Telecoms & Broadband Business Newsletter - September 2013

Editorial - Do we need an NBN cost audit?

There have been some heated debates about the costs related to the NBN. From the telecoms industry perspective the argument is that the current wholesale arrangements are making these costs unnecessarily high, and significant cost savings could be made if some of that complexity were to be removed.

There is certainly a good case for this. However, as BuddeComm has mentioned in the past, the telecoms companies should not be allowed to hijack this debate. Traditional telecoms services make up an increasingly small part of the services that will be delivered over the NBN – in future we will see a much broader participation of retail service providers in areas such as digital media, retail, entertainment, B2B, smart grids, healthcare, M2M and so on.

The NBN should certainly not be configured in such a way that the telco companies are becoming the sole gatekeepers of the services that will be delivered over the infrastructure. For that reason BuddeComm has argued hard, and successfully, to get the so-called ‘retail clause’ included in the NBN legislation, which allows not-for-profit use of the NBN for utility purposes, but unfortunately there is still very little debate about NBN participation of entities other than just the telcos. However one good development is that NBN Co has become slightly more active in looking at the requirements of these ‘others’ in developing access services to the NBN.

Having said all of this, there are good arguments from some, such as Simon Hackett, BT – and also, for example, looking at the Google rollout in Kansas City, that we can take costs out of the NBN and that this is something that will most certainly need to be looked at. However it is critical to clearly state upfront that the NBN does not exist solely for the purpose of the telcos making a profit.

So by all means let us do an audit and see what conclusions can be drawn from that.

There have also been arguments about the relatively high cost of truly high-speed FttH services. The real value of FttH can only be unleashed once the capacity of the infrastructure is made available in such a way that everybody can use it to increase their digital productivity, come up with innovations and so on. The current NBN price structure prohibits the widespread adaptation of truly high-speed services.

This certainly is an issue, but BuddeComm has always argued that in order to get this massive infrastructure project off the ground the most important element is end-user ‘affordability’. This is more important than the technology itself. Now that we are starting to get longer-term use of the NBN in some rollout areas it is encouraging to see that this is the right strategy. The entry level to the NBN is low enough that uptake rates are approaching the 70% mark. This is exactly what we have been predicting since as far back as the late 1990s, and it is purely because of its affordability, not because of gigabites of access.

In the rush to secure the future of the NBN – a strategy that has worked -   there has been little focus on driving down the cost of the NBN so perhaps we do need to look at longer term issues such as removing the cross-subsidies so that the highest end-product speeds can be more affordable. BuddeComm’s argument in relation to higher-speed affordability has been that the NBN is a national project, not a private one, and under political, consumer and regulatory pressure we can address these issues as they start becoming more urgent – we would see this happening once we get around 20% NBN (usage) penetration. So by all means let us make sure we drive the real benefits of FttH down as deeply as possible, but at this point in time getting an affordable entry-level service out there is priority #1.

What FttH allows us to do – unlike eg FttN – is to actually move on to these higher speeds with the stroke of a pen. The infrastructure is there to do it; it simply becomes an administrative activity to make it happen. If we go for an  FttN plan we will have a whole new political debate and another 5-10 years of endless discussions about how to then move from FttN to FttH, as the Coalition has not provided any policies on how they see the migration from FttN to FttH. So far their argument is that people themselves will have to pay the extra costs for a fibre connection, more or less at an individual level. However, it looks like that this debate is slowly ebbing away, it doesn’t look like that FttN is still such a key issue for the Coalition, which of course would be a great step forwards.

Among others, the Council of Small Business Australia (COSBOA) has stated that this is not a desirable outcome - if the aim is to increase digital productivity throughout the whole business community - to start charging  up to $5000 for FttH connections. The Council argue for the current policy, where everybody gets a connection within the current NBN plan.

Back to the costs ….. in the time following the Coalition’s launch of its FttN alternative it has also become clear that the cost savings promised by an FttN solution are much more bogus than the Coalition led us to believe – especially when one considers the cost of real estate, the powering of the street cabinets and the ongoing maintenance and operational costs of the copper system.

The Coalition has argued in the past that this is a cheaper option for consumers, but this may no longer be the case – even if, as they claim, most people don’t need FttH speeds. Despite their opinion on the current speed needs they do agree that eventually we will need to move, in most situations to an FttH infrastructure.

While there are plenty of cost issues that we can discuss, fix and debate, the overall policy of the Coalition should be that FttH is the ultimate national solution and the sooner they can clarify their position on how we should get there the better.

Paul Budde