14 Dec The clouds aren’t parting just yet for NBN Co | Light Reading
With the completion of its national rollout and big plans to expand its fiber network, you could be forgiven for thinking the skies were clearing for Australia’s NBN.
But its outlook is clouded by a new set of problems.
The government-owned wholesale provider has all but finished its initial rollout and is ready to move onto its A$3.5 billion (US$2.6 billion) second phase.
At June 30, the NBN had reached 11.7 million premises, of which 7.3 million had signed up for retail connections. The company forecasts this will increase to 12.5 million premises and 9 million connections by 2024.
Despite the growing network reach, the wholesaler’s financial challenges aren’t easing.
It has just had to cut its prices under pressure from the retail ISPs and the regulator, the ACCC. It has introduced new prices and service arrangements for retail providers, including stronger SLAs for performance and rebates for missed installation appointments.
More price cuts could be on the way, the ACCC warns. In its just-published annual review, it says “further adjustments to NBN access arrangements” are likely so taxpayers can benefit from the significant public investment in the network.
Then there’s 5G. The ACCC acknowledges that the 5G rollout “brings the potential for greater competition with fixed line services.”
But it also notes that prices for NBN and mobile broadband are moving in different directions.
In the past year, fixed-line NBN prices have increased 6.1% for entry-level and 1.2% for mid-range plans; by comparison, entry-level mobile prices have fallen 3.6% while mid-range prices have been steady.
Telstra chairman John Mullen has suggested that up to 30% of the NBN customer base could be vulnerable to 5G disruption.
Telstra waded into the 5G home market in October, offering download speeds of between 50 Mbit/s and 300 Mbit/s. NBN’s standard plan tops out at 100 Mbit/s.
Rival Optus has already been running a 5G FWA service for a year, achieving typical download speeds of 200-250 Mbit/s.
Not only are these services delivering better performance, but they are also priced to take advantage of the NBN’s pricing vulnerability.
Because of the need to cross-subsidize the less economic areas of the country, NBN’s wholesale prices are high and retail margins are thin.
That has created a problem over the NBN Co’s underlying value a topic sure to get increasing attention now that the company has completed its prime rollout.
Australia’s Parliamentary Budget Office estimates the saleable value of NBN Co is just A$8.7 billion ($6.6 billion) less than a third of the federal government’s A$29.5 billion ($22.2 billion) equity investment.
The ACCC, S&P and JP Morgan have all urged the government to write down NBN Co’s value so it can reduce its wholesale prices. But that means an economic loss for the government, not to mention a political price.
So, more clouds ahead for NBN Co.
Robert Clark, contributing editor, special to Light Reading