While everybody is focusing on the engineering of the National Broadband Network and getting the most efficient technological mix of fibre, coaxial cable and (ahem) copper, there has been little debate about the competition implications of a switch away from Labor’s pure fibre-to-the-premise (FTTP) model.

The NBN Co’s strategic review, released yesterday, shows the existing corporate plan is unrealistic and the rollout is a mess, with total costs likely to blow out to $73 billion, completion pushed back to 2023-24 and the return on investment more likely to be 2.5% than 7%.

But the cost of the Coalition’s preferred hybrid NBN — with a mix of technologies (called hybrid fibre-coaxial, or HFC) and FTTP (e.g. greenfields developments), fibre-to-the-basement (apartment blocks) and fibre-to-the-node (FFTN, most everywhere else) — has also blown out from $29 billion to $41 billion. Most of us won’t get our promised fast broadband until 2019-20, and it sets store in unproven G.Fast technology to get faster speeds from copper by taking background noise out of the wire.

So the strategic review is a sensible reset of hopelessly over-optimistic expectations that had set in on both sides of politics.

The other great purpose of the NBN, of course, was to address the competitive flaw in the telecommunications industry, by establishing a wholesale-only infrastructure provider and decommissioning Telstra’s monopoly fixed-line network.  Telstra and other retailers would compete to provide services via the NBN’s fibre network. Until the NBN was announced, Telstra was effectively holding the government to ransom: blocking investment in fast broadband unless it could retain its monopoly.

The decision to build a wholesale-only NBN is now common ground:  the first thing Malcolm Turnbull did when he took over the communications portfolio in 2010 was to reverse the Coalition’s opposition to any structural separation of Telstra, in a victory over the “Minchinites”. The commitment remains; NBN is legally prevented from offering retail services, and Turnbull’s office insists a hybrid NBN will in fact finally achieve separation four years earlier than would have occurred under Labor.

But in the telco industry there are doubts, not explored in the strategic review, about whether such a hybrid NBN is as well-suited to a wholesale-only model. These are quite technical — for example, whether the DSL technology at the node cabinets is operated by NBN Co on a wholesale basis or whether the internet service providers (ISPs) have to invest in the equipment (meaning only the larger ISPs will do this and so reduce entry to new players).

The FTTN technology also only allows a household customer to use one ISP (assuming there is only one copper line for a premise), unlike the fibre-to-the-home, which allows for multiple ISPs. The strategic review has no discussion on how competition will be supported by the HFC network operations.

Then there are questions about whether a hybrid NBN, including copper, when it is eventually finished, will be as saleable to investors as a pure fibre FTTP network.

The government has invested some $15 billion in NBN Co already and has promised to its commitment will not exceed $29.5 billion. That money is allowed to be off-budget because it is capital invested in an expectation that there will be a return to the government, as required by the public sector accounting rules set down by the International Monetary Fund (IMF) here.

The IMF’s “Government Finance Statistics”, applied here by the Australian Bureau of Statistics, stipulate that government bodies must be intended to make a return to be classified as so-called “non-financial corporations”. Of course they don’t have to actually deliver a profit in any given year — they might make losses for two decades — but there must be an intention to profit.

If it was obvious that the government was calling an entity a business purely as a device, the ABS would challenge Treasury. That has never happened, says former finance department deputy secretary Stephen Bartos, executive director of ACIL Tasman, because in practice the agencies consult in advance.

There is no requirement that the entity be held for sale. Turnbull batted away questions about the eventual sale of the NBN at yesterday’s press conference, scoffing it would be a matter for Australia’s youngest federal MP, 23 year-old Coalition backbencher Wyatt Roy, when he becomes prime minister.

Roy had better start working on his pitch, because a part-copper network may be a tough sell.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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