Could the NBN become a stranded asset?

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By Leith van Onselen

When the National Broadband Network (NBN) arrived in my area late last year residents were greeted with a barrage of junk mail advertisements from all manner of internet service providers offering competitively priced internet at fast speeds.

At the time, I was under contract with Telstra, so I did not consider moving from Bigpond cable to the NBN. And thank goodness I didn’t. Over the past six months or so, I have heard numerous horror stories from neighbours, acquaintances and friends from my area who have suffered from connection problems with the NBN, dropouts, painfully slow speeds, and even some cases of households being stranded without internet access for weeks on end.

As someone that works from home, and relies on internet access for my living, I decided that I am staying put with Telstra Bigpond for as long as possible in order to avoid the problems of the NBN, even if it costs me more in the short-run.

It seems that the horror stories are not confined to Melbourne’s inner-East, either, with The AFR today reporting growing complaints about the NBN’s internet speeds and connection difficulties, with some 15% of NBN customers raising concerns about connection problems and some households having no broadband access for months:

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NBN chief executive Bill Morrow said he was reviewing the pricing model for Australia’s $50 billion broadband network that could include measures to give disgruntled customers a better idea about the quality of the service they were paying for. He said a “land grab” by retail service providers chasing market share was misleading customers about the speeds they were paying for.

“We have to take it seriously, it is causing reputational damage and it does need to get fixed and we are committed to working with the industry to get it fixed”…

Mr Morrow is facing growing pressure to address complaints about the project, which he said were centred around two areas: the slower-than-expected internet speeds experienced by some customers and technical issues connecting premises to the network that were leaving some homes without broadband services for months. About 15 per cent of NBN customers have complained about their connections…

Mr Morrow argued that the number of complaints was rising as new network connections accelerated, but the overall percentage had fallen. It is activating about 40,000 to 50,000 new customers a week, which will increase sharply between now and the project’s completion date in 2020.

The NBN has been swamped with complaints from customers about speeds that they say are lower than what they used to get on ADSL.

Meanwhile, Optus CEO, Allen Lew, has today warned that mobile technologies may advance to the point where many Australians will feel that they do not need to have home-based telecommunications access, like the NBN. According to Lew, around 25% of households already do not have the sort of fixed-line access that would allow them to use the NBN, and other consumers may be of the view that the NBN does not provide them with sufficiently improved service to justify the extra cost of using it:

“Today in Australia there is already about 20 to 25 per cent of homes that do not have a fixed line going to their homes and with the next generation antenna technologies that we have deployed, we can deliver up to one-gig speeds … so it is really up to customers now to decide whether they want a home wireless broadband solution, a wireless dongle, or a fixed-line service,” Mr Lew said.

“It all depends on what people are willing to pay and what kind of speeds they require and how consistent the speed needs to be.”

Superloop CEO Bevan Slattery has previously predicted that an NBN rival like TPG will begin offering much more generous mobile data allowances to hijack a large cohort of potential subscribers, and Mr Lew agreed that Australians can look forward to much larger caps in future to make mobile a feasible choice.

“The beautiful thing about our industry is that technology is always improving in leaps and bounds and with those technology improvements the cost per gigabyte tends to get lower,” he said.

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One wonders whether the $50 billion NBN will ever live up to expectations, and whether it will end up becoming another expensive stranded asset that is superseded by a superior technology, such as mobile broadband.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.