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Minister Fletcher’s first in-depth comments on the NBN.

Recently the Minister made his first more in-depth public comments on various aspects of the NBN.

The fact that the telecommunications industry had a sigh of relief when the new comms minister Paul Fletcher mentioned that the government would not sell the NBN to Telstra is an indication how low trust in politics has sunk in this country.

It has been made very clear in the NBN legislation from 2009 that the NBN is a wholesale only investment and that it can’t operate a retail business at the same time. Even though this is set in concrete within the legislation the industry over the last few years had become increasingly more anxious about a possible sale of the NBN to Telstra. The legislation also indicates that the government eventually will sell off the NBN, but the wholesale clause would still stand.

So for the time being it looks like the industry is safe on that issue. But we also know that legislation can be changed and the future of the NBN still remains shrouded in clouds. Furthermore, this privatisation process – whenever it happens – will most likely go over two government cycles so it will be a highly politicised event.

Shortly before the Minister provided the privatisation clarification, the Australian National Audit Office (ANAO) had criticised the Department of Communications about the uncertainties of the $19.5 billion loan from the government to nbn co. The ANAO is worried about the company’s capacity to fully service the loan. It stated that a lack of information regarding the monitoring of this loan and the possible consequences of a nbn co failure to service the loan would create a risk to the Commonwealth.

Of course, these worries need to be seen within the context of several reports questioning the financial viability of the NBN. Delivering, and an affordable high-speed broadband service, and providing a 6-7% rate of return has been seen by many as incompatible.

Despite these worries the Minister is toeing the political lines about the change in direction the Coalition took in 2013. He supports the fact that the Coalition abandoned a fully fibre solution for the fixed part of the NBN replacing this with the so called Multi Technology Mix (MTM) infrastructure. The latter providing a significantly lower service quality.

However, at this late stage of the project I fully agree that there is no other way forward than first completing the MTM as best as we can.

Increasingly this MTM will not be good enough to keep pace with the many new innovations that are taking place around the digital economy and the digital society. As an example of this, last week we mentioned the low network quality problems that makes watching video-entertainment services for some of the users a painful experience.

What this indicates is that more investments are needed to upgrade the NBN for it to keep pace with new digital developments. At the same time there is only so much that the average users are prepared to pay for their NBN service, this is around $50-$80 a month. nbn co is already struggling to get its return based on the current investment of $51 billion, imagine what happens if it must spend another $30 billion or so for the upgrade without any significant increase on that return. No wonder that ANAO is worried about the financial situation.

The Government and nbn co are looking at all sorts of ways of finding more money to prop up the what looks like shaky financial situation of the NBN. They have revived their old broadband tax proposal of $7.10 per month for users of NBN equivalent services (basically its competition). Labor has already more or less caved in so it looks like that this tax will now be introduced before the end of the year.

The reality of all of this is that the NBN remains a political football, which can be kicked in any direction depending on the political wind of that moment. Of course the government can make legislative changes that could allow an earlier sale of the NBN, it can wave certain restrictions regarding the nature of the wholesale-only element of the NBN, it could split up the NBN and as such create technology monopolies or geographic monopolies. Equally it could write of parts of the NBN which of course would vindicate the worries that the ANAO has.

Because of all the problems and the political nature of the project, whatever political solution is implemented this than needs to be checked against the commercial reality. What for example happens if say after the case of splitting up the NBN in individual infrastructure (fibre, HFC, copper, mobile, satellite) fiefdoms, these fiefdoms cannot survive on their own? The commercial reality of such a situation could be mergers and acquisition between the fiefdoms and consequently the NBN could end up as being just another (private) monopoly.

And while at this stage Telstra would not be allowed to gobble up the NBN, it could use a structurally separated entity Infraco to buy the company and again at a later stage – under commercial pressure – it could be forced to combine the infrastructure with the retail business again.

True none of this are outcomes that are set in concrete. However, with all the uncertainties and once again within the political nature of the NBN, any of these scenarios could potentially evolve.

Before the last election there was the hope that a new government would announce a full and holistic review of the telecoms industry. This would include:

  • the future of the NBN (including the consequences of its privatisation);
  • strengthening of competition;
  • the role of mobile – and in particular 5G (fixed-mobile conversion);
  • guarantees for universal access (access affordability) to the digital society and economy based on truly high-speed access services; and
  • National security and privacy issues.

It also interested to come back to suggestion Malcolm Turnbull made to President Trump. He argued that the West should build up their own telecoms capabilities in order to not being depending on China. And in the last few days it has become clear that the USA is indeed looking at its options here. What this indicates is that we are not just talking about commercial market driven developments but also with government interventions. It clearly is in our national interest to develop a holistic plan for the rapidly broadening telecoms industry that is shaping our economy, society and politics.

Paul Budde

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