news Shadow Communications Minister Malcolm Turnbull has strongly denied claims by Labor MPs that the Coalition’s rival National Broadband Network policy would see those in rural areas pay more to access NBN infrastructure, stating that the Coalition would maintain the so-called “cross-subsidy”.
In April the Coalition published its long-awaited rival NBN policy. The policy promises Australians download speeds of between 25Mbps and 100Mbps by the end of 2016 and 50Mbps to 100Mbps by the end of 2019, at a projected reduced total cost of $29.5 billion. Unlike Labor’s NBN project, it will make extensive use of fibre to the node technology (where fibre is rolled out to neighbourhood ‘nodes’ and much of the existing copper network is maintained), but will also utilise fibre to the premises, satellite and fixed wireless solutions in some areas. Like Labor’s own policy, a core feature of the policy is that every Australian will see some upgrade to their infrastructure.
Since the release of the policy, the Coalition has come under continued and sustained fire from Labor MPs, especially Communications Minister Stephen Conroy, with the policy’s critics slamming what many see as a lack of long-term vision in upgrading Australia’s communications infrastructure. One key criticism which has been levelled at the policy is the claim that it will abolish what is termed in financial terms the ‘cross-subsidy’, which sees access fees from users in metropolitan areas used to keep prices down in rural and regional areas.
This aspect of telecommunications policy effectively means that those living in rural areas would pay the same amount to access the NBN infrastructure, despite the fact that it costs significantly more to provide telecommunications services in rural areas, compared with those same services being delivered in major cities.
Currently, there are some government guarantees in place — such as the Universal Service Obligation regulations — in place to ensure that rural Australians are able to access basic telecommunications services. However, in many rural locations throughout Australia, retail ISPs such as iiNet have remained unwilling to invest in those areas due to the high cost of backbone links back to the cities, which are often operated under monopoly conditions by the nation’s largest telco Telstra. Some ISPs also maintain different price bands for rural and remote areas, compared with cheaper prices in major cities.
In a statement published late last week on his website, Turnbull pointed out that Labor MPs, election candidates and even independent MPs such as Tony Windsor, who prefer Labor’ NBN policy over the Coalition’s, had mentioned this cross-subsidy feature as a key point of differentiation between the policies.
“You will pay the same for an NBN service no matter where you live in Australia … Because what we put in place is a cross subsidy,” Conroy told ABC radio earlier this month. “People in Sydney, Melbourne and Brisbane pay a little bit more so that everybody around Australia pays the same price. And what Malcolm Turnbull and Tony Abbott have done is said, ‘we don’t believe in that — We will abolish the cross subsidy’.”
In a separate press conference in Sydney in early May, Conroy said: “Tony Abbott has said he will make sure that they end the cross-subsidy, end the single pricing that we have introduced, and that will mean people in regional and rural Australia will pay more than people in the suburbs and cities of Australia’s major towns.”
However, in reaction to these claims, Turnbull pointed out that the Coalition’s policy document (PDF)actually maintains the concept of a cross-subsidy, as it will see NBN Co set uniform national wholesale price caps. The policy document states:
“Any uniform national wholesale prices in an NBN Co undertaking accepted by the ACCC will become uniform national wholesale price caps for directly comparable products. Network operators including NBN Co could freely offer wholesale prices for products (or product elements) that are below this cap.”
Because of this feature of the policy, Turnbull stated, there would be “a very large subsidy” provided to rural and remote areas, and the cost of retail broadband plans would not reflect the actual cost of provisioning telecommunications infrastructure to those areas.
” … to create the impression that rural Internet users will somehow be ‘worse off’ under the Coalition is just wrong,” said Turnbull. They will not be paying any more than they would have under Labor’s plan – and because the Coalition will invest capital in the NBN more prudently, our modelling shows that the average user will be saving $300 a year by 2021 under our plan. So rural users will be paying much less under the Coalition in the medium to long term.”
“Senator Conroy should stop lying about the Coalition policy and apologise to rural users of the NBN for creating a false sense of alarm,” said Turnbull.
Hmm. To be honest, I’m not really sure where Labor has gotten this cross-subsidy claim from.
Sure, at a formal level, it appears as though the Coalition is not planning to adhere as rigidly to setting the same uniform pricing nationally as Labor would under its NBN policy. In addition, the Coalition’s policy on this issue does contain a vast amount less detail than Labor’s policy, and the Coalition’s view on this represents little more than a few paragraphs broadly promising to maintain uniform wholesale pricing caps and to drive down pricing on several key NBN wholesale products in the long term.
However, this doesn’t mean that there is no cross-subsidy aspect to the Coalition’s policy. There clearly is, in the sense that NBN Co will be directly deploying infrastructure and setting prices in rural and regional areas in a way that would be unsustainable without it being subsidised. The lower costs of deploying and operating infrastructure in city areas will clearly subsidise rural areas.
The main modification which the Coalition appears to have made reflects the fact that in some city areas, competition (such as through Telstra’s HFC cable network) may mean that it may make sense for NBN Co to cut prices to match other market offerings. Will this mean that some wholesale prices may be different in the cities compared with regional areas? Yes, but because the Coalition is applying caps in this area, it’s clear that this shouldn’t mean much in a practical sense. Those in rural areas are not going to get the raw end of the deal.
It seems pretty clear that one of the Coalition’s core aims with the deployment of its own NBN policy will be to reduce overall broadband pricing across the board. You can see this in the section of its policy mentioned by Turnbull, which mentions the fact that the Coalition would, in the absence of an existing agreement with the competition regulator, force NBN Co to reduce its “product element pricing” over the next 10 years to achieve “an inflation-adjusted fall of 10 percent” in the combined wholesale prices of two key NBN products — its entry level broadband product, and the most widely purchased bundled broadband and telephone package.
I’ve spoken to a spokesperson from the office of Communications Minister Stephen Conroy about this issue. It’s my belief that while Labor does have a point — the Coalition is going to modify the way NBN Co does national wholesale pricing and the way the cross-subsidy works — this point also doesn’t reflect the complexity of the debate here. Cross-subsidy will still take place under the Coalition’s rival policy — it just won’t look precisely the same as it does under Labor’s vision.
Note: The opinion/analysis section of this article was modified after publication to reflect a better understanding of the situation on the part of the writer.
Image credit: Office of Malcolm Turnbull