Politics Analysis

Minister asks NBN Co to withdraw its proposal for price increases

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Communications Minister Michelle Rowland has released a statement of intention to regulate NBN pricing (Screenshot via YouTube)

The new Labor Government has decided to intervene in the affairs of NBN Co and has requested the company to withdraw its Special Access Undertaking (SAU) variation.

As I have mentioned before, the only way to stop the rot is for the Government to intervene and address the financial situation of the NBN. This should result in a structural change to the NBN business model that allows it to truly become a national asset for all Australians, not just those who can afford it.

I am not sure if the withdrawal of the SAU will actually be enough, but at least it is a good first step. Over the last decade, NBN Co has started to show monopolistic behaviour and any changes would also mean cultural changes within the organisation.

In a statement, Communications Minister Michelle Rowland mentioned:

‘...the SAU variation lodged in March 2022 under the former Government would have allowed NBN price increases of inflation plus 3% a year on some products. This was underpinned by unrealistic revenue expectations and reflected a view to privatisation.’

The fact that the Finance Minister also signed the statement is for me an indication that the financial strategy/policy will be adjusted over the next six to 12 months. This would take the pressure off NBN Co to increase prices and perhaps could even result in a lowering of the prices for true high-speed services.

The latter is for me the key issue — going forwards, all Australians need good quality high-speed services, not a low-cost crappy service.

The Minister also hinted at potential changes to the way the company financially operates, with the possibility to remove or change some of the financial burdens put on the company by the previous government. Under its regime, the company has seen increased losses accumulating to $3.8 billion, which the previous government wanted NBN Co to recoup.

A significant proportion of these losses is a direct result of the political decisions made by the Coalition and don’t reflect the true costs if the network had been built without the interference of party politics. The only way for NBN Co to recoup these extra losses would be through significant price increases; see below. Those losses are, however, not going away with the stroke of a wand and this will complicate any changes to the current complex situation.

The changes that need to happen will also affect the shareholders and obviously, that needs to be considered. However, at the same time, the company has made its investment decisions based on what has always been clear — a politically motivated and therefore unsustainable business model and it took that risk at its own peril.

The fact that NBN Co immediately accepted the request and withdrew its SAU also indicates to me that over the last month there have been good discussions taking place, behind closed doors. This collaborative approach is a good omen for the discussions going forwards with the Government, the NBN company, the regulator and the industry.

While this intervention was expected/hoped for from this new Government, it also follows heavy lobbying from the industry. They combined forces in March when the Australian Competition and Consumer Commission (ACCC) announced its review of future regulations of the NBN and they have all since that time become more and more vocal about the disastrous state of affairs of the NBN.

Let’s go back to why in the first place we decided to develop the NBN.

First of all, the market situation in the early '00s was a monopolistic Telstra that basically didn’t want to cooperate with government policies to build a high-quality affordable NBN. This was the reason why it bypassed Telstra and established NBN Co.

I stood at the cradle of the NBN and I assisted the Government of the day in developing policies for a nationwide NBN. I argued that the Government should look at the national social and economic benefits of such a national infrastructure in a world that was very rapidly digitising. It agreed with that and saw the NBN as a nation-building policy.

While obviously – also at that time – government politics were never far away from their minds, in general, we were able to come up with a good policy that resulted in the strategy to build a wholesale-based NBN based on 96% fibre optic infrastructure.

Of course, if that plan was not torpedoed by the incoming Coalition Government in 2013, we also would have come across problems and adjustments and even backflips. But the overall long-term policy and strategy was sound. None of the large industry players had a problem with that — to the contrary, they all supported a national fibre-based NBN.

We are now seeing the results of not doing it properly in the first place, or as Tony Windsor MP said in 2016: “Do it once, do it right, do it with fibre.”

With the Government’s intervention, it is clear that we have wasted close to a decade of creating a fit-for-purpose national high-speed broadband network for all Australians.

Telstra has recently come out with a report that shows what would happen if we continued with the previous regime. It indicates that NBN Co’s pricing threatens to damage Australia’s digital economy and would lead to wholesale price increases of up to 20% as stated in its submission to the ACCC.

It will become a network only for those who can afford it. In order to avoid the high prices of the NBN, customers are already reverting to other services, such as mobile and fixed wireless. However, those technologies are less efficient and not in the interest of the users.

The company argues that customers will be generally much worse off under the NBN Co proposal from March, with ongoing price increases. With customers needing basic connectivity, vulnerable customers or those with low spending are at risk of the most harm. These customers simply can’t afford to get access to quality high-speed NBN services.

Once disconnected from the old copper-based telecoms network, 25% of the people refuse to migrate to the NBN. Another large number only can afford to subscribe to the basic broadband service, which doesn’t provide them with the full benefits of a high-speed network. This undermines both social and economic policies in our rapidly digitised world.

The effect of this is that in order to recoup the enormous debts, with a lower number of users and a large number taking up only the lowest cost subscriptions, the company’s financial situation worsens and as a result, it wanted to increase prices. This downward spiral makes the situation worse as more people will be unable to afford the NBN and more people will only be able to use the lowest subscription service.

With the Government now having pressed the reset button and with its policy of collaboration, it hopes to find a solution that will work for all Australians. If it fails to do so, the end result will be more losses for NBN Co as more people can’t afford it. The NBN becomes a white elephant as it will be underused. That would not be a great outcome.

In the end, this will point to a solution that will include a write-off of some of the losses. This will be a bitter political pill to swallow.

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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