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NBN Co’s gain is the retailer’s loss

However, as we have heard now for over a year, this has been at the costs of the margins of the retail service providers. NBN Co’s high wholesale prices have squeezed margins for some of them to close to 10%. Companies such as Telstra were used to margins of 30-40%. Without any wholesale infrastructure competition, NBN Co can simply force these players through its monopolistic system to pay higher prices. As we all know, in this way monopolies can be used to print money — there is no escape.

NBN Co has made its maiden profit and obviously, the company was very pleased with this achievement, since some of it was due to lesser payments to Telstra and Optus and some changes in accounting standards. Also, in order to properly measure the jubilations, it is good to remind ourselves that over the years, the bar for the revenue targets has been lowered several times. So the target that has now been crossed is significantly lower than the original projections. Nevertheless, let’s congratulate the company with this achievement.

So it is not coming as a surprise that Telstra’s shocking results of a nearly 40% slide in net profit and a nearly 4% slide in revenues for FY2019 are blamed on the actions of NBN Co.

Let’s have look at some of the underlying reasons for all of these developments.

We have heard a lot about the fact that the NBN is often classified as second-rate. Obviously, an important reason is that when the NBN was launched in 2009, we were promised a full fibre optic network and everything less can’t, of course, be as good.

But there are also other measurements that we can use to make judgements about the quality of the NBN.

In a previous article, I crossed swords with the founder of PIPE Networks, Steve Baxter. However, this time we are on the same side of the argument when he told the recent Conservative Political Action Conference (CPAC) in Sydney that the NBN – in comparison with overseas networks – is slow, that it is costing too much and that it in its current format is undermining competition. Yes, you are right, you did hear this correctly — this time it was the ultra-conservative Government supporters who booed the NBN. This has, as far as I know, never happened before.

Steve mentioned that this development is rather counterintuitive as the NBN costs more, but, at the same time, the speeds that you are getting are lower than in most comparable economies.

In its ACCC submission, Vodafone’s Matthew Lobb came to a similar conclusion. He stated that it is hard to believe that after spending $50 billion the company offers its basic service at the speed of a meagre 12 Mb/s. While this might have sounded acceptable a decade ago when the NBN was launched, at today’s standard you can hardly call this a broadband service anymore.

This roughly happened at the same time as the Government’s own Infrastructure Australia criticised the NBN as one of the weakest elements of Australia’s infrastructure projects because of its high costs and low speeds.

And all still in the same week, NBN Co CEO Stephen Rue lamented the industry criticism and mentioned that NBN Co needs strong revenue streams.

I think we are now getting to the core. The NBN is costing far too much for the quality it is delivering, the revenues are now needed for both paying for those extraordinary high costs and, on the top of that, for the next level of investments needed to bring the NBN up to global standards.

NBN Co, being a monopoly, tries to get customers to pay as much as possible for their NBN service in order to create these revenues. It looks like the way they think is “let’s start with a really crappy service so people will be forced to spend more for a real broadband service”. The problem is that the low entry service is already expensive in comparison to international products based on what you get for it.

Paul Budde

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