How not to build a national broadband network

Australia’s National Broadband Network is in trouble, shedding 500 staff to cut costs and with declining subscriber numbers as telcos tout rival 5G wireless broadband services.

For years, the differences between the NBN and our own ultrafast broadband (UFB) have been stark, with the Australian effort to extend high-speed internet access to the bulk of the population plagued by technical issues and an unsuitable business model.

Leading Australian telecommunications analyst Paul Budde puts those troubles down to the former Coalition government’s decision over a decade ago to patch together a series of technologies to roll out the NBN, rather than committing to fibre connections as New Zealand did.

A hotchpot of technologies

“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,” Budde wrote this week.

“As a result of the MTM (multi-technology mix) decision, you now have a hotchpot of technologies of which several are inferior to what other telecoms infrastructure providers can offer. As a result, the MTM infrastructure will not be fully utilised as many customers will use the alternative.”

That’s exactly what is happening, with Australian wireless broadband providers competing directly with the NBN by offering 5G-based broadband services. New Zealand’s UFB network isn’t immune from that sort of competition. Spark and Vodafone have aggressively marketed 4G and 5G broadband services as an alternative to fixed-line services. Doing so allows them to use their own network of cell sites to reach customers rather than pay wholesale fees to Chorus.

But the difference here is that UFB broadband connections offer highly-reliable, multi-gigabit connection speeds making wireless broadband unattractive for many consumers, and businesses in particular. Across the Tasman, the technical make-up of the NBN means that many consumers are likely to enjoy better internet connectivity by going wireless. Even in satellite services, which the NBN uses to connect remote services, competitors are closing in. Starlink’s debut sees rural dwellers able to access the internet via satellite at around 100 (Mbps) megabits per second compared to between 5 and 25Mbps for the NBN’s satellite service.

Financial stress

Something has to give, which Budde explains, is why the NBN is now slashing costs - cutting nearly 10% of its workforce. NBN Co., the state-owned company that runs the network is now in a difficult position. It lost 9,000 residential customers for the first time in the December quarter (a 0.1% drop according to the ACCC).

That’s bad news for the NBN’s economic fortunes, with the NBN loaded with debt and the bill for completing the network and bringing it up to the standard expected to reach A$57 billion, around twice the original estimated cost. Australia’s spread-out geography meant their broadband network build was always going to be more expensive than ours on a per capita basis, but the poor technology choices and slow roll-out of services resulting from that, have amplified the costs. Chorus, in contrast is a profitable listed company and our government doesn’t carry any debt on its books related to the UFB. Taxpayers contributed around $1.6 billion towards the project, which increasingly seems like excellent value for money given that fibre is now available to 85% of premises.

Where does the NBN go from here? It needs to offer more reliable and sharply-priced services. But it is racking up such large losses that it has applied to the Government to raise the wholesale access prices it charges internet providers.

A rock and a hard place

“In order for NBN Co to address this problem, it will have to compete much harder for these customers,” says Budde.

“We all know very well what this means in the telecommunications industry — you will have to offer competitive prices. The sad story for the NBN is that this will undermine NBN Co's financial situation. So as a result of the wrong political decisions made a decade ago and NBN Co agreeing to go ahead with them, it is now finding itself between a rock and a hard place.

The sorry NBN saga, therefore, has many chapters left to play out.