This op-ed from NBN’s chief executive Bill Morrow is being posted to the National Broadband Network company’s blog today, and is being republished here in full by Gizmodo. Do you agree with his explanation? Do you disagree? Let us know in the comments.
Bio: Mr Morrow was appointed as Chief Executive Officer (CEO) and a Director of nbn effective 2 April 2014. He joined nbn with a remit to ensure all homes, businesses and communities across Australia can access fast broadband as soon as possible, at affordable prices and at least cost. Prior to his present role Mr Morrow served as CEO of Vodafone Australia.
On NBN’s blog — Gigabit Broadband: The Facts
There has been a lot of discussion in recent days around the need for Gigabit broadband in Australia – let’s set some things straight…
The nbn™ network is here to bring fast broadband to all of Australia by 2020 – more than 4 million premises already have access to fast broadband via the nbn™ network today.
In just a few months we will be at the halfway point of the rollout. Next year we will be three quarters built. By 2020 we will be complete. What once seemed impossible is now a reality.
I was asked last week by the media about the need for Gigabit (Gbps) speeds in Australia. These are lines that are 40 times faster than plans based on our most popular 25Mbps wholesale service.
The fact is nbn™ already offers a wholesale 1Gbps product to retail service providers – which RSPs can make available to more than 1.5 million homes, and has been on sale for around four years.
Currently, there are no retail 1Gbps speed plans on offer from the retailers. This is, in our opinion, because there is still minimal consumer demand for these ultra-fast speeds – especially at the prices retailers would have to charge for them.
Our own data shows that 83 per cent of people on services powered by the nbn™ network today are ordering retail services based on the two lowest wholesale speed tiers 25/5Mbps and 12/1Mbps.
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There is currently around a $20-$30 monthly difference between what retailers charge for plans based on our 25/5Mbps wholesale service and our 100/40Mbps wholesale service – but only 13 percent of end-users are willing to pay that relatively small premium for access to that faster tier.
We have to be realistic about what the market is actually telling us about demand for ultra-fast services.
Of course, the demand for Gigabit speeds could, and probably will, change – current plans for FTTP and DOCSIS 3.1 HFC suggest they will be able to deliver such speeds to around 5 million premises on the nbn™ network by 2020 and the other parts of our network, with the exception of satellite, have upgrade paths to offer the same ultra-fast speeds when demand comes around.
Rather than build for a demand that may materialise in ten years, we are constructing a national network capable of continuous upgrading to meet market needs as and when they arise. There is little point in adding to the already high $49 billion cost of the nbn™ network to provide a capability that end users do not yet require and RSPs are not selling.
We spend a lot of time researching overseas markets about Gigabit speeds, and the trends are not what you might think.
We have met with global operators offering 1Gbps services and they willingly concede that their end-users are simply not using speeds anywhere near 1Gbps – in fact they would be lucky to actually ever use a fraction of that speed – so, at present, the Gigabit game is really about marketing, not actual utility.
Even in a heavy usage household right now it’s likely you’d struggle to generate the need for anything close to a 1Gbps –if you had five 4K TVs streaming 4K movies simultaneously then that’s only around 100Mbps being consumed – leaving 900Mbps idle.
Given that the vast majority of current online video viewing is in SD or HD – requiring only 2Mbps-5Mbps then a 1Gbps pipe would be enough to stream 200 HD streams simultaneously – way, way beyond the requirements of a normal household.
Cost is the key
Of course, if we were in a position to deliver 1Gbps for $49/month, as they do in Singapore, then we would do it – but we are simply not in that position from an economic point of view.
The fact is that Singapore is a city state, comprising of high density apartment buildings – and Australia is over 10,000 times larger than Singapore. The Singaporean Next Generation National Broadband Network [NGNBN] cost only a fraction of what it will cost to build the nbn™ network.
The nbn™ network is costing around $49 billion to build – and we need to recoup that cost –given that our business model is split between driving revenues from access and consumption charges, we simply cannot match the kind of 1Gbps pricing on offer in markets like Singapore and Hong Kong.
In Hong Kong you can deliver FTTP for as low as $150 per premises – in comparison, thanks to Australia’s unique geographical and population density situation, it is costing us an average of $4,400 to connect every FTTP premises and can cost significantly beyond that in many situations – these are the stone cold facts of the matter and there is no getting away from them.
Many roads to gigabit speeds
If you want evidence that we are taking the right approach, you need only look at what is happening in the US with Google Fiber. Last October, the internet giant announced that it would be putting its much publicised FTTP deployment on hold and would look at new ways to deliver ultra-fast broadband.
Google Fiber found that viable economics for Gigabit broadband simply did not exist once the initial hype of the project had faded and the product hit the streets.
Indeed, respected writer Farhad Majoo pointed this out in an article published through Slate in 2013.
[Google Fiber] felt a little underwhelming. After all, who needs to play five HD videos at the same time? If that’s Google’s best demo of its superfast service, what does it suggest about what regular people will do with it?
What’s more, the demo didn’t even begin to approach the limits of Google Fiber — with five HD videos playing simultaneously there were still hundreds of megabits left on the pipe. When I got back home a few days later, I replicated the same test on my home broadband line and experienced only a few hiccups.
Ultimately even a company with a huge amount of capital available such as Google Fiber found that digging up driveways and gardens to connect every single premise to FTTP was too expensive and time consuming.
Google ultimately concluded that they could not make it work commercially offering Gigabit FTTP broadband at just $70/month.
We are still waiting to see what Google Fiber will do next – reports suggest that it will move towards a Fixed-Wireless solution – but quite clearly their conclusion was that the economics of delivering gigabit speeds via FTTP simply did not add up.
That’s not to say that Google Fiber didn’t have an impact in the market – their presence forced the incumbents to raise their game with the likes of AT&T now marketing FTTP access to 4 million premises across 46 metros, but this still represents only 3 per cent of the near 130 million premises in the US – we are talking about a niche market.
Markets like Hong Kong, South Korea and Japan started their deployment of high-speed broadband in the late 1990s and having fully recouped their investments in delivering FTTB with VDSL – typically offering up to 100Mbps – are now delivering 1Gbps and even 10Gbps via FTTP.
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For a variety of reasons, our broadband upgrade in Australia started much later, so we cannot judge ourselves against markets like these; they are much further along on their journey and you just can’t compare Australia to Singapore or Hong Kong for obvious reasons including those stated above.
This is why operators around the world are so excited about technologies like DOCSIS 3.1 and G.fast, which allow Gigabit broadband to be deployed at substantially lower price points and in far less time than it takes to deploy Gigabit services over FTTP – and we will see both of these technologies emerge much more fully in the next few years globally as well as here in Australia.
We know that people in Australia want access to fast internet – that is precisely what we are aiming to deliver with the nbn™ network.
We also know that 1Gbps speeds are simply way beyond what even the most advanced end-user needs today, let alone what is needed by regular families across Australia.
There is literally not a single mass market consumer application – or even a combination of applications – that requires 1Gbps capability right now.
This will change in the future, especially as augmented reality, artificial intelligence, 8K technology and virtual reality penetrate our daily lives.
In fact, we hope that by delivering a fully connected continent we can help create a market for Gigabit applications – and when Australians need those kinds of speeds we will have the solutions in place to provide it.
Bill Morrow is CEO of nbn.
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