There has been a lot of bellyaching of late about whether or not the National Broadband Network (NBN) will be a viable proposition or not. Certainly, the purported cost of $43b is a lot of money, and when dealing with a sum of that magnitude, a certain level of caution is very obviously quite prudent.

Supporters of the network point to the potential flow-on effects to the Australian economy – increased productivity, environmental benefits – the list is almost as limitless as the imagination can muster. Opponents say that the huge price tag is far too much, and that a full cost-benefits analysis needs to be performed before we earmark the funding for the project. Others say the analysis is not needed.

These are strong arguments either way. For myself, the biggest thing missing from the debate is any simple, rational exploration of what the numbers might be. So I’m going to give it a bash!

The starting numbers look like this: approximately eight million premises to lie within the fibre footprint of the network over eight years – (or ninety six months) – and that is growth of about 83,333 premises within the footprint per month.

Assuming an uptake of around 70% of premises within the fibre footprint opting to use the NBN, the subscriber base will grow by around 58,333 every single month across the eight year rollout. Assuming rough parity with current wholesale access pricing for our existing ADSL/ADSL2+ network(s) of around $25.00 – (about what is expected) – the revenue base grows by $1,458,333 every month.

Presuming that the numbers are maintained across the eight year life of the rollout, the total number of subscribers connected in the 96th month will be 5,600,000, generating $140,000,000 of revenue per calendar month. Or if you like, $1,680,000,000 per year. Yes, that is 1.68 BILLION dollars.

Ever wondered why Telstra delivers such massive profits – ($3.94b in the year to June 30, 2010 for example) – year after year after year?

Adding the monthly revenues across the ninety six months, at the end of the eight year rollout, there will already have been $6.79b of revenue raised, just because the network existed and was raising revenue from customers.

Of course, I can’t factor operational costs into the numbers – as that is something there is no information about, and I doubt NBN Co themselves can do that yet – so this is only a revenue figure, not a profit figure.

It is however reasonable to suggest that whatever operational profit comes out of that $6.79b revenue, that a certain amount of that will have been turned back to offset the cost of the build throughout the eight years, reducing the $43b price tag.

Again, not allowing for costs, subtracting the $6.79b from the $43b means we have $36.21b still to be “recovered”. Since – presuming the wholesale cost to supply each premise doesn’t change (unlikely) – the network would be raising $1.68b per year, it would take a little over twenty-one-and-a-half more years to recover the $43b.

Any increase in the wholesale per-premise cost will obviously shorten the time frames.

What of the costs? Well, that’s a fair point, but are those costs offset by the benefit of having the NBN in place over those almost 30 years? Quite possibly, and in my opinion, absolutely.

It does seem that uptake numbers will be very important, so lets take another look at the numbers.

Since the copper network will be decommissioned, every premise within the NBN fibre footprint that currently has any style of active xDSL connection – or even just a POTS line – provisioned to it, will need to have that connection transferred onto the NBN. The copper network will be gone, so there is no choice.

In that respect, uptake numbers will actually be much much closer to 100% than the 70% used in my example above. Further, given that every NBN connection to a premise will be able to carry more than one service across it – (as an example, you might have one for internet connectivity, one for a POTS connection, and one for subscription television) – actual uptake might be more than 100%.

That’s a story for another day however.

For argument sake, lets change our figures to 95% uptake, and a slight increase in monthly wholesale cost per premise to $30.00.

The new numbers look like this: approximately eight million premises to lie within the footprint of the network over eight years / ninety six months – that is growth of about 83,333 premises within the footprint per month. An uptake of around 95% of premises within the footprint opting to use the NBN, the subscriber base will now grow by around 79,167 every single month across the eight year rollout, with the revenue base growing by $2,375,000 every month.

The total number of subscribers connected in the 96th month will be 7,600,000, generating $228,000,000 of revenue per calendar month, or $2.736b per year.

The network will have already generated $11.058b of revenue, bringing the remainder to be recouped down to $31.942b. At $2.736b per year, it will now take only a little over eleven-and-a-half years to get the raised revenue up to $43b – a saving of TEN WHOLE YEARS over the earlier example.

Theoretically the costs to run the network won’t change from the first example, because the network will be physically the same.

Even with relatively poor uptake levels, the NBN will be able to generate annual revenue measured in the billions.

Add to that the economic benefits of just having the network – and importantly, having this infrastructure before our trading partners – and the benefits of spending this money on the NBN start to look mindblowing.

And I didn’t need convincing before I ran these numbers!

By no means have I just done a full cost-benefits analysis, and admittedly I have made a number of assumptions in tabulating my numbers. Remember though, that anyone trying to analyse this proposal needs to make similar assumptions.

However even my cursory look at the potential seems to suggest that a lot of the FUD about massive financial blackholes that are out there right now are decidedly shaky.

There has been a lot of discussion in recent weeks in regards to the opt-in or opt-out question for individual premises during the rollout of the National Broadband Network (NBN). In Tasmania, where the initial rollout of the network is underway, the government has chosen to adopt an “opt-out” model, while New South Wales and Victoria appear to be heading down the path of an “opt-in” model.

There are certainly advantages to each approach, but the confusion and lack of consistency is another worrying sign as to the way the network is understood in the wider community. The biggest failing of the Labor government in regards to the NBN at this stage has been its inability to sell it to the people.

So, what are the two options?

• OPT-OUT – in this situation, as the fibre network is rolled out down your street, a fibre connection will also be run from the cabling in the street, to a termination point on your premises – unless you specifically request that this does not happen. The cost to run that connection from the street to your premise will be relatively cheap – workers will already be in the street, will already have all the gear and cabling to achieve the task, and will be able to do everything at once. Simple, quick, and effective, and every premise will have the cabling ready to go, should they choose to make use of the NBN.

• OPT-IN – in this situation, as the fibre network is rolled out down your street, a fibre connection will also be run from the cabling in the street, to a termination point on your premises – but only if you specifically request for this to happen. The per-premise cost to provide that connection from the street to the premise will be somewhat higher, because workers will need to return at a later date to run that cable, and connect it to your premise. This also adds uncertainty to rollout schedules, and therefore service availability – an area may be officially “NBN-ready”, but it may take weeks to organise a connection because someone has to be scheduled to come and run the street-to-premise connection, before a service can be activated.

On the surface, the opt-in model absolutely appears cheaper, as only premises who specifically request for the cable to be connected will have this work done, and even if 70% of premises are connected initially while the street cabling is done, this is undoubtedly cheaper and faster than doing 100% of premises.

Opponents of the opt-out model jump up and down and complain that forcing the street-to-premise connection onto people is forcing them to connect to the NBN, but this is somewhat inaccurate. Having the cable run from the street to your premise does not force you to pay for services to be provisioned OVER that cable – there is no obligation there whatsoever.

As part of the Universal Service Obligation (USO), every premise in Australia has at least a single copper line – (or equivalent service) – assigned to it under this condition. It is clearly stated under the current form of the legislation that “Telstra has the obligation to provide an STS to all people in Australia”, where STS means “Standard Telephone Service”.

Given that the copper network is planned to be decommissioned in fibre-enabled areas, every individual phone service in those areas will be required to move onto the NBN to maintain the USO – that’s the law. There simply won’t be an operational copper network, so those services have to go somewhere.

Also, since the NBN will be taking over USO obligations, quite clearly the state of play will become “NBN Co has the obligation to provide an STS to all people in Australia”.

But if not every premise is connected to the NBN because people opted out – (whether that was the default choice, or they actively chose it) – an interesting situation arises when the copper network is turned off area-by-area. Suddenly, if you don’t have an NBN fibre attached to your premise, the USO fails.

People need to understand that the advent of the NBN will effectively remove the copper Customer Access Network (CAN) built in the 1950’s, so if they opt-out, there is no phone line, and the required connection for every premise under the USO is gone. Exactly what this means for the USO is somewhat open to interpretation.

Does it mean that it will disappear? Does it mean people will legally be able to opt-out of the USO?

From what I can see, the answer is no – it will not disappear, and it will not be able to be opted-out of. This is important, particularly when you look at the stated goal of the USO:

“The universal service obligation (USO) is the obligation placed on universal service providers to ensure that standard telephone services, payphones and prescribed carriage services are reasonably accessible to all people in Australia on an equitable basis, wherever they reside or carry on business. No carriage services have been prescribed to date.”

The important point is “no carriage services have been prescribed to date”. The USO does not imply that you have to pay a phone company to have an active telephone service running over your connection, but the USO does define that the physical cable must be in place. When the requirements of the USO move from Telstra to the NBN, this does not change.

So one way or another, unless the USO is to be removed, every premise in a fibre-enabled area will be required at some point to have an NBN-fibre connection run from the street to the premise. Through pure economies of scale, it must be cheaper overall to do this in the first instance, rather than allow people to opt-out initially and require someone to come back at a later date to do the drop cable from the street to the premise.

The deal between Telstra and NBN which paves the way for the decommissioning of the copper network explicitly addresses the question of the USO, so it seems quite clear that the USO is not going anywhere anytime soon. Opting-out initially may seem cheaper, but in the end it will cost more – and that cost will be passed on to you, the end user.