenue forecasts collapse if wireless-only households reach 16.4% before 2040 i.e. the NBN’s revenue forecasts rely on no more than 0.3% per year taking up wireless broadband.
http://www.ustelecom.org/blog/americans-continued-drop-landlines-2012
“38.2 percent of total U.S. households were wireless-only in the second half of 2012. In stark contrast, only 8.6 percent were landline-only households. Approximately 2 percent of U.S. households had no telephone. The remaining 50.8 percent had both wireless and landline telephones. Of these dual wireless and landline households, 15.9 percent used wireless mostly. Combining wireless-only and wireless-mostly households, 54.1 percent of U.S. households depended on wireless either exclusively or mostly by the second half of 2012.”
http://www.tminc.com/blog/bid/308926/Number-of-Wireless-Only-Households-Increases-2-4
In the six months of the second half of 2012, the number of American homes that only have wireless telephones grew a further 2.4%.
http://www.emarketer.com/Article/Households-Canada-Go-Wireless-Only/1009878
In 2013 22% of Canadian households are wireless-only, representing 4% year-on-year growth since 2011.
Growth in Japanese FTTH subscribers has plummeted 40% since the introduction of LTE. FTTH providers have had to drop prices by an eye-watering 34%.
The Australian 13% wireless only figure was for 2010, prior to the deployment of LTE. I can’t find figures for wireless-only households since LTE, but on the evidence across the Americas, Europe and Asia, I’d bet my house the NBN revenue forecasts and business case have already been blown well out of the water. The NBN is already a dead duck.
And what will happen when LTE is upgraded to full 4G?
According to the NBN’s own figures, in 2010 13% of Australian households were wireless only. NBN Co.’s revenue forecasts collapse if wireless-only households reach 16.4% before 2040 i.e. the NBN’s revenue forecasts are based on no more than 0.3% per year taking up wireless broadband.
http://www.ustelecom.org/blog/americans-continued-drop-landlines-2012
“38.2 percent of total U.S. households were wireless-only in the second half of 2012. In stark contrast, only 8.6 percent were landline-only households. Approximately 2 percent of U.S. households had no telephone. The remaining 50.8 percent had both wireless and landline telephones. Of these dual wireless and landline households, 15.9 percent used wireless mostly. Combining wireless-only and wireless-mostly households, 54.1 percent of U.S. households depended on wireless either exclusively or mostly by the second half of 2012.”
http://www.tminc.com/blog/bid/308926/Number-of-Wireless-Only-Households-Increases-2-4
In the six months of the second half of 2012, the number of American homes that only have wireless telephones grew a further 2.4%.
http://www.emarketer.com/Article/Households-Canada-Go-Wireless-Only/1009878
In 2013 22% of Canadian households are wireless-only, representing 4% year-on-year growth since 2011
Growth in Japanese FTTH subscribers has plummeted since the introduction of LTE. FTTH providers have had to drop prices by an eye-watering 34%.
The Australian 13% wireless only figure was prior to the deployment of LTE. I can’t find figures for wireless-only households since LTE, but on the evidence across the Americas, Europe and Asia, I’d bet my house the NBN revenue forecasts have already been blown well out of the water.
And what will happen when LTE is upgraded to full 4G?
Dear wdferj/Jeff/Jost/Katherine/Chuck (Yes readers, they are all the same person according to “their” IP address overlaps),
Those articles are talking about wireless telephones, not wireless broadband. Most of those customers still have fixed broadband services (typically in the US they are HFC cable broadband). Even in Australia, the 13% figure includes people who have naked DSL (with or without VoIP phone).
There is no decline in the number of fixed lines in Australia. The latest ABS stats show that the number of ADSL connections climbed by about 300,000 in 2011/12, even though the number of new premises only increased by about 150,000. And this is in a near-saturated market.
There are three main issues with people changing to wireless (as opposed to adding it):
1. Speed (contention). While 4G wireless offers good theoretical speeds (and sometimes good practical speeds), it must be remembered that it is a shared medium, and it currently only carries about 6% of data volume. The more users and the more data they use, the slower it gets. So you can imagine what would happen if it was trying to carry 2000% more data than it currently carries. Even assuming LTE-advanced, which offers 1Gbps per cell, its speed plummets down to 10Mbps per user with just 100 users on that cell. FYI, there is an average of about 3,000 Australians for each cellular tower in Australia with many more per tower in metro areas. On top of this, there is the physics of wireless. More users and more data needs more radio spectrum. But it’s a finite resource. We are already reaching saturation, trying frantically to free up spectrum from other uses (eg analogue TV) to redeploy that spectrum to wireless. But it still isn;t enough to carry the tiny 6% of data currently, let alone trying to increase it by 2000%.
2. Price/Volume: The average Australian broadband connection now consumes almost 50GB per month, according to the ABS. To download that on Telstra 4G would cost $360 per month. On Optus 4G it’s $674 per month. On the NBN, it would cost between $30 and $60 per month, depending on the ISP and speed chosen. And average volume is increasing at the rate of about 50-100% per year, compounded.
3. Reliability: Even today, 20 years after cellular networks first arrived, there are numerous blackspots even in metro areas where speed is slow or even non-existant. That’s because every obstruction, every tree, every wall, every hill or mountain blocks or slows the wireless signal. You canna overcome the laws of physics.
Other points:
• There’s not a single country or Telco in the World proposing to replace urban fixed networks with wireless. Even the Liberals, and every Telco in the countries you named (US, UK, Canada) are currently rolling out HFC, FTTP or FTTN networks. Why would they do that when they have 4G/LTE networks in place already, and they are a suitable replacement?
• Contrary to your assumptions, the NBN’s take-up and average revenue per user are both well above expectations.
• See these images, which show the average volume of fixed v wireless in Australia, and also the percentage of data delivered over fixed v wireless in Australia:
NBN Myths: “Even today, 20 years after cellular networks first arrived, there are numerous blackspots even in metro areas where speed is slow or even non-existant. “
My NBN has a black spot. This black spot extends endlessly, over hundreds of thousands of square miles in all directions. My NBN’s black spot follows me wherever I go, wherever I am. My NBN plan has a black spot at work, in my car, on the train, on the beach, in the mountains, on the boat, in the pub, on holidays, interstate, overseas, in the mountains, while walking, running, driving, camping, bushwalking, fishing, or playing. The NBN’s black spot appears in social situations, at parties, in clubs, at the kids’ soccer, swimming class, ballet class. My NBN plan cannot be used to IM my wife, check on the kids or meet friends. I can’t use my NBN pan for mobile phone calls, SMS, instant messaging, mobile blogging, social media, navigation, GPS, mobile games, mobile photos and videos, mobile TV and movies. I cannot use my NBN plan to decide which restaurant to go to, which hotel to stay in, which movie to watch at the theatre or how to get there.
My entry-level NBN plan costs $50. I spend 90% of my waking hours in my NBN’s black spot. My 4G mobile plan costs $20, includes $650 in calls, SMS, MMS, free social media, plus 1.5GB of data. My 4G plan is valuable and available wherever I am, at all times, speed and reliability are more than adequate. .
P..S. I have $100 a month budgeted for the family’s internet access.The wife, 2 kids and I each have $20 4G plans plus a $20 4G 2GB plan for our iPad, but the NBN plan makes my total internet spend $150 p.m. I’d like to keep everything but the wife says other expenses are biting and I need to bring this back within budget. Should I take the iphones off the wife and kids or ditch the NBN?
Dear Steve/wdferj/Jeff/Jost/Katherine/Chuck. Nice to see you’ve added another name to your list of trolling aliases. At least your use of proxy servers shows you’re getting better at teh interwebs.
I see that comprehension is still foreign to you though. Would you care to provide some evidence that people are replacing their home broadband connections with mobile, as opposed to adding it? Also, perhaps you can list the countries where operators are ceasing their rollouts of urban fixed networks, and connecting homes to mobile instead? Maybe make a comment on the data graphs provided above?
Your 4G pricing story seems more than a little implausible. Firstly, can you name the Australian provider that has $20 $650calls/1.5GB 4G plans? I suspect such a plan does not exist, which would be consistent with your previous commenting record.
Second, why have a 4G plan for the iPad at all? Why not just tether it to one the iphones? Then you could use the money to buy an NBN connection. Dodo have a 10GB/month NBN plan for $30.
If the iPhone and iPad plans are all you have, then your family must be a very light user of the internet. The current average usage is 50GB per month, while even if your unlikely claims are true, you only have 8GB total, for your $100 spend on 5 devices. $100 on the NBN would get you 1000GB at 100Mbps.
Oh, one more thing….Since your first comments came via TPG static IP account, would you like to add the cost of that ADSL plan to your monthly “$100 spend”?
I give you a C+ for trolling. Keep trying.
Take the phones off the kids Steve – and good luck with that!
How many homes/businesses are actually connected to the NBN? I never got an answer to that question.
Yes, this is scary.
NBN Myths said: “Also, perhaps you can list the countries where operators are ceasing their rollouts of urban fixed networks, and connecting homes to mobile instead? ”
Sure. Operators of fixed and mobile networks are usually different and operate in competition to each other..
Like in the evidence I cited from Japan, fixed network operators NTT East and NTT West responded to the LTE mobile challenge by dropping their prices an eye-watering 34%, using mobile network profits to subsidise fixed network operation losses. What would NBN Co.’s business case and revenue look like after a 34% drop in prices with no mobile network to subsidise the losses?
In cases where operators have both fixed and mobile networks, the operator slows down or scales back the roll-out of fixed line broadband. This is why BT scrapped their 2009 plan to roll-out FTTH plan to 2.5 million households in the UK in 2012. BT instead now offers FTTH on an on-demand, user pays basis, while accelerating the roll out of the cheaper FTTN/FTTC.
Again, can I bring you to the crux of the matter. Mobile networks do not need to REPLACE fixed networks. 100% of users will never prefer mobile networks. For the NBN Co. business case to collapse does not require 100% adoption of wireless, it does not need 50% adoption or 10% or even 1% adoption of wireless broadband.
The NBN Co. revenue forecasts and business case collapses if just 0.3% of connected Australian households decide that a mobile plan is better meets theri need and is more cost-effective. After all for $50 per month, the NBN offers a blackspot in 99.99999% of places where people live, work during their waking hours, mobile broadband has offers ~100% coverage.
I’ll give you this, Steve/wdferj/Jeff/Jost/Chuck/Katherine, you are a very persistent misleader. My wordpress moderation queue is choc full of the same comments, posted under numerous names from numerous IPs using numerous email addresses. The comments remind me very much of a twitter exchange I had with someone who turned out to be an unemployed ex-financial trader last year, who also had a propensity for creating numerous identities to argue the same point from…. Anyway, I digress.
You’ve done a wonderful job of answering like a politician. That is, not answering. I asked you to list countries that have abandoned the rollout of urban fixed networks, and instead connected homes to mobile services. You apparently couldn’t name one. That in itself is very telling. There’s not a single country in the World where the Telcos that think you’re on the money. Why is essentially every developed country on the planet currently rolling out FTTN/FTTB/FTTP, if they could just do 4G instead? Perhaps you could ponder that before you come back under another pseudonym?
Your claim that “fixed and mobile operators are different” is false. Typically, operators supply both fixed and mobile services. Telstra, AT&T, Verizon, BT, NTT, KT….
The price example from Japan is not relevant to Australia, given that mobile broadband is already 20-1000x more expensive than the NBN here. In Australia, there is zero evidence that people are leaving fixed lines, and in fact evidence to the contrary. As mentioned before, the ABS show the number of fixed lines is growing at a rate that exceeds the construction of new dwellings. Why?
I notice you’ve completely ignored the usage that comes from the boom in IPTV services and the requirements of upcoming 4k and 8k TV standards. Speaking of eye-watering, how much would it cost to download a single 4kTV movie on 4G? And what would happen to the network if 1% of the neighbourhood tried to do it at the same time?
Your BT example does not support your argument at all. Why are BT even rolling out FTTN, if they could just migrate people to 4G? Perhaps because they know it cannot replace the fixed network for even a decent fraction of the population? The same story is repeated Worldwide. On a side note, FTTN is so much cheaper than FTTP in the UK because the owner of the copper is rolling out the FTTN. The same does not apply here. Before an FTTN rollout can begin, we must buy the copper from Telstra.
Your “only 0.3% of people need to choose mobile instead” is possibly the most misleading statement I’ve heard since Christpher Pyne said the Coalition was supporting Gonski. The NBN assume 13% wireless-only premises. The NBN’s footprint will eventually cover 100% of the places where people “live, learn and work during their waking hours”. Something 4G will never do, even if it were affordable for the volume people desire.
“In Australia, there is zero evidence that people are leaving fixed lines”
According to the ABS:
“Out of a total of 12.4 million internet subscribers in June 2013, 2.7 million (22%) were Business & Government subscribers and 9.7 million (78%) were Households
– 6.1 million (49%) subscribers had fixed line (Dial-up+DSL+Cable+Fibre) connections. 6.3 million (51%) subscribers had wireless (Satellite+Fixed Wireless+Mobile Wireless)
– There were a further 19.6 million subscribers with internet access connections via a mobile handset
– Total fixed-line subscribers: 6.1 million
– Total wireless subscribers: 25.9 million
Juan/Bob/abc/Steve/wdferj/Jeff/Jost/Chuck/Katherine,
If you keep going, my entire reply will consist of listing your various identities. The only question in my mind is whether you have OCD, or you just work for the Coalition?
Anyway, to the topic at hand….
1. Nothing in your post provides any evidence that people are leaving fixed lines. Only that they are adding mobile connections. Which is what everyone has said they are doing all along.
2. Considering there are only 22 million people (7.8 million families) in Australia yet there are 36 million internet connections, clearly most people have both fixed and wireless connections (fancy that).
3. The NBN is for homes and businesses, so not sure why you would exclude businesses from your fixed-line stats.
4. You have not excluded businesses from your wireless stats, making your irrelevant comparison even more worthless.
5. Fixed-wireless and satellite connections would be included alongside DSL/Cable/Fibre/Dialup, not mobile wireless. Since they are only available at a fixed location, not while out and about.
Fail.
Good analysis!
The real key is that the NBNCo is NOT a telco, requiring an ROI of 18%+ like Telstra or TPG, but a Utility, like gas and water, where returns of 7% are actually quite good, because of certainty and risk.
After the peak funding requirement is passed, the NBN will be one of the largest cash generators in the Australian economy.
The original FTTP version would have been better, because of the low-cost of operation of fibre, but the new MTM will require more cash to run to fund:
a) complexity and extra IT systems;
b) higher maintenance for copper and coax;
c) power to run the nodes;
d) it will drive resellers to focus on lower speeds so they can sell a uniform product (i.e. only under 25Mbps);
e) the MTM is taking longer to build than the original FTTP and will probably end-up costing more money (after later upgrades) !
I would love to have shares in the NBN as it will soon be a huge cash generator.
I am not an economist, so please keep it simple. As best I can tell, the NBN is experiencing four principal problems/complaints.
1. its revenue is insufficient to cover the interest on money borrowed from bond-holders. Therefore, the NBN has increased its charges to telco’s. Instead of paying these higher charges, telco’s are purchasing less capacity from the NBN. This slows the network considerably, and the slower the network the slower the uptake, the lower the revenue, and the more the taxpayers (as distinct from bond-holders) have to make up the difference.
2. Half the network is FTTN technology which is distance dependent (those located more than 800 metres from the node will only get ADSL1 or 2 speeds). Irregardless, the telco’s are selling these services as ‘up-to’ 100 Gbs – which may be applicable to a fibre network, but not uniformly to a FTTN network. (therefore, for many the network does not meet market expectations). Furthermore, the FTTN is otherwise subject to congestion during peak periods, which is not generally the case with fibre. Thereby, many who may be inclined to increase their data usage, and expend more, are not provided that option. The LNP/NBN solution is to compel those on FTTN, or slated for FTTN, pay their own costly upgrade to FTTC. Hell will freeze over before that happens. Through their taxes, the FTTN (copper-unfortunates) have already paid for the fibre connections of the other half of the population. Why would they self-fund a costly (FTTC) fibre connection when they have already paid for the fibre connections of the other half?
3. The LNP government could have built a fibre-based network for the same price ($50 billion) as their hybrid mongrel alternative.
4. Because the NBN is only half-fibre, and because of the effect this is having on revenue, the $50 billion NBN is only worth $10 billion when privatised. (this is according to Alan Kohler). Moreover, Telstra is the only organisation capable of purchasing it – which reinstates the monopoly. That is, there will be net loss of $40 billion.
Am I right in assuming that Australian taxpayers will principally have to bear these gigantic losses, particularly if the NBN has to spend another $20 billion? to upgrade the network to a minimum standard of FTTC fibre?
That sounds close to reality, but probably not quite that bad.
1. Revenue would be higher if it were FTTP. However, NBN have not increased their CVC charges to Telcos. Telcos have just been failing to buy enough capacity to meet the needs of their customers.
2. FTTN is no more subject to contention than FTTP. It’s the backhaul that’s causing the contention. But FTTN does have limited speeds, which is why revenue is lower. There’s no point paying for 100Mbps when you can’t get it on FTTN. So customers choose a lower speed than they otherwise would.
3. Pretty close.
4. Quite possibly true. There’s no doubt it’s worth less as a mongrel network, both due to the lower revenue and the potential of costly upgrades being required down the track.
It could fall to the ‘taxpayer’, but that would mean the govt putting it on-budget, which they wouldn’t want to do. More likely that users will foot the bill through higher charges than they would otherwise have to pay.