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No action from Morrison Government as NBN continues downward trend

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The future of the NBN looks grim with entrenched poor outcomes, increasing financial pressures and no solutions from the Morrison Government, writes Paul Budde.

OVER THE LAST WEEK, I had an interesting discussion on the NBN with several long-term colleagues. What triggered this discussion – we have had many more of them in the past – was the latest results from the Ookla fixed broadband speed rankings. The downward trend that we have seen now for the last decade continues. Australia is now positioned on the 67th place of these rankings.

We have seen NBN Co trying to interpret these figures differently in the past and while there is certainly room for discussion, the fact remains that Australia’s position keeps dropping. The defenders might argue about the exact position on that ranking list, but the trend keeps going down. Back in 2007, we were around position 25 on that list. The Rudd Government at the time argued that this was not good enough for a modern economy such as Australia, and announced it would aim to be in the top ten of that list.

According to Ookla, the current global average for fixed broadband speed is 73.6 Mb/s. So even if you forget about the individual country rankings, then Australia with 41.8 Mb/s is well below the global average.

The multi-technology mix

Some supporters of the current multi-technology mix (MTM) NBN claim that Australia could get a higher average if NBN Co would drop its prices so more people could afford the higher speeds. That is certainly true, the majority of the NBN users are on the fibre to the node network or on the wireless networks. The maximum average speeds of this mix of infrastructure will simply – for technical reasons – not be able to deliver a high enough level of speed to reach the global average.

We now even see supporters of the original multi-technology mix (MTM) infrastructure arguing that the Coalition Government should force NBN Co to lower the prices. In the original 2009 plan, it was envisaged that the company would over time lower the wholesale prices, which would open the way to also lower retail prices.

However with the enormous cost blow out of the MTM – $50 billion-plus instead of the $25 billion promised by the then Minister for Communication Malcolm Turnbull – it will be politically difficult for the Morrison Government to accept lower wholesale prices, This is because NBN Co could run into financial losses and this would than require a write-down of the NBN — paid for by the taxpayers, of course.

A study of broadband prices in 206 countries compiled by UK-based Cable.co.uk, has ranked Australia 113th — a drop from 74th position in 2018.

Even some of the original supporters are now suggesting stopping any further investment in the MTM, as that would only result in further losses in the future.

Apart from the cost blow out of the rollout, there are also the very high ongoing maintenance costs of the MTM. 

High maintenance cost

To give you just one small example out of the thousands from around the country, my son moved into a new house in the inner-city suburb of Graceville in Brisbane. He had problems with his HFC NBN connection. It was dropping in and out in an irrational way. For the first two weeks after moving in, he had no problems. Then the issues started. Many hours without a problem, then a full drop out or a drop out that a few minutes later reconnected itself.

It looked like an NBN network problem, but he couldn’t contact NBN Co and had to contact his retail provider, Optus. After some initial tests, Optus agreed it was an NBN issue and logged a fault. NBN tested the line remotely and, low and behold, no dropout at that time, so they cancelled the technician.

Optus then required him to keep a log. After 24 hours and some 14 dropouts, NBN agreed it needed looking into. Two days later, technicians came and replaced the NBN box, convinced a storm two weeks earlier had caused the issue. Not less than 24 hours later, the dropouts began again. Optus came again and this time changed the modem. No change. So NBN Co had to come again and this time investigated the problem a bit further. It appeared one of their staff had installed the wrong attenuator in the outside NBN box; they replaced this. However, a few days later, the dropouts continued at roughly three a day. Optus is doing a terrific job monitoring the situation but NBN Co has so far been unable to fix the problem and a new call has been placed — and so the saga continues.

This has now been going on for more than a month. Forget for the moment the frustration of the customer concerned and think about the costs to NBN Co and to Optus of this saga.

Ongoing decline

The key reason for Australia’s position, of course, is that other countries are improving but with the current MTM infrastructure, this means that we will drop further for at least the next three to five years, possibly to somewhere around 75.

It will cost Australia billions of dollars extra to lift the broadband game in Australia and reverse the ongoing decline. I can’t see that in the political climate this is going to happen any time soon. Just being able to fund the ongoing increase in costs to maintain the current MTM at some sort of an acceptable level will be a massive exercise.

This political disease of lack of vision and strategy is not just affecting broadband, it also affects our response to climate change and the total absence of a long-term energy strategy — just to name a few of the key issues we are facing as a nation.

While 5G will not have a major effect on the NBN, the fact that perhaps as much of a quarter of the population will use the mobile services for their broadband requirements will certainly hurt the bottom line of the company. As a response, we are seeing a massive assault by NBN Co on the corporate market — a market in which they are not supposed to operate as that creates unfair competition to the other players in this market.

On the other side, it will also be difficult for NBN Co to operate in the 5G infrastructure market. This requires a deep penetration of fibre optic networks, while the company is stuck for a large part with the old copper network.

Coming back to my earlier article on a national telecommunications emergency plan, the MTM infrastructure we now have is less reliant, requires more maintenance and is much more prone to national disasters. So from that perspective, also not a good outcome.

In its annual Communications Market Report, the ACCC has indicated that it is worried about the future of the NBN. With the rollout completion later this year, it sees risks of entrenching inferior outcomes. According to the regulator, limited network-based competition means NBN Co still operates with little competitive constraint.

Furthermore, it stated that in the latter half of 2020, NBN Co will transition towards a business-as-usual mode of operation as it winds down the nationwide network rollout. This brings specific risks of locking in poor market or consumer outcomes, especially for premises that are hard to connect or have performance issues, which mainly concerns FTTN premises. This situation will only become worse as the company will continue to encounter increasing financial pressures.

 

Paul Budde is managing director of Paul Budde Consulting, an independent telecommunications research and consultancy organisation. You can follow Paul on Twitter @PaulBudde.

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