Pressure builds on government to drop NBN wholesale prices

Telstra chief executive Andy Penn has joined the chorus calling on the Morrison Government to lower wholesale prices for the National Broadband Network (NBN):

“Unfortunately, because of where wholesale broadband prices have gone, basically all operators are losing money reselling the NBN, and therefore some — and they’ve said it publicly — are looking at 5G to bypass the NBN,” he says.

“And that’s not necessarily a good thing. Unless we get the pricing structure right, we’re going to create this unnatural dynamic in the market which biases technology for reasons other than what’s the best technology for the customer”…

“We’ve got to try and create a policy and regulatory framework that doesn’t influence one technology over another. “And if wholesale pricing structures don’t change, that is what is going to happen.

“Unless the whole ecosystem is viable, then no one part of it can be viable either, and so candidly, unless the pricing structure is changed and operators can actually make a return on capital which shareholders are prepared to invest in, then NBN is worthless anyway.”

The NBN’s business model is clearly failing. NBN Co is under immense pressure to cut wholesale prices, in a bid to raise prices for consumers and boost take-up, which would negatively impact revenue targets and ultimately force a write-down of the network.

When a write-down does eventually occur, the cost to the federal budget could be as high as $20 billion.

Two years ago, former Keating Government competition advisor, Fred Hilmer, predicted the NBN would “be sold at a bargain price with the commonwealth taking a hit and blaming its predecessors”.

Hilmer’s predictions are looking prescient, with taxpayers facing a massive hit.

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.

Unconventional Economist

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

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