‘Perfect storm’ confronts bungled NBN

Former Chief Technology Officer of NBN Co, Gary McLaren, warns that the National Broadband Network’s (NBN) economics will become “even more challenging” as mobile broadband technologies evolve and steal market share.

This comes after NBN Co last week lodged a submission with the Australian Competition and Consumer Commission (ACCC) on proposed changes to its wholesale pricing model, which suggested basic broadband prices could double over the coming decade. This submission was vigorously opposed by ISPs, which instead called on the ACCC to set access prices instead.

According to Gary McLaren:

The reason behind NBN Co’s desire to raise prices going forward is the need to re-coup the costs of building and operating the NBN.

NBN Co has forecast that taxpayers, and more recently private financial institutions, will provide total funding of $57 billion by 2024. This is approximately double the $29.5 billion of funding originally proposed by the Coalition.

NBN Co currently does not earn anywhere near enough revenue to justify this level of funding…

The escalating prices above CPI and consequent revenue increases proposed by NBN Co would eventually allow NBN to earn a return on this investment funding commensurate with normal market returns for similar businesses…

[But] as broadband technologies continue to evolve, with 5G and new satellite technologies in particular, NBN Co will face more competition which will make its economics even more challenging.

The reason why NBN Co is seeking such hefty price rises is because the NBN must recoup its $57-plus funding as well as earn a margin. This need has arisen because the former Rudd/Gillard Labor Government’s classified the NBN as an “investment”, thereby requiring NBN Co to deliver a commercial return to the government.

The risk is that as NBN prices are hiked, more customers will simply shift to cheaper mobile broadband services. This would leave NBN Co having to spread its high fixed costs over a falling user base. Hence the “challenging” economics described by Gary McLaren above.

The ultimate solution for the Albanese Government to write down the NBN’s value to reflect its true worth, which Labor considered doing before the 2019 election.

An NBN writedown would significantly lower the project’s required rate of return and allow NBN Co to cut wholesale prices for ISPs, which would then be passed to consumers.

The federal government must treat the NBN as an essential utility service, instead of a commercial project seeking a required rate of return.

Otherwise, Australians will continue to be gouged for broadband internet.

Hopefully, the new Albanese Labor Government will finally fix the NBN’s wholesale pricing mess once and for all by writing down the NBN.

Unconventional Economist

Comments

  1. Display NameMEMBER

    Unlike Job Keeper this is a spend for which we might get something. It is a public good, strategic infrastructure. Hobbling it with a return at the current hurdle rate is only likely to cause further bad decisions to be made.A write down is a no brainer.

  2. pfh007.comMEMBER

    Well we all know what will happen.

    The ALP will write it down and move the debt to be paid by the taxpayer and then sell off the debt free NBN to Telstra for a bargain.

    Rupert and the rest of the neoliberal zombies will never tolerate a debt free NBN government enterprise operating in the public interest.

    It would be a dangerous precedent.

    What next ?

    • TheLambKingMEMBER

      Rupert and the rest of the neoliberal zombies will never tolerate a debt free NBN government enterprise operating in the public interest.

      This. You can’t have Government providing a service when a private company could be making money out of it! And to neoliberals/IPA/LNP/Murdoch, the monopolies make the best services to privatise (because they make the most money!)

      The original idea for the NBN was for the Government to build it, then sell it off – as no company could fund something like the NBN – or if they did they would only do the profitable bits (like inner city) and not the rest of the Country. But the IPA/Murdoch/LNP got into power and completely hobbled the NBN to the point where it is un-sellable as the technology (copper wire) does not scale – optical fibre to the home is pretty limitless in speed.

      But Labor has the opportunity to say ‘LNP fscked the NBN, spent billions on obsolete technology, and we now have to write it down and redo the bits they fscked’

      • pfh007.comMEMBER

        Labour have the opportunity and hopefully Albo has enough sense to write it down so that the revenue can be used to rebuild the worst bits of the current rollout.

        Converting the FTTN to FTTC will be a lot cheaper than FTTP as getting inside the house is expensive.

        Given FTTC is capable of much higher speeds than FTTN I don’t think it is unreasonable that folks who want fibre from the front fence to inside the house to pay the additional cost.

        • Know IdeaMEMBER

          There you go again, suggesting the “reasonable” option. As if.

          Your persistence and optimism is however extremely laudable.

        • Converting the FTTN to FTTC will be a lot cheaper than FTTP as getting inside the house is expensive.

          Exactly how “expensive” is putting an optic fibre inside a house?
          Exactly what real resources are required?

          Now obviously a farm house on acres would require a long length of fibre. But millions of houses are very close to the street.

          Could gangs of people formerly on the dole be given basic jobs that involve digging the trenches, crawling under houses, pulling fibre, etc. Yes they could, and should. This would be a very cheap way of getting decent internet to most houses and would do a hell of a lot of good for the workers.

          And yes, (although not on the dole) I would be willing to do my share of installing free of charge. It need not be expensive.

        • UpperWestside

          Fibre to the pole, mesh wifi /wimax /5g for the last mile
          All the bang , very little buck!

          • Yep. Each house runs Wifi internally anyway. Get fibre close enough then use shared high speed wifi infrastructure. Also allows you to move across the country with your nbn service rather than being fixed to one premises.

  3. All I have to add re NBN is I’m finally on it after moving from my 1990s era optus cable. Download speeds the same with upload speed significantly increased, all it makes me think of is how crazy fast that optus cable would have been in the 90’s compared to that dial up crud the rest of us had lol

  4. Jonathan Rubenstein

    The risk is that as NBN prices are hiked, more customers will simply shift to cheaper mobile broadband services.

    Simple to fix – the government will just introduce a tax on cheaper mobile broadband in order to make the the NBN competitive.

    Right now I’m on TPG 5G and pay $65 a month for unlimited 100/20. The actual speed I get is 190/20

  5. If anyone has a reliable alternative for small businesses to the NBN PLEASE LMK!!

    I detest NBN but seemingly all “solutions” offered by IT seems to just go back to NBN. Told starlink not that reliable for Brighton based biz. so feel bit stuck.

  6. Yeah, mobile broadband is cutting NBN’s lunch. Riiiiiiiiight.

    Maybe its just that Turnbull’s copper tailed NBN is just shiiite?