Is an NBN writedown imminent?

By Leith van Onselen

Last month, the NBN reported that it “continues to bleed” cash as revenue targets remain elusive:

In its third-quarter results, released on Monday, NBN Co announced revenues of $2 billion but a net loss of $3.4 billion for the nine months to March 31, bringing accumulated losses to $20.7 billion over the NBN’s entire 10-year lifespan.

While the loss was expected, NBN Co revealed its average revenue per user (ARPU) per month was still way behind the target necessary to deliver a return on investment and remain a commercial operation.

Now, NBN Co has opened the door to lowering its wholesale prices in a bid to make broadband more affordable and encourage more customers. From The Australian:

Mr Whitcomb said NBN Co was striving to find the right balance between meeting its economic objectives while ensuring telcos and consumers get the right value.

Wholesale prices are critical to NBN Co’s stated target of delivering an internal rate of return of 3.2 per cent and lifting its average revenue per user from $45 to $51 by 2022.

“When you are dealing with a wholesale/retail model, you expect retail service providers to put pressure on us to deliver value at a lower cost and that’s something we aspire to do,” he said.

“A big part of the consultation process is to find the sweet spot … we are going into this with an open mind.”

The NBN’s business model is clearly in deep trouble. The network is coming under increasing pressure to lower its wholesale prices, which would adversely impact revenue and could force a write-down of the value of the network.

If a write-down does occur, the cost to taxpayers could be as much as $20 billion, according to industry experts.

This is a cost that might be worth bearing, given delivering Australians a competitive and reliable internet service is a must. Australians shouldn’t be charged some of the highest user fees in the world for a sub-standard service.

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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  1. Optus is already offering 200GB/month $70 wireless deals on their 4G network. These are the real competition to the current slow NBN. When 5G rolls out it will eat more of the NBN’s pie.

    Sure wired should always beat wireless, but as things currently stand a good proportion of people are served just as well with wireless.

    • Diogenes the CynicMEMBER

      This. The benefit from a consumer’s standpoint is that there is no messing around trying to ensure your connection is working…waiting for the connection, having no internet for weeks, dropouts if you do have a connection etc. You can also use it anywhere, anytime.

    • Yes – 200G is a substantial amount of data.

      The thing people forget about mobile alternatives is that when the speed is fast you don’t need to be connected continuously.

      Download the program in a few minutes and most of the time the connection is not required.

      Congestion is less of an issue than people claim.

      It will be even less of an issue when 5G starts to really get rolling.

      Naturally you need to have a decent 4G or 5G signal and that is a big issue outside of the capital cities.

      • 200G is a substantial amount of data
        No, it’s not! With ADSL2+ I used 175GB/mth. With the speed increased 10x it’s 300-350GB/mth.
        Video on demand … Masterchef, MAFS, ABC iView, Fortnite gaming and it’s 40GB each weekend easily. With higher speed the picture quality improves automatically, which puts even more demand on bandwidth, thus data. Can you show me please, how you download streamed videos easily so you can watch them later?

        As for fibre except for not being mobile what other headaches does fibre have and wireless doesn’t?
        There are only 3 types of medium.
        (1) Copper (2) Wireless (3) Fibre
        Fibre is the cheapest, most reliable, fastest and many forget by principle the most secure way of transceiving data (e.g. you can’t pierce the cladding, yes opt. fibres have them too, and get to the core.). All continents are connected to each other with fibre and there’s a good reason why. Last time I checked Australian houses weren’t mobile so it’s like your bicycle capable of 1000km/h speed requiring service every 1 000 000km.

    • Ronin8317MEMBER

      Fibre optic to the home will beat wireless hands down. The hybrid coaxial cable and FTTN however is slower than 4G, and that is what a lot of Australians is getting on the NBN.

      • Yes – Fibre to the house is the perfect option but about 50% of people are getting FTTN or HFC and that is very vulnerable to competition from mobile.

        Luckily the HFC in Parramatta was stuffed and they are rolling out FTTC.

        They tell us 1 Aug is the start date for connecting services.

        Looking forward to improvement on the 5Mbps I currently get with ADSL 2+

      • A Corolla will beat a bicycle hands down.
        But people still use bicycles.

        This isn’t a case of an objective drag race where X beats Y.
        It’s multi-factorial, subjective, and personal.

        A bicycle can be “good enough” for an inner city dweller who needs transport without parking headaches.

  2. robert2013MEMBER

    “Australians shouldn’t be charged some of the highest user fees in the world for a sub-standard service.”

    Why not? It’s always been that way for everything Australians do. That’s why our service industries have not been able to export their business models overseas (think Bunnings’ UK failure), and yet overseas equivalents do really well here (think Aldi, Costco, Zara, etc.)

  3. Yesterday I read that Preschool teachers are demanding pay increases that will result in many of them receiving over $100Kpa salary. We all need to keep this salary figure in mind when we decide what’s an appropriate cost for Internet access.
    If this salary expectation is reasonable than it follows that our Internet should be about 3 times as expensive as Internet access in Texas (average Texas pre-school salary is about $35K with entry level positions paying around $20K.)
    We all need to be aware that If we arbitrarily forgive certain debts to create the illusion affordability / efficiency than we are simultaneously supporting those that profit from this decision while indirectly punishing those that would try to create truly affordable alternatives.
    Is this the Australia that we all want?
    Personally I have no problem with paying preschool teachers $100K pa but it does suggest that we need to target an AUD exchange rate of 30c to the USD. Does this outcome really benefit anyone? except maybe the Preschool teacher.

  4. Instead of writing it down by $20b, why not just use that money to buy 40% of Telstra, and then merge the NBN in with them? Could own a majority stake in Telstra at the end of the day, and direct them to serve regional areas etc.

    If an Aussie company that you could buy shares in had the monopoly, I think people would be much less concerned. Telstra has the engineering and marketing abilities that NBN doesn’t so the whole thing could be run better.

    • StephenMEMBER

      Yeah, well Telstra should have been structurally split right from the beginning. There were plenty of analysts saying that it was crazy to sell it as one big behemoth, and if I recall even a parliamentary inquiry said it shouldn’t be sold as one company. All this was ignored, which is a large part of why the NBN was required in the first place!

      I believe New Zealand started their UFB rollout by first properly structurally separating their national carrier (which had also been nationalised). Then they pretty much exactly copied the technology we were using (at the time) in our NBN – fair enough, the FTTP was the ideal balance of best value (medium to long term – super low OPEX) and highest performing technology available at the time. Still is, if you do the inexpensive upgrade to NG-PON2 (all the fibre stays the same, you just replace some boxes – unlike with the mess the LNP bundled us with, which will require massive civil works to improve for FTTN, FTTC).

      It’s understandable why Labor didn’t nationalise Telstra’s pit and pipe infrastructure at the start of the NBN – there was such fierce opposition to making any improvement at all despite the huge market failure (Malcolm Turnbull literally called NBN Co ‘socialist’ or ‘soviet’ even at is was! Showing he really had no clue about anything).

      So at the end of the day, NBN Co had the best technology, but extremely expensive access to Telstra’s pit and pipe infrastructure, having to do expensive capital works where that wasn’t available, having a ridiculous transit arrangement imposed on them by the ACCC (101 points of interconnect) making it really expensive for carriers and basically impossible for smaller ones to compete without just reselling a bigger telco’s product, and a bad pricing model that made the plans too expensive for consumers unless the providers massively skimped on bandwidth, making the user experience worse (meaning slower evening speeds). So with all that going against them, the LNP in their wisdom got rid of their only advangate, switching to mostly obsolete technology to try and save cost. In the end, it actually cost more than new FTTP would have!

  5. Why not increase the fees on 100 Mbps broadband plans to chip away at the $20.7 billion?

    It is not as if people can say “nah, I will get 100 Mbps via 5G instead”.

    Before ADSL was invented, did the copper phone line network not have a cross subsidy? Urban voters subsidising rural voters.

    • Ronin8317MEMBER

      Because only a tiny number of people can get 100 Mbps.

      I used to be on Optic HFC and I get 20+ MB. Now I’ve been moved to NBN and I get 12 MB on a good day.

      • Put a tax on 50 Mbps connections too.

        It is incredible that Aussies voted for slow internet in 2010, 2013, 2016, 2019! Aussies just do not give a damn about fast broadband!

    • 2010 policy was FTTP because of Tony Windsor’s and other independents explicit support. Failure was baked in with the troglodytes in 2013, 2016 and 2019.

  6. Great. So when Malcolm Turnbull tried to bring economic rationality to the NBN, people got their knickers in a knot, saying they wanted the full FTTH, 100Gbps to every man, woman and child in Australia.

    I suppose the $20b write-down is largely thanks to the MMT (multi-mix technology) NBN pushed through by Malcolm, otherwise, it would be a $80B-$100B if he had not tapered the ambitions of those techno-geeks.