Last week, NBN Co chief financial officer, Philip Knox, flippantly brushed off the emerging competitive threat from 5G wireless broadband on the NBN’s viability:
“We spend virtually zero time thinking about it or talking about it. We’ve always said it’s a complementary technology. It’s highly optimised for mobility and less so for fixed wireless”…
Roger Montgomery believes this is a mistake, pointing to New Zealand where 5G is already stealing market share from the country’s superior NBN-equivalent infrastructure:
We are currently on the cusp of a generational shift in mobile communication technology with the introduction of the fifth generation of wireless phone technology. 5G can deliver significantly higher data transfer speeds and, probably even more important, much lower latency (the delay before data transfer begins).
In New Zealand, Spark NZ, the telecom provider that has been a long term holding for The Montgomery Fund has done a very good job in setting up a Fixed Wireless Access (FWA) business where households bypass the New Zealand equivalent of the NBN, Chorus, and connect to Spark’s mobile network via a modem in their homes which then distributes internet to devices in the home through wifi or local LAN cables.
The benefit for Spark is a significant cost saving as they bypass the fiber access fee payable to Chorus (about NZD43/month) with very marginal additional operating costs through channeling the traffic through their mobile network. They can therefore either make higher margins or offer a more compelling price to customers. Spark has currently about 150,000 customers signed up for FWA and it is growing quickly and we should note that that this is despite only being able to offer 4-4.5G wireless access technology and Chorus network being significantly faster than the NBN (it is indeed ranked number 22 in the world with average speed 2.4x the NBN at 135Mbps vs. NBN’s 55.97).
Telstra, TPG and Optus are rolling out relatively cheap, fast Fixed Wireless Access 5G broadband to compete directly against the NBN.
Telstra is already offering 4.2 gigabits per second (Gbps), which is four times faster than the fastest NBN plan available currently to homes.
Further, Australian Communications Minister, Paul Fletcher, yesterday announced that the government will hold 5G spectrum auctions next year, thus facilitating the rapid expansion of the technology across the nation:
In April 2021, the Government will allocate high band 5G spectrum (in the 26 GHz band), which will enable extremely fast, high-capacity services. In the second half of 2021, the Government will allocate low band 5G spectrum (in the 850/900 MHz band), which will be crucial for broader geographic coverage of 5G services…
“Low band spectrum can carry the 5G mobile signal longer distances, and is best for wide coverage indoors and outside. The mid band spectrum provides broad coverage and fast speeds and the high band spectrum will allow blazing fast speeds over shorter distances.”
“We are making the low, mid and high bands available so that the telcos can provide better, faster and stronger 5G in Australia,” Minister Fletcher said.
Clearly, competition from 5G will only intensify over the next decade. This will steal market share from the NBN’s fixed broadband service, in turn reducing the likelihood of NBN Co ever hitting its subscriber targets or breaking a profit.
The NBN’s “fair value” (or saleable value) was valued at just $8.7 billion at the beginning of this year – less than one-third of the federal government’s equity investment.
Even this valuation is now looking wildly inflated.