NBN faces new problems but executives paid bonusses

There is never a dull moment in the NBN saga, with the following happening over the last few weeks:

  • NBN executives paid themselves $77 million in bonuses;
  • construction staff went on strike as they missed out on proper payments and are also frustrated with the inefficiencies of the rollout activities;
  • NBN Co announced it will start to upgrade its very recently built Fibre to the Curb (FttC) network — this made me nearly fall of my chair; and
  • in its Budget, the Government did not mention the NBN while at the same time talked about the critical importance of the digital economy of which the NBN should be its backbone.

So let’s start unpacking some of this.

As mentioned, I was totally taken by surprise when I heard that the company would start upgrading its FttC network, which it only recently started to build. Let us be clear on this. People like me have been talking about this technology as basically as good as Fibre to the Home (FttH). I seem to have been caught in the same industry hype that I often warn about. Manufacturers and telecoms engineers have again hyped this up as, in practice, the technology is causing a lot of problems. As usual, not everywhere.

The whole Multi Technology Mix (MtM) as introduced by Malcolm Turnbull in 2013 is based on many elements (the mix) and each of these elements must be perfect to make the whole network function. Now consider the variance in quality of copper and old pay-TV cable, some of it 30 years or older; the nature of the Australian geography and climate (damages because of floods, bushfires, droughts and vermin) and the distances involved between premises, villages and homesteads.

There is a lot of elements that can go wrong in an MtM concept. That is why the original plan that I supported and assisted in was based on an end-to-end technology, a totally new FttH network, covering 96 per cent of the population.

From the very beginning, I have warned that the MtM would lead to disaster (I also personally mentioned this to Mr Turnbull). Unfortunately, he gathered around him a group of experts who all supported his policy and politics. The current Board of Directors of the NBN still reflect that situation.

It now looks like some of the copper cable used in FttC is causing problems as well as the actual equipment used in the FttC technology, such as modems. The problem is so serious that the company has decided to upgrade the FttC connections which are facing these problems with FttH. It will also continue and increase – what they already previously had announced – the number of overbuilds in the faltering FttN network.

So much for the phrase from FttH champion and former MP Tony Windsor: “do it right, do it once, do it with fibre”. The NBN in its current form will face problems until it is finally fully fibre-based, so expect many more articles from me on this disaster.

The caveat in relation to FttC upgrades is that the company will only do so where higher speed packages are bought which cannot be delivered by the existing FttN/FttC connection.

The total costs of the NBN are now reaching $70 billion, while Malcolm Turnbull mentioned his solution would be cheaper and faster for $29 billion. And there are no signs that the costs will stop here — to the contrary, other upgrades of poor NBN services because of the MtM policy that have already been announced are also running in the billions.

Poor management of Australia’s broadband network has resulted in a problem that the Government won’t fix and has left consumers paying for it.

The Government still does not want to take responsibility for the NBN problems and in its latest Budget, it again failed to address any of the issues. It is sloshing around hundreds of millions of dollars for the digital economy – and I think that is a good thing – but unless the infrastructure for the digital economy is fixed, those other investments will not reach their potential.

We have at lengths in previous articles mentioned the problems the retail service providers (RSPs) have with the terms and conditions under which they must buy their wholesale services from the monopolist. We have mentioned the many customers that are still totally frustrated with their NBN service. However, they are not the only ones suffering.

They are now joined by the contractors who walked of the job to protest the pyramid style contracting arrangements, which sometimes lead to three or four layers of contractors and subcontractors. The executives of each of these levels require their executive pay and their companies a profit. Pay for the contractors at the bottom of that pyramid gets squeezed, of course.

This pyramid system is a key reason why the rollout of the NBN in Australia remains one of the costliest in the world. The rollout costs per home remain as high as $4,400, while in other countries this gets as low as $2,500. We need to give the NBN company some slack as distances do play a role, as well. Nevertheless, the inefficiencies of the system operated by the NBN must be very considerable. With such a complex and inefficient contracting system, plus a booking system that both contractors and RSPs complain about being riddled with problems, it is hard not to conclude that this also leads to bad outcomes for customers. This is reflected in the fact that there are still so many complaints about the quality of the NBN.

Despite all these problems, complaints and budget overruns, the NBN executives paid themselves $77 million in bonuses. As a monopoly, the company can use its position to push through these costs as well as inefficiency costs to consumers through the RSPs.

So far, the ACCC has stepped away from looking into these issues, but as mentioned in a previous article, this might finally start to change.

Paul Budde

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