Home Business Politics How did the NBN go so wrong?

How did the NBN go so wrong?

Higher costs and slower speeds may be here to stay.

Senior Digital Journalist, Your Money

Editor’s note: The segment featured in this video aired on 9 April 2019.

Australia has long waited for its internet speeds to catch up with the rest of the world.

Now it seems we could be worse off than we were a decade ago.

The National Broadband Network (NBN) has been 10 years in the making and cost taxpayers billions, yet many Australians are forking out more for it and getting less in return.

Then-treasurer Scott Morrison and Communications Minister Mitch Fifield inspect an NBN installation after holding a press conference in Miranda, Sydney, on Sunday, April 8, 2018. (AAP Image/Daniel Munoz)

That’s the verdict of Rod Sims, chairman of competition watchdog the ACCC, who said in a speech in Sydney Tuesday that the NBN is failing to deliver on key promises for a faster and more affordable broadband.

“We are now observing prices of low-speed NBN plans offered to new customers that are at least $10 per month higher than what consumers paid for equivalent ADSL plans,”  Sims said.

So how did it all go so wrong?

Speaking to Your Money Live, Supratim Adhikari, technology editor at The Australian, said many of the country’s NBN woes were triggered by the change in government six years ago.

The NBN has long been at the centre of a political battle between the two major parties since it was introduced by Kevin Rudd’s Labor government in 2007.

When the Coalition was elected in 2013, it argued that Labor’s earlier fibre (FTTP) broadband model was too costly and replaced it with a cheaper technology called MTM, which is still used today.

Many analysts now say that decision has ultimately cost Australians far more than it should have and led to a decade-long technology hiatus.

“It fundamentally changed the methodology of the project and the capabilities of the project,” Adhikari said, adding that the changes left the project “hamstrung” from a technology perspective.

“What we’re seeing now is the project 10 years on is leaving millions of consumers, millions of NBN users, with services that are no better than what they’ve always had and also actually paying more for their daily broadband.”

“The business model that underpins the NBN is now causing an enormous amount of grief at the consumer level.”

After six years of criticism of the Coalition’s NBN, on Tuesday morning Labor ruled out the possibility of a nation-wide upgrade to the network, with shadow communications minister Michelle Rowland conceding it would simply have to improve what was there.

“I think Labor really only finds itself in a position where it can’t turn back the clock, and it’s going to have to make the best of what’s left,” said Adhikari.

“What Labor said this morning is that there is no recourse, there is no return to a full fibre NBN, that’s simply not possible.”

Why is it more expensive?

With the NBN network costing Australia tens of billions to rollout, NBN Co must now deliver returns.

“It needs to hit an average revenue target of $52 billion, if it doesn’t hit that target, it’s not going to deliver the returns that it needs,” explained Adhikari.

But to do that, it must maintain a high average revenue per user.

“The only way it can do that is through the wholesale prices, the prices that NBN Co charges the telcos to provide wholesale capacity,” he said.

But big telcos argue the wholesale prices set by NBN Co are unaffordable and has forced them to increase costs to its customers.

Telstra’s CEO Andy Penn has long argued that wholesale NBN prices need to be dropped in order to increase the reseller profit margin and lower the cost to consumers.

“Prices can only go higher because currently the industry basically makes no money from reselling the NBN at that level of wholesale price, so something has to give,” he told Your Money’s James Daggar-Nickson in December last year.

Mounting pressures from the emergence of the NBN has seen the telco’s share price plummeting in recent years as it struggles recoup costs.

In February, Telstra announced a 28 per cent fall in its half-year net profit, down $400 million on the same period last year.

But despite the higher costs, many Australians have little choice but to accept an NBN plan, even if it does leave them worse off, explains Adhikari.

“The average household really has no recourse once the NBN is ready to connect in their area. They will have to give up their existing services and get an NBN connection…otherwise, they’re going to be without a service.”

Falling behind global standards

Labor’s announcement on Tuesday essentially confirmed that Australian households will be forced to bear the technology underpinning the current NBN network, despite MTM’s apparent misgivings.

Adhikari argues that the last decade has cost Australia as a global competitor.

“Because the NBN has taken so long to get to where it is now…we’ve seen the existing telco services progressively become less and less capable and less competitive,” he said.

Australia is already ranked as one of the most expensive broadband internet markets in the world and one of the slowest in terms of speed.

“We sit very much toward the bottom end when we look at OECD countries, and a big reason for that is over the last 10 years when we’ve been trying to build the NBN.”

“A lot of customer frustration stems from that as well, because we were promised this incredibly fast network, we’re not going to get that now, we’re going to get something that’s more compromised and on top of that our existing services continue to deteriorate.”

The ACCC is currently conducting an inquiry into the NBN wholesale service standards which will also look at whether regulation needs to be introduced to improve customer experience.

Watch the full interview in the video above.

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