ACCC intervenes in troubled NBN project

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ACCC Chairman, Rod Sims (Image via YouTube)

As if we weren't already aware of the problems surrounding the troubled NBN project, the ACCC has now intervened to highlight just how bad the situation is, writes Laurie Patton.

THE BOSS of the ACCC, Rod Sims, has told The Australian:

‘Its recent dealings with the retail telcos has highlighted a weakness with the fibre-to-the-node (FTTN) access technology.’

For numerous broadband experts, not to mention millions of hapless NBN customers, this might be seen as a classic “no shit, Sherlock” moment. However, it is probably the most significant recent development in the long-running saga that began with Labor’s 21st century fibre-based national broadband network, only to end in tears for so many when former Prime Minister Tony Abbott ordered his heavily-wedged communications minister, Malcolm Turnbull, to “destroy the NBN”.

The way we’re heading now, whoever wins the next federal election will have to deal with our all-time biggest national infrastructure debacle. NBN Co will soon owe the Government around $19 billion it’s in the process of drawing down. It will have to find more funding for the inevitable replacement of FTTN, which will increasingly be seen to be incapable of meeting the needs of most of us.

Nobody knows how much it will cost to rip out the copper network, but we’re talking many billions of dollars. According to Internet Australia, FTTN will need to be replaced within five to ten years, perhaps sooner if the level of customer complaints from those stuck with this inferior technology continues to rise.

Appearing recently at Senate Estimates, the Department of Communications and the Arts revealed that due to unbudgeted costs associated with remediation of the Telstra HFC network (25-year-old Pay TV cables) – the other dud technology included in Mr Turnbull’s so-called multi-technology mix (MTM) model – NBN Co will not be able to repay the loan by the due date. Indeed, it will need to borrow even more money just to complete the project in its current flawed state.

Things will only turn for the worse, as Mr Sims has warned, when 5G mobile hits the streets, creating a 400-pound gorilla competitor. 5G will make FTTN look like a Model T Ford racing a V8 Mustang.

Current communications minister, Senator Mitch Fifield, has understandably appeared less inclined of late to spruik the MTM model, which was introduced against the advice of all but a small coterie of people closely associated with Mr Turnbull. Sadly, a few too many of them are now on the board or working for NBN Co and are seemingly determined to go down with their sinking ship rather than ’fess up and tell their minister to man the lifeboats.

Right now, the best thing that could happen for Senator Fifield is for the ACCC to move quickly and recommend the end of FTTN in time for the Government to announce this before it heads to the polls.

For Opposition spokesperson Michelle Rowland, a clear indication from the ACCC would also be a blessing. While Labor has pretty much committed to dumping FTTN, doing so is not without its complexities — the most significant being the short-term impact on NBN Co’s finances.

The sad reality is that across the ditch where they continued to use fibre, the cost per premises has been gradually reduced by about 50 per cent as they’ve mastered more efficient deployment. Imagine the cost savings if NBN Co had followed suit.

There is little doubt that the sooner a move is made, the less the NBN will have cost us when the project is finally finished. When you add on the cost of replacing FTTN (whenever that happens) adopting the MTM model will end up having been more expensive than the original NBN would have been and far more costly than Mr Turnbull was told to expect for his inferior version.

So, how do we find a way out of this mess?

Sooner or later the government of the day is going to have to bite the bullet and instruct NBN Co to stop using FTTN.

Sooner or later the government of the day is going to have to take a massive hit by way of a write-down on the assets of NBN Co. That’s a simple fact of life. Otherwise, NBN Co will never be financially viable.

Reducing debt and associated interest payments is one of the few ways the company can introduce a wholesale pricing regime that quickly produces more reasonable subscriber fees – especially for the increasingly demanded high-speed tiers – while still delivering an acceptable profit margin for the RSPs (NBN resellers).

The wholesale pricing issue is a complex one. In the end it is a matter of supply and demand. The higher the wholesale cost, and therefore the retail price, the fewer people will subscribe to the higher yield products. NBN Co needs to maximise its margins as well as its total revenue. It’s a fine balancing act.

NBN Co has failed to secure the sort of revenues needed in the start-up phase. This is largely due to bad publicity (mostly self-inflicted) and a lack of interest on the part of potential customers who are reportedly delaying the switchover as long as possible.

Average revenue per user (ARPU) is currently below the NBN Co business plan projection and they recently conceded that they don’t think they will reach their target by 2022, which is two years after slated completion. That, of course, has direct revenue implications.

In the end there are few options on the table when it comes to the NBN — for either side.

For about three years now I’ve been calling for a bipartisan rethink. It would be in the best interest of both the Government and the Opposition to find an agreed path forward before the elections and to announce it jointly. That way, whoever wins will have a rescue plan in place — with the other side locked in to supporting them.

A bipartisan approach to fixing the NBN is a long shot. However, I’m fundamentally a believer in politics being the art of the possible. One can but try.

Laurie Patton was the founding CEO of TVS (Television Sydney) and is a former secretary of the Australian Community Television Alliance, successfully lobbying the government to secure digital licences and station funding. He has also held senior executive roles at the Seven Network. This article was originally published in The Lucky General on 24 October 2018 under the title 'ACCC begins search for light at the end of the NBN technology tunnel' and has been republished with permission.

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