It’s time to stop the charade and drop NBN wholesale prices

Over the weekend, Telstra chief executive Andy Penn called on the Morrison Government to drop 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.

Yesterday, Penn ramped-up the pressure, arguing the NBN’s current wholesale pricing structure is distorting the telecommunications market, leading to poor outcomes for both consumers and the industry:

“What it’s doing is creating an unnatural distortion in the market where effectively the retail providers make no money through selling fixed broadband services in Australia,” [Penn] said.

“In the long term, that can’t be good for customers, it can’t be good for investment, it can’t be good for the quality of telecommunication networks in Australia”…

“Wholesale broadband prices have more than doubled under the NBN and are set to go even higher”…

Mr Penn said the situation meant many major telcos considered 5G as an alternative for customers, even if it was not the best technology solution for them.

“That’s not going to replace the NBN,” Mr Penn said on Tuesday of 5G mobile technology. But it “creates an incentive for operators to prioritise 5G over fixed broadband networks”…

While Andy Penn’s arguments could be written-off as talking his own book, he’s not wrong. The NBN’s business model is clearly failing, with excessive wholesale prices gouging both consumers and broadband resellers alike.

The problem is that slashing wholesale prices would negatively impact the NBN’s revenue targets and ultimately force a write-down of the network, which would cost the federal budget up to $20 billion.

That said, maintaining the current pricing structure is ultimately untenable, leaving Australians being charged some of the highest user fees in the world for a sub-standard service, as well as encouraging them to shift to less efficient alternatives like 5G.

A write-down of the NBN seems inevitable. So the government might as well take the hit now, drop wholesale prices, eliminate distortions, and let the market evolve naturally.

Leith van Onselen

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. GeordieMEMBER

    Make the damn thing free for entry level connections; everyone gets basic internet and phone, for free, from the government.

    State that the NBN will never be privatised then legislate for it; we know privatisation of monopolies isn’t in the public interest.

    Drop the charade. Make it a productive assets, and move the F on.

  2. Ronin8317MEMBER

    NBN is a monopoly, so they can charge Australia as much as they like. That has always been the business model.

    5G won’t be able to replace NBN, so it’s a hollow threat.

    • sydboy007MEMBER

      It doesn’t need to replace it, but I’m sure Optus has worked out the areas where their current customers get sheet FTTN speeds and 5G can provide a decent alternative with fatter margins. If 5 to 10% of the NBN customer pool goes to alternative technologies then they either need to lower pricing to get competitive or go through the death spiral of higher charges forcing more and more to look to alternatives.

  3. Only if that $20 billion is obtained by excluding the rich ($200k/year household) from negative gearing handouts and private school handouts.

  4. I’m genuinely confused how retailers are losing money. If they sell the service at more than the wholesale price how are they losing. Is it really they don’t think they are making enough profit ?

  5. JunkyardMEMBER

    “While Andy Penn’s arguments could be written-off as talking his own book”

    That’s all you needed to say. Telstra are starting to panic that the nbn has not imploded yet, despite Abbott and Turnbull setting it up to fail. 5G rollout is going to cost a pretty penny and nbn is ramping up business grade products with much higher ARPU.

    Broadband prices have hardly moved next to all other monthly bills for utilities and things like insurance. Would love to see you guys bring a bit more analysis quality to the Telco industry.