Some history on the NBN debate

GRAHAME LYNCH COMMENTS:

Lots of historical revisionism on the NBN right now. One I keep seeing is that the Howard government is to blame for privatising Telstra without a plan for broadband investment. This is crazy: half of Telstra was privatised in 1997 and 1999 when there was no DSL yet, it didn’t release to the market until 2000. Blaming the government for not having a broadband plan in 1997 is simply not fair.

The other one I see is that the NBN was built because the privatised Telstra wouldn’t build a FTTN network. In 2005/6 it offered to build one, with prices that were regarded as radically high for the time, as they were a substantial increase on the low rates set by the ACCC for unbundled access to the Telstra local loop. The proposal ultimately foundered because Telstra said the ACCC wouldn’t let it charge a levy to subsidise its rural network, the ACCC said it wouldn’t do so because Telstra wasn’t proposing to build FTTN in rural areas. Interestingly such a levy has now been created for the NBN and it is valued at $7 per line per month. Telstra apparently sought something half that and anyhow, subsequently negotiated receipt of subsidies in the form of the USO equivalent to … you guessed it, $3 a month (about $300m annually across 8-9m lines).

Anyway in my old reading I came across an estimate from Citigroup from 2007 that Telstra could build out FTTN to 75% of the population and earn its investment back on $50 a month (the estimate wasn’t attempting to be generous to Telstra, it was an inferred criticism of its ambit claim for more). Which certainly suggests that NBN pricing on a network that is considerably more expensive because of its FTTH, wireless and satellite components might struggle on ARPUs of $43 a month. This is the heart of the problem. The ACCC effectively valued the Telstra CAN at under $20 billion and this is the building block on which wholesale and retail prices for DSL are set to this day. The various NBN proposals were “forecast” at $43-49 billion and of course we know the only way is up with these things. If you compulsorily replace something with something twice the cost and there is a substitute in the form of wireless (which is the case for the bottom half of internet users in terms of quotas, costs etc), something has to give. In this case it is the incentive for an RSP to sell you anything but the most basic product.

The fundamental cause of the whole NBN issue is simple. The ACCC underpriced access to the Telstra network, leading to a resistance from all quarters to meet the costs associated with a replacement. The NBN was the response and that in turn was infused with highly unrealistic expectations of what you could build (8m FTTH lines in 8 years for $43 billion) and even more unrealism about a willingness to pay for tariffs which inevitably have to rise to double or more. The industry is still in denial about this, handing out gongs to people who actually architected this policy as recently as this week.

Most people want nothing more than a steady 15-25Mbps connection. They are annoyed because even their modest 25Mbps connections are contended at 1:20, clearly not enough when a few others in the street are also streaming. The debate has, meanwhile, been hijacked by those who think 100-1000Mbps is necessary for all and have no concept of the costs required to achieve universal access to such a capability.