A number of Australia’s most senior business and economics commentators have opened fire on Labor’s flagship National Broadband Network project, claiming NBN Co’s corporate plan released on Monday was based on flawed assumptions and demonstrated the project would wind back competition in the telecommunications sector.
University of Melbourne economics professor Joshua Gans claimed on his blog that the nation should be “outraged” by a clause in the NBN plan which states that if NBN Co did not sign a deal with Telstra to transfer the telco’s customers to the NBN and shut down its fixed broadband networks, then it was “likely” that one or both of the country’s HFC cable networks (the other one is owned by Optus) would be upgraded to allow speeds of up to 200Mbps in competition with the NBN.
“We should be outraged at this. More to the point the Australian Competition and Consumer Commission should be outraged with this. Where is Graeme Samuel on this?” demanded Gans, pointing out the clause constituted a “clear statement” that three broadband networks would change into two or even one as a result of the NBN rollout.
“This is as substantial a lessening of competition from an agreement that we can imagine,” he added. “And yet our independent competition regulator — whose independence is there because government business entities are subject to the Trade Practices Act — appears to have abdicated its role.”
Business Spectator columnist Stephen Bartholomeuz — one of the nation’s longest-standing and most respected business commentators — picked holes in NBN Co’s financial reasoning in several articles on the matter.
“If the actual NBN Co performance over the period 10 to 30 years out actually looks anything remotely like the business plan it would be a miracle and Mike Quigley would emerge as a 21st Century Nostradamus,” he wrote.
Veteran business journalist Matthew Stevens, who writes for the Australian, was even harsher on the NBN. “Love it or loathe it, the unavoidable fact is that the NBN business case is pretty miserable,” he wrote, bringing up many of the same points as Bartholomeuz in discussing the cost of capital required to build the NBN in relation to the company’s calculations on its financial return.
Communications Day publisher Grahame Lynch is more concerned about the real impact of NBN Co’s multifaceted pricing approach, which is a bit more complicated than the “$24 per month” headlines suggest. However, Lynch is also concerned about competition. “I suspect that while the NBN may achieve many things it will not make a thousand competitors bloom,” he writes.
However, not everyone was as negative about the NBN’s prospects, with Business Spectator columnist Alan Kohler leading the case for the affirmative in several columns on the matter. He wrote yesterday:
“Not only will the NBN not be a white elephant it will almost certainly prove to be a great investment. In fact, without wishing to get carried away (too late do you think?) it could represent, on its own, a huge national savings plan. When it’s finished the asset will be worth several times the government’s investment of $27.5 billion.”
What do you think of the NBN: White elephant or glorious march to the future? Post your comments below this article.
Image credit: Tim Reeve, royalty free
The bottom line is that whatever “result” the business plan, there was always going to be those who didn’t believe in it, no matter what it said.
Malcolm Turnbull – (in cahoots with Tony Abbott) – despite ferociously demanding access to the business plan and/or a cost benefits analysis, famous stated that it wouldn’t matter what was in it, they wouldn’t support it anyway!
If Telstra can make a shed load of revenue selling fixed line services, there’s no reason NBN can’t doing the same thing.
Telstra don’t make a ‘shed load of revenue’ from selling fixed line services, revenue and the customer base of that product sector is falling rapidly if you care to read the Telstra financial reports of the last 10 years.
The reason they are losing fixed line customers is mainly mobiles with capped plans and wireless BB, this is the scenario of the future the NBN rollout is facing.
The main basis behind the NBN uptake is that 70% of residences that it passes take a broadband service, not just a so called ‘free’ connection under opt -out or opt in but sign up with a ISP for a active retail BB service.
To quote a well worn phrase from that Oz movie – “tell them they’re dreaming”.
Though I give my full support to NBN , it is a great visionary idea but I have many concerns the way it is being implemented
The revised Business Plan of NBN have many flaws, particularly
• some of the assumptions in the business plan(e.g.: 7% ROI)
• Yet sign deal with Telstra
• lessoning competition leading towards a monopoly in BB services
• possibility of raising the required private capital
• ensuring the uniform pricing
Though it may appear to be creating an ‘uncompetitive’ market, this is simply not the case. There is no real competition in the market at this point in time. You have Telstra’s assets and to a lesser extent you have Optus in specific areas.
Therefore two carriers, only in specific areas does, not demonstrate competition in my opinion. Where competition is demonstrated is in the retail sector, which is heavily regulated by the ACCC.
Competition has failed to drive any new investment in the market, apart from the likes of Simon Hackett and his companies Agile & Internode. Had it not been for Simon there would be no ADSL2+ services in Australia. But apart from Simon and his push to implement ADSL2+ in Australia the industry has become all but stagnant in terms of innovation and the delivery of faster and more exciting services.
Personally I’m glad that we are moving from one monopoly to another, as the new monopoly is owned by the Government (us taxpayers) with the ACCC still monitoring and regulating the industry.
We are all going to greatly benefit from this investment, after all the minimum speeds being offered are 12Mbps. I only wish that I could get 12Mbps now, but that is never going to happen as well as being virtually future-proof with the copper network.
It may seem uncompetitive, but where the competition will lie is in the retail sector and the services that they will provide. The RSP’s will make their money and become competitive with the additional services that they can offer, such as bundled telephone services, IPTV, web-hosting, cloud services etc.
We will get to see how weird and wonderful the retail providers will become to get our business and it will be exciting to see what they will do to stand out from the rest.
So no, the NBN will not be ‘uncompetitive’ rather it will be excitingly competitive and interesting to see where the industry heads.
The fact that Joshua Gans hampering HFC, means that he doesn’t really care about the economics of the NBN.
HFC is and never will be protected and wholesaled throughout Australia.
Singo79 Nice notion that to think that the government monopolising the NBN being in ‘safe hands’ with all the competition occuring in the retail sector.
Just because the government is ‘looking after tax-payers investment’ is no guarantee they will not screw it up. Governments don’t do business well and a monopoly is a monopoly no matter how it is dressed up. In the access to the network, they can charge what they like and squander and mis-manage the business. They do this very well – look at their in-roading into BER, Insulation, etc. Nothing has been done right.
The best approach is to put a frame-work out there that is investor-friendly which includes a USO to protect remote users. Furthermore it is nonsense to dis-connect the exsting telephone network when it carries acceptable internet speeds to many of us (myself included).
Your argument on the surface sounds good, but in the end against the backdrop of history and what we know about what governments can and cannot do well, it just does not stack up.
Ian P,
Monopoly on a different level, Your dressing this up thinking NBNCo is exactly like Telstra, when it’s completely NOT.
And then your comparing with BER, Insulation and so on.
Have you actually read the reports on those? On top of this, most of those issues were done at private sector level, nothing to do with the Government or it’s Policy.
Safety issues, Cost blow outs, when contractors sign up to Gov projects they should respect tax payers $$$ and do the job properly.
Business and economics “commentators” can pan it all they want, but anyone who actually has to run a business will welcome the insanely better deal they will be getting from the NBN when compared to current costs and availability.
Quoting the Australian is an automatic fail as well, their anti NBN ravings are the stuff of legend.
It is a real pity that the government is committed to the compulsory closing down of the copper network, compulsory shutting down of the HFC networks, and forcing up the price of wireless in an attempt to make the NBN monopoly more profitable.
I would have thought that everybody would have learned by now that monopolies have never done Australia much good – yet here we have a government which is determined to create yet another. It is like everybody hates Telstra so let’s create another Telstra.
A better policy would have fibre rolled out where there is a dire need, and also where there is high demand. And in the short term those with adequate 20Mbps ADSL2+ can probably survive a few more years without fibre. Otherwise the government is going to end up with another Aussat on its hands.
If the fibre network is worth building at taxpayer expense, it should have no trouble competing against the present copper and HFC networks. I mean its 100mbps, oh wait, 1gbps… we all need that, right? The idea of shutting down the copper network force people onto fibre is ridiculous. Ultimately, competition breeds a better product, and competition between copper, fibre, HFC, and wireless will bring a higher quality product at lower prices to consumers. If the NBN is not good enough for people to join of their own free will, then it is not worth building.
All I see the government doing is making another Telstra, rather than fixing the one they’ve already got. Given this government’s track record, I unfortunately would not believe their business plan either. The $7 million Sydney opera house ended up costing $102 million. The costs will surely balloon here as well.
If Senator Conroy can deliver the national fibre roll-out successfully he will be the greatest builder in Australia’s history. This project is enormous with severe potential problems for the ALP should it falter and will probably be the critical issue at the next election. We certainly do live in interesting times.
Need to take the prejudice and emotion out of the discussion. Realistically anyone mentioning the phrasing of Telstra in amongst the analysis of the plan and trying to justify the plan based upon personal experience or emotion to/against Telstra are simply not even viewing the plan in the right light.
This is a monopoly as spelt out in the plan. No competition can exist. This is a bad situation and leads to higher prices as there is no ability for the market to regulate itself. Even with 3 or 4 players thats not possible (re. banks). So the support for NBN Co is for a monopolistic regime for Telecommunications in Australia with no Access network competition. As long as everyone is aware of that when prices are not as desired, when people disconnect from the net instead of connecting to it due the price, leading to increased prices for those that remain, then thats fine. We certainly will not see anyone complaining about prices shall we…everyone will be happy to pay whatever NBN Co mandates…..
Telstra doesn’t want to maintain its copper network and is happy to take the $11 billion.
Only a tiny percentage of ADSL2 users get anywhere near 20Mbps (those that can see the phone exchange from their window typically).
Only a tiny percentage of people are on the HFC cable networks, so for most this is not a valid option / alternative.
I am lucky that I am on HFC and I enjoy 30+ MBps, but I pay a premium for this to Telstra as Bigpond is not cheap if you want a dedent quota (I could only get 4Mbps on ADSL2).
It looks like wireless internet will be the only competition to the NBN fibre in the long term.
Still, I think most people will be on the NBN for their home internet, especially as the connection will be there for other purposes like home phone, pay tv, video-conferencing etc.
I do believe we can undercut the mongrels with a better product and a better price. Anyway, I will enjoy irritating them. :)
I can’t help but notice the common theme of “NBN is a monopoly, we’re going backwards”.
There’s a lack of leveled competition within wholesale services at this time.
HFC (both Optus and Telstra) is, like competitor built ADSL2+ services, infrastructure based competition. So the typical comment seems to be when we have less of that, zOMG panic. Which is true, to a point.
But, such comments continually miss the single biggest aspect to the industry that the NBN will turn on it’s head. Wholesale based competition.
The only reason physical infrastructure based competition exists, at all, comes down to a recalcitriant dominant market infrastructure owner whom has a history of maximising returns at (almost) any cost to the consumer.
If you can offer a service via a wholesaler cheaper than you can actually build it, or certainly at an equivelent price, then self-investing in infrastructure looks less enticing. If the wholesaler also doesn’t try to crush innovation and instead uses it to make the offering more tempting, then the need to re-invent the wheel is diminished.
Thanks to a regulatory body that swings wildly from being alseep at the wheel to fascist dictator (that comes out swinging a day late, a dollar short and a slightly obvious drunken slur) there has been no real pressure on Telstra to do anything other than maximise returns for investors.
When the ‘cost’ of anti-competitive behaviour is a slap on thw wrist, it’s good business to just get slapped on the wrist.
The NBN, however, whilst needing to turn a dollar, is specifically in the business of maximising wholesale returns, not retail. There’s no virtically integrated structure that bolts wholesale on as an after-thought. The NBN will do better, the more wholesale customers it can get.
It’s challenge is to gain customers, not simply extort the existing consumer base. It can’t pull the same model as Telstra, it’s simply not in the position to do so.
Monopolies aren’t ideal. But when you have a choice between inaction, a retail+wholesale monopoly or a wholesale-only monopoly, the last option is going to be the best for the consumer.
And that seems to be easily forgotten in the haste to bang the “monopoly” drum.
Your comments Brendan about the so called ‘wholesale competition’ under the NBN fall well short of the mark, because you omit to state that there is wholesale BB competition today and unlike the NBN Co they are from different suppliers, the main contenders of course being Telstra, Optus and iiNet and others.
ISP’s can choose from any of the above for wholesale ADSL BB or as many do combine them to provide a broad range of plans including Naked DSL.
As a point Naked DSL is a product that not even BigPond or Telstra Wholesale offers, and Naked DSL is available from a number of wholesalers, but once again you omit to state that in your zeal to paint the NBN Co wholesale monopoly as a ‘better’ monopoly than Telstra because it err um just will be – trust me eh?
The Government owned NBN Co monopoly is even more onerous than Telstra in that Conroy will and has done introduce legislation to ensure fixed line competitors are eliminated, so that the NBN rollout is seen as what you might call a ‘compulsory success’.
The first phase of this is to give Telstra and Optus billions for their HFC customer base and ensuring it is shut down.
First indications of NBN RETAIL pricing is that consumers will be paying more than they pay for ADSL plans today!
NBN Co the benign friendly monopoly – dream on!
Well put Brendan.
I guess if there was (non-government) competition at the infrastructure and wholesale level, the fibre would simply never get laid out to the less populated areas – since they would not be considered profitable.
Some things NEED to be a monopoly. Should we have 2 rail systems? 2 Electricity grids? 2 water networks?
The cherry-picking of the cities needs to stop so that the cross subsidising of the rural areas can be done more cost effectively. This is why the closure of the HFC networks is allowable by the ACCC. They have common sense, unlike some of the “lets oppose for Opposition’s sake” comments we are seeing.
The closure of the HFC has nothing to do with the ACCC, it’s purely a commercial contract where billions of your taxpayer dollars are being handed over to Telstra and Optus to shut it down and handover the HFC clients to the NBN Co.
“If we cannot get customers voluntarily we will buy them in” should be the NBN Co’s mantra!
Overhead fibre optic cable has a life span of 25 years. In 2035 we will have to start rebuilding the NBN.
The whole “this monopoly is better than the last monopoly” is a load of horsecrap…
The regulators (and ergo the government, both parties) have neglected for a long time to do anything about Telstra. What makes you think they’ll do anything to reign in such behaviour when it does occur at NBNco? And it will. We already see scope creep and invasion of other markets (the attempt to reduce down to 14 POI’s cutting out a large amount of existing competitive backhaul for example).
Fortunately, the ACCC was good enough to slap that down, but all you faithful sheep need to wake up. The Aus government created Telstra then privatised it. The Aus government is creating NBNco and intends to privatise it. This leopard doesn’t change it’s spots. To believe otherwise is naive in the extreme.
Monopoly is NEVER a good idea. When it is a monopoly created by regulation to ban competitors it is outrageous. There is no problem with the NBN Co. building a network to challenge present operators that is good and can only benefit consumers but any persons who wish to invest their money to give the public freedom of choice is to be encouraged.
If a business decided to build a second electricity grid, a second highway or a second water supply operation good, in fact excellent, and it will only succeed if it delivers satisfactory services to the people. The NBN Co. being a protected monopoly, Government funded, could be the start of a Government plan to remove all competitors from Wholesale and in time Retail in the Industry.
Why compare NBN to post pravastatin Telstra when it is a publicly owned entity.
Telstra profits get payed out and benefit only the shareholders and directors of the company.
NBN profits will get invested in the network.
Remember Pre privatisation Telstra(Telecom) Australia had one of the best communication networks in the world, NBN will get us back to that position, which will be a huge boost to the tech sector. When we are exporting manufacturing off shore we need more than mining to keep this country going strong.
Matthew obviously you do not intend to consider to facts of Telstra and the NBN with honest observation.
The Australian people were paid 60 billion dollars when Telstra was privatised. The one million three hundred thousand Australians who own Telstra spend the billions of dollars paid as Telstra dividends to the benefit of Australia. The NBN Co will spend 43 billion dollars (and probably a lot more) of taxpayer money to return a very small cash dividend for Australians.
It could be argued that the faster broadband etc will be a great boost for the Australian economy and on that one we must wait and see. I do not think any objection could be made if the NBN Co was to build their planned network but to ban competition which may provide cheaper services to the Australian public is to be condemned.
Let me guess, you’re a Telstra shareholder?
Honest observation would acknowledge that the taxpayer component of the NBN is actually $28 billion, NOT $43 billion “and probably a lot more”.
Honest observation would acknowledge that the NBN will create a truly Australian owned asset worth far more than what it cost.
Honest observation would acknowledge that the NBN is following a proven successful model of which Telstra itself is a precedent.
Unlike what many want us to believe, the NBN is a conservative, logical and financially sensible project. In 15 years time nobody will even question the value of the NBN. That is unless the array of monopolist funded opposition manages to derail the project at which point we will be lamenting the lost opportunity.
Ridiculous. The NBN will provide an independent wholesaler that can provide equitable competition among retailers. Currently Telstra both act as a retailer and wholesaler on which other companies are dependent, which allows them to restrict competition, unfairly manipulate the market to maintain excessively high charges or require overpriced parallel phone services. Telstra’s monopoly position also allows them to delay infrastructure and technology improvements which creates further overhead for Australian businesses.
The NBN will lead to increased retail competition, and massively reduced costs to businesses and consumers.
Les we must wait and see if you are correct. The proof of the pudding will be if all ISP’s are happier with the NBN than they were with Telstra.
And why would they be less happy? ISP dissatisfaction with Telstra is well established. There’s far more reason to believe they’ll be happier with an even competitive playing field than what they currently endure.
NBN is needed. The business plan is irrelevant.
NDN will not be COMPLETED for years, and the take-up will take longer.
The governmant launched this, because no-one else would or could.
If this creates a monoply for a while, so be it – Telstra was a monoply once too.
and if Telstra is diminished by this, so be it – the price you pay for years of under-performing and failure to think ahead.
20 years ago, people would have said ADSL was unnecessary, let alone ADSL 2+
Read both sides of the story, and think ahead – something I wish more politicians would do – it was politics, not forethought, that made this a messy implementation.
Baldor, Australia needs a super fast train from service from Brisbane to Melbourne. Australia needs a super highway from Cairns to Perth. Australia needs funding for the poor, and the sick need vast improvements in the hospital system. Do you know that there are Australians who desperately need lifesaving medication that the Government can’t provide because of costs? What makes you think that the proposed NBN should be positioned before these desperate needs? A Rolls Royce motor car would be nice for every Australian also but please lets get our priorities right.
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