Poor management of Australia's broadband network has resulted in a problem that the Government won't fix and has left consumers paying for it, writes Paul Budde.
FOR MORE THAN A DECADE - dating back to the original NBN plan from the Labor Government - the retail service providers (RSPs) have argued against the unpredictable variable elements in its wholesale charges (the so-called connectivity virtual charges or CVCs). We have covered this at length in previous articles going back at least to 2016.
A full decade has already been wasted on discussing the inefficiencies and complexities that the broadband utility has built into its pricing system. As a result, prices in Australia keep on rising while the reverse is happening in many of the developed economies. In general, what happens elsewhere is that users have increasingly been given more capacity (higher speeds) without an increase in charges.
As the NBN basically cost twice as much as the Government under the then Minister for Communication Malcolm Turnbull had estimated, the company ended up with a financial problem - how to pay back that investment. If NBN Co would have been a private company, it would have to find a solution for that itself. However, if you are a government-owned company with a wholesale monopoly in the fixed broadband retail market, you can simply raise your prices.
As a result, the RSPs are bleeding as they are caught between one side with the high wholesale process and the other side with the reality that users have limited budgets that they can use to pay for their broadband connections. A key element of the problem is that these charges can vary significantly depending on the activity of the users.
The uncertainty element of these changes makes it very difficult for RSPs to create sound financial plans on which they must build their business models. They argue that NBN Co should move to a fixed flat pricing model. Telstra also argued that as RSPs must pay more when they underestimated their need for CVCs, NBN co should refund them when they have overestimated their need.
As I mentioned a few weeks ago, NBN CO has indicated to increase the already high CVC charges even further and as a government-backed monopoly, they are able to do so.
So far, the RSPs have largely absorbed the increased wholesale costs to the detriment of their margins. However, they are now having a gutful of NBN Co's ongoing rhetoric that they are decreasing wholesale costs - whatever spin the company wants to give on its pricing regime, the reality is that the costs are increasing.
NBN Co argues that it needs to have a healthy balance sheet, but that balance sheet is based on costs that are far too high. However, as a monopoly, they can basically charge what they want. Normally, the Government would step to reign monopolies in, but the Government needs this monopoly to get its investment in the NBN back so they quietly let this happen. The other question is why the ACCC, who is independent, does not step in and at least investigate these decade-old complaints from the industry.
Telstra has indicated that this situation could by 2023 see the average wholesale price that NBN Co will receive rise from around $45 to $55 per customer. On top of this, the retail providers must add their own costs. This would have a severe effect on the price that the end users will have to pay for their NBN connections. At the same time, many users still have a lousy broadband connection.
All of this is happening at a time Australians more than ever must rely on good quality broadband. If the COVID-19 pandemic has not made that clear, then what else is needed to convince the Government to stop the NBN monopoly.
The structure of the NBN was based on a nationwide fibre-to-the-home (FttH) network. As it does not make sense to overbuild such a fibre optic network, the Government at the time rightly provided the NBN company with a wholesale monopoly for this fibre infrastructure utility.
When the Liberal Government in 2013 decided to change the whole structure of the NBN, they kept the wholesale monopoly in place. Competitors such as TGP who indicated that they were prepared to start building proper FttH or FttN networks were not allowed to do so.
So we now have the following outcome:
- a broadband network that desperately needs upgrading - which will only happen for users who are prepared to pay for it;
- a second-rate network that will continue for perhaps as much as a quarter of the population;
- significantly underestimated costs;
- no competition because of the NBN monopoly;
- increased wholesale and retail prices to cover the costs of the NBN disaster; and
- consumers avoiding the NBN and looking for alternatives such as 5G and LEOs.
The Government keeps on talking about how important the digital transformation is for our society and our economy but allows this disaster to continue. With the stroke of a pen, they can change the situation. They are spending hundreds of billions of dollars on a stimulus package - surely a few billion of that could be used to fix the financial problems of NBN Co. This would allow it to upgrade the network for all Australians and not just those who can afford to pay more and at the same time, stop the need for NBN Co to keep increasing its wholesale prices, which in the end means higher prices for the end users.
Paul Budde is an Independent Australia columnist and managing director of Paul Budde Consulting, an independent telecommunications research and consultancy organisation. You can follow Paul on Twitter @PaulBudde.
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