NBN facing consequences of poor political decisions

Problems plaguing the NBN stem from years of Coalition incompetence and the repercussions are stalling its progress. Paul Budde reports.

NBN CO announced that it will have to lay off 500 people in order to lower its costs as it is facing increased competitive pressure from the other players in the market.

It looks to me that NBN Co was forced to realise that by following the political winds and going ahead with the Multi Technology Mix (MTM) model, it is now paying the price as reality is hitting it. It did make those decisions with its eyes wide open as a decade ago, senior telecoms engineers and others had warned against taking this convoluted and inferior approach.

They could have mentioned to their political overlords that this approach would lead to higher costs, poorer results and a much longer period to finally get this right (as we now know more towards 2030).

As National Party MP Tony Windsor put it back in 2010: “Do it once, do it right, do it with fibre.”

NBN progress moving at snail's pace

The latest ACCC report has revealed a flattening of the residential broadband market in the December 2022 quarter.

Because the MTM was a political decision, there was always the risk that another government would no longer accept the inferior outcomes of it and as a result, would also no longer support the financial consequences of that outcome.

Over the last decade, those who made the MTM decisions didn’t want to backflip and for political reasons kept supporting them. As we have seen for many years, the services are not up to scratch and on top of that there is the high cost involved in the convoluted politically motivated infrastructure process.

Making up the balance of the situation in 2023:

Significant underperformance in several areas of the NBN, opening the market wide open for competitors to use clever ways to offer alternatives through mobile, wireless and fixed broadband solutions.
The company has belatedly decided that the MTM model needs to be replaced with a proper fibre solution, which means ongoing new investments in the NBN (and more costs).
A new Government that has indicated it is not supporting the NBN to take the extra costs into its pricing models. For the time being, those billions of dollars in debt have been pushed forward in the hope that better times might solve that issue (which they won't).
A regulator that is also on its back as it is reviewing its wholesale prices and conditions, again with the same aim to limit NBN Co to charge prices that are unrealistic as consumers are only prepared to pay so much for a broadband service.
NBN Co has failed to convince the regulator and the Government to limit competition to their operation (a classic example of dominant behaviour).

NBN Co now understands that the other avenues it tried to pursue (limit competition, increase prices and so on) is not going to work so it decided that the next step is cutting costs.

Problems are mounting as NBN Co struggles to stay competitive

Australia's NBN provider is facing tough times ahead, needing to provide better services at affordable prices in order to stay competitive.

This in itself is interesting as we have seen a similar approach, over more than a decade, in the international telecommunications industry. The only way for incumbent telcos and their duopoly or triopoly competitors to still create a positive financial outcome is to cut costs and fortunately for them, the technology is assisting them. 5G, cloud computing, robotisation and AI make it possible to deliver more capacity and better services at lower (operational) costs.

The reality is that NBN Co will most likely never be able to have the 90-95 per cent residential customer utilisation as was envisaged when the NBN as an all fibre-to-the-home network was introduced in the mid-to-late '00s.

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. As a result of the MTM 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.

While this will never be a threat to the whole NBN network, it will affect up to 30 per cent of the Australian residential broadband market. But that creates a significant hole in the NBN Co business plan.

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

This story will most certainly not end here. There will be more pain for the company as well as for the Government as they will be the parties that will have to pay for the wrong decisions made in the past.

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.