Some months ago I wrote a post expecting some providers would get into trouble as their margins are being squeezed between NBN price rises and the unwillingness of the telco industry to raise their prices (and the market to accept them).

Since then two small providers, Telecube and Mungi, have gone bust and another, Amaysim, has exited the market claiming there is no margin to be made. Then there is Vodafone Australia who has decided to join forces with TPG rather than continue on it’s own in the NBN space.

To understand what is going on here, it is important to understand that there are different ways to provide services on the NBN. Most small providers want to have national coverage – i.e. be able to sell internet services all across the nation. Due to the NBN 121 POI model, it is prohibitively expensive to connect directly to every POI just to get started. So small providers take the only alternative which is to go through an aggregator. An aggregator is a large telco who has paid for the physical fibre access to all the POIs and agrees to on-sell capacity in the form of aggregated bandwidth across all the NBN POIs to the small provider. The aggregator simply charges an access fee per connection and a price (per Mb) on the sum total amount of bandwidth allocated to the provider’s clients.

However there are four big downsides to this method:

1. The small provider has little or no control over the congestion at each POI on the upstream aggregator’s network – the provider’s traffic is lumped in with all the aggregator’s other customers including possibly their retail arms. It is very hard for a small provider going through an aggregator to promise a “high quality” network when they don’t control the part that creates most of the congestion (the connection to the POI – the CVC).
2. There are only a small number of aggregators in the market so competition is not strong and prices for the bandwidth are quite high (of the order of $15 to $20 per Mb – including NBN’s CVC charge).
3. The small provider can really only offer products that their aggregator offers. They cannot, for example, offer higher priority traffic or more bandwidth per connection unless their aggregator chooses to. This limits the ability for the small provider to innovate and it becomes yet another “me too” provider competing on price. A good example of this is some aggregators unwillingness to provide the NBN’s new (cheaper) bundled plans, something Mungi blames for their collapse.
4. The small provider has no direct access to NBN and NBN’s management systems. Everything has to be done through their upstream aggregator. If there is a fault for example, the client calls the RSP, the RSP calls the aggregator, and then the aggregator deals with NBN. Some of the automation is very poor in the aggregators, performing what has jokingly been called “swivel chair management”, where the aggregator receives an order through one system and manually retypes it into another system. This is not efficient, leads to errors and unhappy clients.

At Launtel
We got so fed up dealing with the above we decided to eschew the aggregators and connect directly to NBN. We have had to give up (for the moment anyway) national coverage because of this. Aussie Broadband I understand found exactly the same issues with their aggregator and decided to embark on an ambitious (and by all accounts expensive) project to connect to all 121 POIs.

So in a nutshell, the small provider generally has higher costs and less ability to innovate in the market (i.e. create more value) due to their use of aggregators. It is worth doing some back-of-the-envelope calculations to see what these small providers are up against.

Let’s say they want to compete with TPG’s 50/20 unlimited download service, currently priced at $69.99 including GST. To provide a low congestion, unlimited download service you must allocate at least 2Mb per connection (on average). It is debatable if this will be enough long term, but we will use it for now. Let us assume the following monthly costs (ex GST), note we are not using the bundled pricing, because few aggregators seem to be using it:-

Ooops! So our 50/20 unlimited service on the NBN, with a very low profit, comes out with a retail price of $97.02 – for a service TPG is selling for just $69.99

OK, so let’s work back from TPG’s retail price, remove all the known costs and see how much profit they are making (note TPG are likely to be using the bundles):-

So that means even with TPG’s massively reduced costs (they own a lot of their own fibre), they are making less than $2/month (about 2.5%) profit on their 50/20 services. It is also worth noting that TPG’s service includes unlimited telephone calls. Few people use home phones these days, but it likely this will cost something. So it is even possible the TPG are really making no money at all or running at a slight loss.

Yes, all the above is back-of-the-envelope stuff, but it demonstrates the fundamental problem. This is why the small providers are going bust! It’s a bit of a case of the Emperor’s New Clothes here. New providers startup thinking that everyone else must be making money and they just need to get more efficient and increase their scale and all will be well. However, as they are finding, it’s not.

It is worth noting that NBN are hoping to increase their revenue (“ARPU”) from the current $44 per user to $52 per user. They may not be raising their prices, but they are expecting RSPs to hand over more in higher connection or bandwidth charges. The point is, NBN are unlikely to be reducing their prices here.

The only way to survive is to not play this price game. At Launtel, we found we had to connect directly to the NBN to improve our ability to provide a good service, be innovative and flexible in the type of service we provide that allows us to charge a little more. For example there is no way we could offer our daily pricing system through an aggregator. We knew that if we were competing on price, we would lose the game.

At some point something has to give here. Either NBN has to lower their prices (very unlikely) or the telco industry has to start raising their prices. If nothing happens the NBN market will continue to be dominated by the same big players whose only interest is to spend as little money as possible in providing the most minimal service they can get away with.

Damian Ivereigh
Launtel
21/11/2018

John Howard may have been the man who “broke this nation’s heart“, but Malcolm Turnbull is the man who broke this nation’s economic future.

He was committed to doing whatever it took to get the LNP (and himself) back into power. This included rehabilitating Tony Abbott’s ludicrous desire to “bury the NBN”; all of which apparently made Abbott’s government more electable. This resulted in the complete neutering and bastardisation of the original NBN vision.

The political arguments about whether Australia needs gigabit internet is and always has been completely irrelevant. What Australia needed (and still needs) is infrastructure that delivers internet fast enough and reliable enough for us to forget about our internet connection. We should treat it like water and power – trusted infrastructure that is just there and never gets in our way. ONLY the pure fibre rollout (the original NBN build model) can deliver this. No copper technology will ever have either the speed or the reliability, and we need both.

As with our 100% reliance on electrical power, in the same way, our economic future is increasingly dependent on the internet. Does Turnbull, Abbott or any of us really believe that in 10 years’ time we’re going to need less of the internet in our daily lives. Are we going to wake up in 10 years and say “Thank heavens Turnbull and Abbott didn’t spend all that money on the NBN. That would have been such a waste of money. Clearly the internet was just a fad anyway”? Will 5G make any dent on this? Of course it will make a dent, but that’s about it. A fixed line pure fibre network is the only technology that comes even close to being able to do the heavy lifting we will need.

Malcolm Turnbull, Tony Abbott and the LNP have set our country’s economic future back 50 years. By the time 2020 comes around, We will already have lost 10 years of the technological lead we could have had. We had the opportunity to be the envy of the world and now we are just left envying our Kiwi rivals across the Tasman. But worse than that, these nearsighted political gamers have broken our country’s vision to have a world class powerhouse economy.

The Liberal party pride themselves as being the best economic managers. Really? Given their small mindedness around seeing into the economic future, this is a blatantly wrong self-assessment. In the business world they would be your bottom line thinkers – the ‘razor gang’, the bean counters who are primarily just good at cutting costs.

Right now we need leaders who are top line thinkers. Visionaries. People who can grow our economy and our revenue base through wisdom. Leaders who put Australia first; and who make decisions that are right and sound (not for their potential political gain).

A full fibre rollout would have, and still will, cost a whole load more money; probably an extra $40bn. However, if Australia can spend $50bn on 12 submarines that will likely be obsolete by the time they are built (ironically because of similar signal processing technology used in FTTN), then we can afford to spend it on our economic future. We are going to have to spend it sometime, so let’s just get on with it.

The Cambridge English Dictionary defines a zombie as: “a frightening creature that is a dead person who has been brought back to life, but without human qualities”. In my opinion, the LNP has become a zombie government – walking dead. This government (that gave us Tony Abbott and Malcolm Turnbull – the two prime ministers who broke this nation’s economic future) is pretty much gone. And Scott Morrison?… he’s best described as a ‘temporary prime minister’ who is just keeping the seat warm. The LNP’s infighting and power struggles have crucified their credibility. Their quest for personal gains (e.g. Peter Dutton) have clearly demonstrated that they are NOT putting our economy, our country or it’s people first.

I propose we get rid of the zombie government and give the ALP a chance to reignite the potential of our economy by salvaging what we can of this now broken NBN project. My strong hope is they can do this in a way that the government after them cannot just destroy it again.

For the record, I don’t really support any particular political party. First and foremost, I support Australia and will gladly get behind any wise, visionary leadership that’s committed to putting Australia’s economy (which is clearly digital) and its people first.

Damian Ivereigh
Launtel
19/11/2018

So it looks like there was a big stuff up with Telstra and ANZ EFTPOS terminals in recent days.

Now while this has nothing to do with our network, and wouldn’t have affected any of our users using wi-fi terminals, we thought it’s a good opportunity to remind everyone of the importance of backups. Rather than focus on the problem, let’s focus on the options so businesses don’t get stuck again.

No technology will ever be 100% reliable and as business owners, we have to perform risk management and identify single points of failure. I would argue that it’s only because this service is so reliable that we saw this issue. If it was failing regularly people would already have an alternate system.

If your business depends on EFTPOS for a substantial portion of your sales (and many do these days) just remember there are many reasons your EFTPOS could go down – not just network outages. It’s important that businesses think of risks and whether or not they’re prepared to take the risk that if something fails they have no alternative option for continued operation.

So what type of considerations would we recommend?

1. Some bank terminals such as Albert from Commbank work on both mobile and wi-fi. So that gives some extra buffer, but again the bank might have an outage which neither internet connection will save you from.

2. You could get a second Eftpos service from a different bank as a backup – for around $30/month. Again, how important is it to you – how much could you lose if it goes out?

3. You could sign up to an online merchant that has a low fee and you can do transactions on your mobile. This way if your bank goes out you can still take the payments. Square is a low cost alternative and you can either enter details manually, or you save a bit per transaction if you use the chip reader that you can buy for $29 or contactless for $59. More details about Square here.

4. You can just take the risk that it won’t happen often.

Then once you think about that, remember, having backup also extends to a range of technologies not so obvious, as the South Australia Correctional services have just found out when many offenders went unmonitored for 24 hours. We’re also unsure but suspect it may also extend to monitored alarm systems as many now rely on the mobile network rather than land line.

Potentially more to come…

– Damian

I want to firstly point out I have never personally received significant money from Centrelink, however I know many people who have, including one current Launtel employee. Secondly this is not going to be some right wing rant about how people need to get off welfare. I want to look at the deeper issues about why the Centrelink system makes it so hard for people to stop using them. I believe Centrelink unwittingly behave like drug pushers keeping their users addicted.

The welfare system has long been described as a “safety net”, a way for the government to ensure that everyone at least has food on the table and a roof over their heads regardless of what happens to them in life.

When it was first created generally people either had a job or they didn’t. Only if you didn’t have a job did you get welfare. However this either-or situation has substantially broken down with the dramatic rise in part-time work. People now have half a job or a quarter of a job – or more likely an irregular number of hours according to when your employer needs you. The welfare system needed to adjust to this, however certainly here in Australia, they have done this in such a way to create a massive disincentive for people to look for and get work.

The first problem is a purely economic one. Given the rise in part time work, for many unemployed people, they can’t just “get a job”, the most they can expect is casual work and hopefully slowly increase their hours. Even employers see this as a logical move – they can “try people out” before committing to giving them full time work.

However as someone’s paid hours slowly increase, Centrelink starts to withdraw some of their Newstart payments. What is important to calculate is the “marginal tax rate”, or to put it another way how many cents of each dollar earned has to be surrendered to the govt either in tax or in reduced Newstart (or both). This is important because it guides how people react if they are offered extra work. The figures are quite interesting:-

What is very concerning is that if you are earning between $18,200 and $26,264 (highlighted), this is the period that 60c of each dollar earned is taken from Newstart in reduced payments AND you are being taxed at 19c in the dollar – an effective “tax” rate of 79%!

To put that into actual dollar terms: at $18,200 income you receive $23,000/yr in your pocket (still getting some Newstart), at $26,264 income you receive just $24,700 in take home (all Newstart has gone). So you have to earn an extra $8,000 in income to get an extra $1,700 in take home. If it takes 400 hours to earn that extra $8,000 – $20/hour – that’s just $4.25/hour in take home pay.

You can also see even after you earn $2,704/yr you are being effectively taxed at 50% and you know it is only going to get worse until you get to $26264. That is a “tax” rate that is higher than even people earning over $180,000/yr are taxed at (45%). This must be a substantial disincentive to earn more money.

All the above assumes that the people involved are what economists call “rational actors” – i.e. they think carefully about exactly what they do and the choices they make. In practice the people on Newstart are rarely like this. The conversations I have had with people who deal with Centrelink find the process confusing and difficult to predict. However what they can predict is that if they take on any work and earn money then Centrelink will require confusing paperwork, probably demand a repayment of money or a cut in future benefits. This can easily feel like a punishment. It is then very rational for people to turn down this paid work rather than deal with Centrelink.

I believe we have to look at the system that has been created by Centrelink as the problem and not the people who are stuck in it.

The second problem is the mental health effects of receiving Centrelink payments. I will cover this in my next blog article…

Damian Ivereigh

MD Launtel

6th October 2018

When the NBN was first floated one of the primary goals was to “level the playing field”. Telecommunications usually favours the large player due to the amount of capital required for infrastructure. For 20 years Telstra called pretty much all the shots in the Australian telco industry and played a game of cat and mouse with it’s arch-nemesis the ACCC. Telstra was famous for favouring its own retail division over any of its wholesale customers for example. While NBN (along with the structural separation of Telstra) has done much to level the playing field, there have been a number of smaller, apparently less significant, decisions that seem to be going in the opposite direction.

Phil Britt of Aussie Broadband has publically criticised a proposed extension of the time before NBN will force telcos to switch off their old “special services”. Firstly I would like to point out I fully support Phil’s position, but I would like to add some meat onto the bones. Yet again we see the big telcos manipulating NBN to their own ends at the expense of Australia.

So why should you care? If your NBN is delivered over FTTN (Fibre-to-the-node) technology, which is the case for the vast majority of Australians, then a delay here will mean that you will have slower, less reliable internet for longer.

One of the downsides of FTTN is that it uses the same copper that is also used for phone lines, ADSL and also these “special services” – predominantly a phone technology called ISDN used by many businesses. Unfortunately when you run two copper cables next to each other, there is a tendency for the signal to jump from one cable to another – this is called “crosstalk”. The higher the frequency of the signal, the more that this is a problem and FTTN uses very high frequency signals. This crosstalk causes interference.

During the migration period when people are both using the old technology and the new FTTN technology (called in NBN parlance “co-existence”), to reduce this interference NBN have reduced both the frequency range and the signal power of the FTTN nodes. Because of this people have reduced speed and a less reliable internet connection.

Under the original FTTP rollout, there was an 18 month migration period when all the regular services (phone and ADSL) were forcibly migrated across to the NBN. There was actually no technical reason for this (copper and fibre run just fine side-by-side), it was purely a political and economic one. At the time the remaining copper based “special services” were the can that was kicked down the road to be dealt with later. However under the FTTN technology a decision to delay has real consequences.

Under FTTN the same 18 month migration period exists for phone and ADSL. We were all looking forward to the co-existence period ending after 18 months and people’s connections being turned up to full power, however because of these special services NBN still hasn’t turn off the “co-existence” mode at the node and is now talking about delaying it again.

So why would the big telcos be requesting a delay on this? As usual it is all about money. Firstly a telco typically earns more money on the old legacy services than the newer NBN ones. Secondly a telco has to engage with their customer and help manage the process for migration, this of course costs money. Thirdly whenever there is a network change, it typically is a time when a customer will re-evaluate its choice of supplier.

Indeed the biggest barrier to competition in the telco space is sheer customer inertia – if a service is basically working most customers are, quite reasonably, nervous to make any changes. This is unfortunately due to their experiences with the major telcos who regularly stuff things up during migrations.

The large telcos would very much like their customers just to do nothing and keep buying from them. However they are doing this at the expense of the quality of the internet for the rest of us. They have had plenty of time (years) to plan and execute this, if they are still not ready, then clearly they don’t want to be ready and are using this as yet another way of keeping the more nimble challenger telcos off their turf.

Damian Ivereigh
CTO Launtel
19/09/2018

There’s an old joke about a balloonist who having lost his way spotted a person walking along a road and descended to ask where he was. The response came back “You are 50 feet up in the air”. After a pause the balloonist shouts back: “You must be a lawyer!”. The man responds incredulously, “well as a matter in fact I am, that’s very perceptive of you!”. “Not really, the information you gave me was 100% accurate, but completely useless.”

The ACCC have recently requested Aussie Broadband to stop using the term “congestion free”. They considered this an absolute term and since every provider, no matter how well managed, sees some congestion (this is due to the way networks work), they should not be using this term.

“We were concerned that Aussie Broadband’s statements might lead consumers to believe that Aussie Broadband’s services would not ever experience congestion, when that was not the case,” ACCC chair Rod Sims said.

In other words they were concerned that consumers may be misled.

So what is congestion? Technically congestion is simply a data packet being discarded somewhere in the network because there is no room on the next link for it to continue on its journey. This packet loss (i.e. congestion) is quite normal, indeed it is used as a signalling system for the sender to slow down to avoid further congestion and we as normal humans beings rarely notice it. So no network can ever be completely “congestion free” in absolute terms unless it is not being used.

So that technical description is clearly completely useless in helping a consumer make a decision about which provider to choose. What the consumer wants to know is will my Netflix buffer while I’m watching it? I do not believe the ACCC’s ruling helps in this regard because it has taken a very legalistic, absolutist position.

As human beings we use absolutes all the time when we know they aren’t meant to be taken literally. For example when my wife complains that I “never take the trash out”, I am not going to get very far pointing out that she is wrong because I actually took it out at the beginning of last year after the New Year’s party.

Now don’t get me wrong I am not arguing that we be loose with our marketing language, but we should always ask what is the intent of the communication? If the intention is to mislead people then that is wrong. I like to ask my marketing team would “a moron in a hurry” be misled by this communication? Would they make a purchasing decision they came to regret based on this information?

I do not believe that any customers would be misled by this “congestion-free” claim. What Phil Britt at Aussie Broadband is basically saying is “you won’t experience congestion on our network!”.

If the ACCC is going to object to “congestion-free”, why does it also not object to the term “unlimited data”? Unlimited means “no limits”, none, i.e. infinity. Clearly no broadband connection is capable of downloading an infinite amount of data. But if you’re going to take an absolute, legalistic approach, then this is an issue. What about acceptable use policies talking about an ill-defined “reasonable use”? That’s a limit to downloading surely? At some point we just have to understand that this is all about human language not legal language.

Part of the problem here is that we are dealing with an industry (telco) that is full of sharp practices. Telcos were time and time again creating incentives for their sales staff to mislead customers into signing up for long contracts that were hard to get out of. Unfortunately the ACCC has very little visibility into what call centre sales staff say, this is why it took so long for them to catch Optus misleading customers into signing up with them on the basis they (incorrectly) had no choice. They therefore spend more time looking at published advertising because it is easier than looking at the areas where customers are much more often being misled.

It is important to note that Aussie Broadband has no contracts, is very open about its CVC usage and has a “stop-sell” policy when an area reaches 80% capacity, so I find it hard to believe that anyone would be misled – as in made a buying decision that they later regretted.

At Launtel we make a number of claims about our network, our support staff and our whole way of doing business. Some of these are not dissimilar to Aussie Broadband (we often recommend them when we can’t supply a service). Our intention is to never mislead, indeed if ever a customer tells us they misunderstood what we meant and made the wrong decision we generally reverse the transaction even if that ends up costing us money. We do this because we want our customers to feel safe and that they are not getting trapped into something.

However our most powerful “get out of jail free” card is our 7 day free trial. We tell people just to give our service a go – see what it’s actually like for them. At the end of the trial they really should have a very good idea of what they are getting before they hand over their credit card. Even then we only charge for a service on a daily basis, so if something changes, people can stop buying our service immediately – they can even get a refund of any unused “charge up”.

We also publish our bandwidth stats at https://launtel.net.au/cvc-usage so people have a very clear idea of what we are doing. We, like Aussie Broadband, are intending to be the new faces of an open and transparent telco industry.

We certainly intend that nobody on our network ever experiences congestion, indeed if we find any, we treat it as a fault. We believe for that all the purposes that human beings need the term “congestion-free” for, that fits the bill. It is unfortunate that the ACCC has now decided that it does not.

Damian Ivereigh
CTO Launtel