NBN: Please don’t be a white elephant

This article was authored by Lachlan Colquhoun, and was originally posted on telecomasia.net.

No one was the least bit surprised last week when the Australian Government committed another $A20 billion ($14.8 billion) to the roll-out of the National Broad Network.

The rather wishful thinking was that private investors could be persuaded to tip in the money, but it has been clear for a while – and perhaps ever since the project was conceived – that this was a big Government-only infrastructure project.

The latest injection of public money brings the NBN price tag up to $A50 billion, all this for a project which many analysts say is destined to be a white elephant, with the dubious title of the most expensive and underutilized broadband network on earth.

Of that $A50 billion, A$30 billion is in equity from the Government while the balance is debt, which will – very hopefully – be re-financed by a bond sale by 2021 or so.

If I was a private investor, the early stages of the NBN’s operation would not be inspiring me with confidence.

Already, the number of complaints about the NBN to the Telecommunications Industry Ombudsman doubled last year. High on the list of irritations: slow speeds and drop outs.

The only good thing to say about this is that the number of new connections is outstripping the rise in the number of complaints.

Another three million premises are ready to receive a service in a roll-out which is due for completion early next decade, when it could have eight million customers.

It would be an excellent result if the NBN were to prove everybody wrong and do what it was intended to do: deliver high speed broadband to the great majority of Australian homes and businesses and be a driver of retail competition and innovation through a reasonable cost structure.

But the scary likelihood is that the break even rate for NBN wholesale bandwidth will be prohibitively expensive, and ruinous to its commercial model.

All this means that the NBN is likely to stay longer in Government hands, with its finances delicately massaged to stop a revolt among retailers and users.

Just as Telstra is moving away from wholesaling, and pocketing A$8 billion in compensation from the Government in the process, Australia could soon have a commercially unviable telecoms wholesaler which is 100% Government owned.

It all seems very back to the future, to before 1997 when Telstra was first privatized. But at least Telstra was consistently profitable.

Beyond Australia, the NBN has parallel lessons for nations which are investing in big broadband plans as part of their national economic development.

Unfortunately, so far it looks like a cautionary tale.

Some questions to ask: Is the mesh technology right or will it prove to be a failed compromise?

Would the original FTTP plan have been better than FTTN, which incorporates upgrading of existing copper and new copper?

If the commercial model isn’t right, will the Government have to wear that cost so private operators can still deliver affordable services?

Will anyone really be able to afford gigabit speeds under the NBN?

Will the nation which has recently privatized one former telecoms monopoly soon have another, but one which is unprofitable and no-one wants to invest in?

No doubt we will be checking in from time to time over the next few years, to see how the answers to these questions are tracking.

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