There are no winners, only losers, out of the current debate over NBN’s pricing model. Now that the national broadband network is available to about half of all Australian premises, Labor’s chickens are coming home to roost for the Coalition government.
The Australian and The Australian Financial Review have run stories over the past few weeks about how users aren’t getting the download speeds on the NBN that they were promised — not because of the multi-technology mix model used by the current government, but because it is too expensive.
They’re right, but this is nothing new. Six years ago, the tech press — myself included — reported warnings from internet service providers that NBN Co’s pricing model would be an issue. It is now bearing fruit in masses of complaints from customers of slower speeds, with some complaints it is slower than an existing ADSL connection.
It is a complex issue to explain, but essentially NBN Co’s pricing model has two factors: the wholesale price charged to each premises, and then a bandwidth capacity charge for internet service providers to guarantee the promised speeds to each of its customers. A regulatory decision aimed at making it easier for smaller internet service providers to compete with the big ones in regional locations around Australia has had the effect of making the bandwidth charge incredibly expensive in order to meet both the speed and download demands of customers.
It means that internet service providers, rather than passing on higher internet costs to customers, are not buying enough capacity and users are finding that their speeds during peak hour (when everyone is home and streaming Netflix or Game of Thrones) aren’t as good as they had hoped.
The problem is, there isn’t a simple solution. The government can try to get the ACCC involved to force the internet service providers to guarantee certain speeds, but if that means buying more capacity, it will lead to significant price rises for broadband in Australia. When it comes time for people to switch over from ADSL to the NBN, those facing higher costs will just opt to disconnect or switch to mobile. If you think the fight over electricity prices is bad now, this will be much worse.
The other option is that NBN Co cuts the broadband charge, but then the delicate model of the NBN would tip over, and the commercial return for the NBN would disappear. The cost overrun would be made up in the federal budget, and the government would find itself in much more debt — even if it is, as Scott Morrison says, good debt.
The problem with the NBN, from the get-go, is that Labor tried to have it both ways. A fibre-to-the-premises network out to 93% of Australian premises is nation building, but, we were told at the time to try to depoliticise the issue, it would make a commercial return so it wouldn’t affect the federal budget bottom line. Labor now seeking to make political capital out of the issue it created is too cute by half, but Malcolm Turnbull has had almost four years to try and fix this looming crisis.
Part of Turnbull’s platform for changing the NBN model was that he warned that the structure of NBN pricing would lead to higher prices for broadband. His whole premise for shifting the NBN to a fibre-to-the-node network was that users weren’t willing to pay for higher speeds. Those higher speeds that were supposed to pay off the network. The problem was, he didn’t do anything to fix the problem of higher costs. He shifted to a model he claimed would be rolled out quicker and cheaper (but has now almost taken as long as Labor’s original plan and costs as much) but didn’t address the underlying cause of higher costs on the NBN, in order to prevent an NBN write-down.
A report in The Australian claiming that speeds would be even slower and prices even higher under the old Labor model was an interesting intervention. The report author is Ian Martin. According to his LinkedIn (but not disclosed in The Australian‘s story), he worked on the NBN Strategic Review, a now widely discredit document delivered in just six weeks that the government relied on in late 2013 to justify the shift from fibre-to-the-premises to the multi-technology mix model. That document heavily promoted the use of cable, much of which NBN Co is now abandoning, and said the network would be done by 2020.
It is a piece of fiction, in any case. We can’t go back in time and see what would have happened if the old model had been allowed to continue, and Labor has not announced its policy, but at the last election Labor did not promise a full return to the model that was running before 2013 because of all the disruption it would cause to construction contracts and getting people connected. So saying Labor’s version would be more expensive and slower is entirely hypothetical and like Malcolm Turnbull saying he could finish the roll-out of his version of the NBN by 2016.
At some point, a government is going to have to bite the bullet and decide: is the NBN a nation-building piece of infrastructure that should be on budget, or is it merely an asset to get done as quickly as possible and then flog off to cover the costs?
Unfortunately, while all this goes on, Australian broadband users are the losers.