The NBN Explained: A Huge Chat With Former NBN Board Member Simon Hackett

The answers to all your questions (without the #ausvotes spin).

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If it seems like Australia has been talking about the National Broadband Network forever, that’s because we have. The Rudd Government first conceived of the NBN — Australia’s largest public infrastructure project to date — back in March 2007. Almost a decade later, just 1.7 million of the target eight million homes are ready to connect. Of those, only 736,000 have chosen to.

Much of this delay has been caused by our squabbling politicians and a few tumultuous years in federal government. On one side, Labor has pushed for fibre-to-the-premises (FTTP), which would see fibre-optic cables run right into our lounge rooms. On the other, the Liberals have stuck to fibre-to-the-node (FTTN), where homes connect to a fibre-optic hub a few hundred metres away using slower copper wires.

Pretty much everyone has been drawn into this debate at some point. Remember How Fast Is The NBN, James Brotchie’s website which showed us how dismal the Liberals’ network would be? More recently, Waleed Aly gave the Turnbull government a serve on The Project, decrying, “We’re expected to rely on a decaying copper network that experts say is already past its use-by date”.

At face value, this seems like common sense. Of course we should replace our outdated copper network with shiny new fibre-optic cables which have theoretically unlimited bandwidth. We have Game of Thrones to watch. But sit down with someone who really knows this stuff (so yeah, not politicians or Waleed Aly) and it becomes obvious the debate isn’t that clear-cut.

Simon Hackett helped build Australia’s first version of the internet. Back in 1986, he finished a computer science degree at the University of Adelaide and stuck around to work as a system admin. Two years later, Hackett and his colleagues unboxed and configured Australia’s first routers, bringing the Australian Academic and Research Network (AARNet) online. The current incarnation runs at about 100 gigabits per second. That’s 100 times as fast as Labor’s NBN household targets, and enough to download three feature-length films per second.

Hackett left AARNet in 1991 to start his own company, Internode. Initially it sold software to help universities and commercial entities connect to the network. Three years later, it had evolved into a fully-fledged internet service provider (ISP). By 2012, its 450-strong workforce was servicing 200,000 homes around Australia. It was the very first company to retail ADSL2+, the technology most of us still rely on for broadband. It also built a substantial portion of South Australia’s internet infrastructure, including wireless towers and in-ground fibre.

Then the NBN came along. Hackett sold Internode to long-time friend Michael Malone (owner of iiNet) and found himself on the NBN board in November 2013. He resigned in April to focus on his battery company, Redflow, and handed the baton to Malone once again.

Before that happened, we had the chance to sit down with him and hear things from the source.

So, Is It All About FTTN Vs FTTP?

If you couldn’t tell from Hackett’s history, he’s the sort of guy who values a fast connection. If he wanted to, he could probably download the entire internet to his home computer. Naturally, he wants the same for all of us — and one way to get that is with a fibre-only network. It’s also the best choice for future-proofing. Fibre-optic cables have theoretically unlimited bandwidth, remember? On the other hand, he says it’s expensive and not in step with our current needs.

Hackett suggests we need a more flexible policy that doesn’t spend money on fibre in places where something close to the same speeds (one gigabit per second) can be achieved with cheaper, slightly inferior technology. “The Labor policy [fibre-only] was so extreme,” he says. “It was almost a religious statement.”

This is based on an economic argument called Net Present Value (NPV), which says that building a cheaper, inferior network immediately nets you the necessary income to fund the better, more expensive network later. Hackett says this is particularly relevant in Australia.

“There are [fibre-only] business models that succeed organically in the US, because you can cross the country incrementally, touching population centres along the way,” Hackett says. “But in Australia, the middle’s very empty in comparison to the edges.” This has a drastic effect on NPV, which is a complex equation when you’re talking about eight million homes spread over the world’s sixth-largest country by area. Right now, it dictates that FTTN is the right choice.

But that still doesn’t tie things up as neatly as you might hope. There’s a third option that didn’t exist when the NBN started. FTTP delivers fibre-optic cable inside your house. FTTN brings it about 500 metres away. Now, Hackett and NBN Co are gunning for the newer fibre-to-the-curb (FTTC), which splits the difference and brings fibre to your letterbox. It can achieve close to the same speeds as pure fibre, and it’s far cheaper, given it uses existing infrastructure.

“That’ll get you a gigabit [per second] no sweat,” Hackett says. That’s important because the more times a fibre-optic cable has to branch, the more expensive rollout becomes. Moving the node those few metres to a letterbox saves huge amounts of cash when multiplied by eight million houses. “You want to bring the node point — the conversion from fibre to not fibre — as close as you economically can,” Hackett says. “It’s an economic min/max game.”

But that can be a hard position to sell.

Are We Haemorrhaging Money On This Thing?

Many experts have argued we wouldn’t have to worry about economics at all had the Rudd Government decided to fund the project outright and incur a budgetary loss. It didn’t. As this report by McKinsey & Company and KPMG details, the government set up NBN Co as a commercial entity, with the need to make a six to seven percent return in preparation for privatisation about five years after the project completion. Repeat: there’s never been any intention to keep the NBN in public hands. A large company (or consortium of companies) will eventually buy out the entire network.

“The network is officially ‘off budget’,” Hackett says. “It’s not in the budget as something the taxpayers are theoretically paying for. It’s an investment of the government, because it’s going to produce a commercial return.”

And how do you produce a commercial return in such a short amount of time? Cut costs by building the cheaper, crappier network Waleed Aly railed against. Or, do what NBN Co is doing now — take over Optus and Telstra’s existing hybrid fibre-optic co-axial (HFC) network and upgrade it.

Ever seen the antenna cable that carries Foxtel into houses? That’s HFC. The NBN’s current strategy is fibre-to-the-curb, with the final stretch carried by high-bandwidth HFC (which is far, far better than copper) where available. Over in the US, Comcast is already using the same tactic to achieve gigabit speeds. Sure, it’s not pure fibre-optic, but we can always upgrade later on, when the need arises. It’s just extending the cable a bit further – not undoing any work that’s already been done.

“I want the NBN to be the least worst as possible,” Hackett says. “I think it’s getting there. There’s been an incredible internal turnaround. The network was not in a good place a few years ago. At this point, the guys are connecting people like absolute gangbusters — with technology you can argue the upgradeability of — but they’re connecting people. The build rate has doubled in the past year. It’s going to have to double two or three more times to hit the run rate they need to get it all done by 2020.

“If it’s built, we have something to argue about. If it’s not built, we don’t.”

Is It Too Expensive For Consumers?

Though everyone deserves fast, reliable and affordable internet, regardless of where they live, Hackett says one of the NBN’s biggest challenges is servicing Australia’s rural areas. Unfortunately, there’s no profitable way to lay cables to outlying towns made up of a few hundred people. The government recognised this and shot a $500 million satellite into orbit from French Guiana using Arianespace. A second will follow later this year. Once operational, they’ll beam broadband access to more remote places.

The problem is, those costs were rolled into the entire project, meaning the profitable areas — the cities — are paying for the rural infrastructure. At each of the 121 points around Australia where ISPs connect to the NBN’s tail circuits, there’s a price regulation mechanism called a “connectivity virtual circuit” (CVC). It creates a false supply scarcity, inflating prices and boosting the NBN’s commercial return.

Confusing, right? We could have just paid for the bush infrastructure using tax revenue. ISPs pay a hefty wholesale price at these connection points — $17.50 per megabit, per month. That’s a volume charge that escalates dramatically when customers use a lot of data (which they do, because the network is that much faster). In comparison, the old ADSL2+ network typically cost ISPs about $2 per customer, per month for the same thing.

“The NBN is a network with massive capacity, priced as if there’s supply adversity,” Hackett says. “As volume goes up, it makes the NBN much more expensive than the networks you’re walking away from.” As a result, some ISPs are encouraging their customers to accept slower speed plans, so as to reduce their own costs.

The bad news? This situation will only get worse as more and more customers join the NBN and run up against the false ceiling created by the CVC. “It seems likely that the retail cost of a high download plan on the NBN will wind up significantly more expensive than the cost on ADSL,” Hackett says. He’s irritated that neither the Labor nor Liberal governments have publicised this, even though it’s been on the radar for some time.

Are There Other Options?

Our issues are vastly different to those in the US, the UK and elsewhere, but the frustration is the same. People are giving up on their governments and ISPs completely.

Borwick, a tiny English town with 210 residents, recently built its own gigabit broadband network. In Spain, there’s a free national network known as Guifi. In Berlin, Toronto and New York, groups of technically savvy people are banding together to create “community ISPs” such as Freifunk and NYC Mesh. Its members pay a nominal monthly fee for free internet access. These groups have extraordinarily low operating costs because they don’t rely on the labour-intensive practice of laying cables underground. They install tight-beam, directional routers on windowsills, rooftops and even trees, blanketing the city in a radio “mesh” than can hop from node to node. At each node, a multi-directional router spreads the signal like a normal wireless hotspot. Adelaide-based ISP Uniti Wireless is already using this technology, though it charges people for access. Facebook has also recently been experimenting with a higher-powered version.

“If the NBN prices itself out of the market, it creates an opportunity for wireless players to start up again, especially because there’s a loophole in the laws that were passed in this country to try and make the NBN a monopoly,” Hackett says. “There are laws that prevent you from delivering a broadband service above 25 megabits per second unless you wholesale it. But it turns out, that doesn’t include wireless. It’s only fixed line.”

Hackett suggests that loophole was most likely created by Telstra’s political lobbying – itself an effort to protect its biggest earner, the 4G (and soon, 5G) network. Don’t get your hopes up that Telstra has shot itself in the foot though. While networks such as Mesh NYC can serve a small group of early adopters well, they’re not viable for providing widespread internet access. “If you’re using the public wi-fi bands, there’s a finite amount of spectrum,” Hackett says. In other words: the airwaves are crowded. The more people join, the slower the network gets, and there’s no real way to speed it up.

Where To From Here?

For now, it looks like we’re stuck waiting for the NBN as is. Sure, it has some problems. But as Hackett likes to point out, they’re mostly to do with policy. He argues a future government with enough smarts could remove the CVC. It could abolish or lower the NBN’s commercial return requirement. It could even prevent the network from being privatised.

And even if we build an entire network based on sub-par technology, that won’t prevent us from improving it down the track. The only thing the NBN is doing is replacing old copper with fibre and moving the higher-bandwidth cables progressively closer to our homes. The argument is about how much of that distance you replace. It’s less important than it sounds, because we can always replace more without “undoing” the previous work. That’s simplifying things, but that’s pretty much how it is.

Under the current ADSL2+ model, the point where copper transitions to fibre is usually two or three kilometres away, in a telephone exchange. FTTN brings that point about 500 metres away; FTTC, to the curb; and FTTP right into your house. Only the last two are capable of delivering the gigabit per second speeds everyone is so hung up on.

“Will we need gigabit? Yes,” Hackett says. “Will we need it in the next ten years? Probably not. The next 20? Absolutely.” We’re going to be talking about all this for a while yet.

Nick Connellan is a freelance writer based in Melbourne. He’s written extensively for Broadsheet and other lifestyle publications.