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Here's some quick calculations.
Number of homes - 10M give or take a few million
Number of homes passed = 90% x 10M = 9M
FTTH Cost $43B = 43,000/9 = $4,780/house passed
If Repayment period is 3 years, then $4,780/3 = $1,595pa = $133/month
If Repayment period is 5 years, then $4,780/5 = $956pa = $80/month
If Repayment period is 10 years, then $4,780/10 = $478pa = $40/month
If Return on Investment 18%pa, then $4,780 x 18% = $860pa = $72/month
If Return on Investment 15%pa, then $4,780 x 15% = $717pa = $60/month
If Return on Investment 12%pa, then $4,780 x 12% = $574pa = $48/month
If Return on Investment 10%pa, then $4,780 x 10% = $478pa = $40/month
Okay, this is a bit simplistic and does not look at NPV but it gives us a feel for the likely charges.
So, without taking into account any running cost, the charge must be between $80/month best case and over $200/month worst case.
There is no way this is going to provide anyone with cheap internet access regardless of who builds it.
Nobody in their right mind would replace infrastructure like this every 3-10 years. It is much more likely to be amortised over 30-50 years, thus:
If repayment period is 30 years, then $4,780/30 = $159.33pa = $13.28/month
If repayment period is 40 years, then $4,780/40 = $119.50pa = $9.96/month
If repayment period is 50 years, then $4,780/50 = $95.60pa = $7.97/month
Your ROI calculations may be mathematically accurate, but ignore any strategic thinking on the part of investors, who could conceivably consider it worthwhile just breaking even for a 5-10 years (or more) to ensure that they are well-positioned for the long-haul. (Remember past investments in companies like EBay, YouTube, etc. that had never turned a profit at the time?)
There are five major errors in your message.
1) The economic life and the physical life are two very different things. The question is how long those who put up the funds to build the thing are prepared to wait to get their money back. Your tax accountant will write off your PC over three years (its economic life), but barring any abnormal hardware failures, it will go on running for a good ten years at least.
2) The rate of technological change is accelerating rapidly. Those who laid the first copper cable would not have known that it would be superceded by optical fibre and would probably have thought it would be there indefinitely. I don't know what will replace the FTTH cable, but I'm sure in 20-30 years time we will be looking back at that old stuff that was installed back in the '10's as q quirky bit of history.
3) There will be ongoing replacement costs. Even if the FTTH network lives on for 50 years, the physical cables we will have then won't necessarily be the ones that are being laid now. They will fail, be replaced, fail again, and so on. It will be 'grandfather's axe' on a major scale. The sad fact is that some of the copper that will be pulled out as it is superceded by the FTTH hasn't been laid yet.
4) If you are looking 30+ years into the future, you can't ignore the simple fact that a dollar in 50 years time will not be worth a dollar in today's money. I shouldn't have ignore NPV and you certainly can't.
5) You talk of 30-50 year payback periods, then not breaking even for 5-10 years. Make up your mind.
As I said in my original message, my figures do not include *any* operational costs. There will be some.
My real message is simple. If anyone tells you that you are going to get all you can eat internet access at 100Mb/s for $14.95 a month, "Tell 'em they're dreamin'"
I have just been looking at other articles from other analysts. They are predicting $70-$200 per month. It seems my figures are not that far off the mark.
Considering NPV is unnecessary in this case. First, our purpose is to express things in 2009 dollars. Further, and as an analogy, consider your mortgage repayments - they are not affected by inflation. Just like your own repayments do not take into account the time value of money, neither will those of "NBN Pty Ltd".
However, although the repayments won't change, consumers' perception of $100/month being high will change. This means that either the price point will become more attractive over time, or that the amortisation won't be linear. (In the latter case, it's not really possible to calculate since it depends on policy).
It is also true that new technologies will come along in the meantime. This has also been true of copper - which is much older than 30 years in many places - and which now supports ADSL etc. This supports the argument that massive infrastructure like this has a very long life-span, not just 3-10 years.
Incidentally, 10Gbps can be transmitted over fibre with current technology. Bandwidth has historically doubled every 1.8 years, and if we started at 100Mbps this year it will be 20-25 years before we hit 10Gbps. Of course, future technology might push that 10Gbps to higher speeds, still using the same fibre. So as long as they put the right fibre in the ground now there is no reason to suspect it won't last for decades.
The point is that it would probably be possible to create business models that involve prices below $80/month.
HOWEVER... none of the calculations above (yours or mine) have considered opportunity cost. It may be difficult to find investors to stump up this amount of capital when there are many other ways to invest that capital that could be less risky. For this reason I personally believe the NBN will probably not happen, at least as described; I suspect it will likely be much smaller scale and/or take much longer to build out.
One more thing: nobody (except you) has mentioned $14.95/month.
Your house payments have the depreciating value of the dollar built into the interest rate. I assume it was you who simply divided the $43B by 50 years to produce an average of $95.60pa forgetting that $95.60 in 50 years time is not worth anything like $95.60 today. So, the "NBN Pty Ltd" payments will have the time value of money built right into the interest.
While the technical stuff about optical fibre is interesting, it is irrelevant. The issue is with the money needed to pay for it, not the network itself. Nobody is going to wait 50 years to get their money back. Try that argument with the bank. "My house is still going to be standing in 50 years time, so I want a 50 year loan without any 'time value of money' [i.e. interest] on the repayments".
I agree on you comments about a smaller scale NBN actually being built. Once cool heads start looking at the business case, the focus will move off the 100Mb/s and onto the $43B.
At the risk of stating the bleeding obvious, the reference to $14.95 was intended as a joke, mocking those who think a cheap internet service is going to be available with this thing. You are right, though, nobody is saying $14.95 plans will be available, in fact from what I have read, all of the pundits are saying that it will cost the same as the sort of figures I have been thowing around.
One last thing to keep in mind. All of the calculations here (mine and presumably yours) are based on the assumption of 100% take up. That just is not going to happen.
They could charge say $133/month for the first two years, $80 for the next two and $40 after that
Your numbers forget one crucial element... It will not just be homes using this, there are many many businesses which will be part of the NBN... They will likely provide much higher profit margins to, as they will want generally higher speeds..
My calculations covered the fibre alone because that is all the government quoted. The new body will be reselling access as a pure wholesaler. They cannot, therefore, discriminate whether the retailer is selling to a business or residential service. The discrimination will be done by the retailer/ISP when packaging this access product with a back-end service package to construct a product.
You are correct in that there could be different tariffs for different speeds, but if anything, that could make the whole thing go bankrupt more quickly as the bulk of the customers will probably go for the lower speeds in the early days as applications requiring the higher speeds will be thin on the ground.
Don't get me wrong. I think this is a good initiative, but it is not going to be cheap and there is no fairy godmother who is going to come in and wave her magic wand to make the cost of the thing go away.
It would cost less for the Government to buy back a controlling interest in Telstra.
When telstra first came into existence as PMG they brought us into the modern age of the Telephone. We all take this for granted now. And we have one of the most cost effective solutions of this type in the world. Put this into context. This is for the future. Stop politicking with this and just do it. :S
So lets whine about paying a possible $150 a month on High speed internet. Many people have got the blinkers on and are just thinking about high speed facebook. This can replace your Phone, Internet data, cable TV, and open up more services and possibilities. Some people spend $100 a month on Foxtel, + $40 Phone + $30-$50 Data plans these days, and because the costs are split they don't think too much about it.
Totally agreed Anonymous
Mr Turnbull comments for the sake of going against anything the government does. He has been doing it for months as his popularity at 18% in recent polls show his success. What was great to see today was two liberal MP's going against their leaders words. Hopefully the rest of the libs will also see the light and not be blinded by Mr Turnbulls constant government bullying.
Who is Malcolm Turnbullshit?
geez is $80+ really that expensive for 100Mbps Internet speed we are talking about. At the moment Teltra offers cable internet with speed(labeled FAST) at 8Mbps max, for $80p/m with 25G usage allowance
Their fastest ADSL is 20000kbps and thats $150p/m
I mean the increase in speed we are talking about here is exponential compared to what we have now.
Also, It is going to cost the government $42Billion because they have to lay all the infastructure and crap all across the country. If they had have done this already or had been gradually doing it over the last so many years then it wouldn't be costing them as much now. IT'S THEIR OWN DAM FAULTS!!!!!
other countries have already been laying the infrastructure giving them high speeds. We are behind becasue we have been putting it off for so frikken long.
Think about it, if our stupid freaken government (stuff labour liberal debates, it's both the parties faults) puts it off again because of cost now. We will be even further behind. In 10 years time or whatever, we'll be living on slow (a few Mbps) ADSL while america or Canada or watever are moving on from worrying about internet speeds and are starting to wrry about other technology advances leaving australia in the dust...Our economy will get more frikken shot...
SO JUST FRIKKEN DO IT.
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As the founder of two ISPs, Malcolm Turnbull will soon change his mind. The sign will say "please form an orderly queue" but he'll be knocking everyone over to get shares. With Commonwealth involvement I am sure this would mean that there'd be measures put in place to ensure the project succeeded.