Who killed the NBN?


Veteran communications analyst, Paul Budde, has blamed the former Turnbull Coalition Government for the National Broadband Network’s (NBN) poor value and performance.

According to Budde, “NBN Co was forced” to go “ahead with the Multi Technology Mix (MTM) model” imposed by Turnbull, and “it is now paying the price” in the form of higher costs and poor results.

The Coalition’s decisions have, in turn resulted in “significant underperformance in several areas of the NBN, opening the market wide open for competitors to use clever ways to offer alternatives through mobile, wireless and fixed broadband solutions”, according to Budde.

NBN Co has concluded that decreasing expenses is the next step after realising that the other strategies it tried to use (limiting competition, raising prices, etc.) would not be successful.


Hence this month’s decision to axe 500 jobs (10% of the NBN’s workforce).

The reality is that in the face of stiff competitional from mobile, NBN Co will likely never be able to reach the 90-95% residential customer utilisation rate that was anticipated when the network was first introduced as an all-fibre-to-the-home service in the mid–to–late 2000s.

Budde argues that “you can only have a successful wholesale telecommunications monopoly – operating as a national utility – if you leap-frog other infrastructure technologies and establish yourself right in front of everybody else”.


But because of the “MTM decision, you now have a hotchpot of technologies of which several are inferior to what other telecoms infrastructure providers can offer”.

Accordingly, “the MTM infrastructure will not be fully utilised as many customers will use the alternative”, Budde says.

In my opinion, the NBN has long-standing issues that have spanned both Labor and Liberal administrations.


First and foremost, the Howard Government’s privatisation of Telstra in the late-1990s gave it ownership of both the wholesale and retail networks.

As a result, Telstra became a vertically integrated private monopoly, requiring rivals to pay to use the fixed line telephone network.

One of the reasons the Rudd Labor Government created the NBN was to fix this structural flaw.


The Gillard Government then agreed to pay Telstra $9 billion in installments in 2011 for its fixed line customers to switch to the NBN, thus creating significant costs to the taxpayers.

New Zealand, in contrast, did not experience these problems in establishing its own version of the NBN.

Unlike Telstra, Telecom NZ was divided into a wholesale operator, Chorus, and a retailer, Spark.


Chorus was able to construct its new FTTP network using all of its current legacy assets since it won the majority of the contracts for building Fibre-to-the-Premises (FTTP) networks.

Accordingly, the cost of construction was significantly lowered due to the clear reduction in duplication.

Furthermore, Chorus possessed the in-house technical know-how to finish the work. This is in contrast to NBN Co, which was founded as a start-up Government Business Enterprise.


Malcolm Turnbull made matters worse for the NBN by rejecting Labor’s plans to construct FTTP throughout the majority of the nation, as explained by Budde above.

Instead, Turnbull substituted a MTM that still utilised copper wiring that had been phased out.

Turnbull promoted this modification to MTM as a cost-cutting measure.


However, the enormous quantity of rectification work necessary swiftly caused the NBN’s price to increase from $30 billion to more than $50 billion.

The past Labor Government’s choice to designate the NBN as a “investment” only made matters worse.

Because of this choice, NBN Co. had to provide the government with a commercial return, which meant the NBN had to generate both a profit and enough revenue to cover costs.


NBN Co was consequently compelled to impose high wholesale rates on ISPs, who in turn passed those costs along to Australian consumers.

However, these high user costs have prompted significant numbers of customers to ditch the NBN for less expensive wireless options, meaning the gigantic fixed costs of the NBN will need to be recovered from a declining subscriber base, which will place further upwards pressure on prices.

But as prices increase, more homes will switch to mobile broadband and the cycle will repeat.


The upshot is that the poor economics of the NBN are coming to fruition, with NBN Co facing a ‘death spiral’ of falling connections and rising costs.

When it comes to the failings of the NBN, there is plenty of blame to spread around.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.