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Sunday, 31 May 2009 12:17

The value of FTTH to home buyers? At least $5000

The Federal Opposition is trying to score points against the Government by claiming that the cost of mandatory FTTH in new housing developments will be an unwelcome impost on home buyers. The facts, however, suggest otherwise.

The Government has indicated it intends to make the installation of fibre to the premises mandatory in all greenfield housing developments from 1 July 2010, and has just released a consultation paper seeking industry input on the issues raised by such a policy.

Shadow Communications minister, senator Nick Minchin, however has accused the Government of imposing unwanted and unquantified costs on new home buyers. "The Government clearly hasn't thought this through and I find it extraordinary that after announcing this project it is unable to say whether home buyers will bear the cost for the mandated roll out in greenfields estates," Minchin said.

He added: "Greenfield estates...attract large numbers of young first home buyers. Unless the NBN company bears the cost, ultimately it will be these young home buyers who could be out of pocket several thousand dollars."

Minchin made his comments after questioning an officer, Colin Lyons, from the Department of Broadband, Communications and the Digital Economy in a Senate Estimates hearing. Lyons' advice to Minchin was "wait until we have released the discussion paper." Minchin would have done well to heed this advice before trying to score points against the Government.

First of all, the discussion paper notes: "The cost difference [between copper and FTTP] is relatively modest compared to the total value of the house, the life of the investment and when considering the increased functionality of future-proofed FTTP networks.

"The available evidence suggests the cost differential is in the order of $1500 per premises. At an estimated cost of $2500 per premises, the installation of FTTP would represent less than one percent of the cost of a $350,000 house and land package. The total cost per premises is comparable to, or even lower than, the cost of other utilities installed in greenfield estates."

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It explains that there is some misunderstanding of the real cost differential because of the way copper infrastructure has been funded in greenfield developments. "Historically Telstra has provided key elements of the copper network and recovered the cost through its connection/installation and ongoing service charges, while developers cover other costs such as trenching.

"By contrast, when FTTP is installed, the provider typically seeks to recover a greater proportion of its installation costs up-front from the developer. This has created the perception that the cost difference to the end user between FTTP and copper is greater than is actually the case and this may have distorted developers' decisions about what telecommunications technology to deploy."

However, whatever the cost, the evidence quoted in the paper indicates that customers are more than willing to pay it and, once having enjoyed the benefits of fibre would not be without it.

" A small survey was undertaken by the Gungahlin Community Council in Canberra in August 2006 by Kevin Cox in association with Robin Eckermann. The survey asked respondents to indicate how they would react if a developer who had planned FTTP advised prospective buyers he had decided not to proceed with FTTP, but was willing to offer a discount on the house and land package. More than 60 percent of respondents indicated no offer would be satisfactory; instead they would buy elsewhere. Of the remainder, 80 percent indicated they would not proceed without compensation of at least $5000."

It adds:  "This is broadly consistent with evidence from developers in the US that indicates that consumers place significant value on having access to services delivered over FTTP infrastructure in greenfield estates. For example, a Fibre-to-the-Home Council survey of home buyers and home developers in the US estimated that a direct fibre connection adds an average of more than $US5000 to the value of a home."

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