This post was published by the Australian Financial Review on 13 November 2017

Why is Australia’s NBN so bad?

This is the question I was asked most often while visiting Berlin last week for the Broadband World Forum conference. This conference brings together a huge range of telco operators, equipment vendors and industry veterans every year to discuss the latest broadband developments and technologies.

I had arrived in Berlin on the day NBN Co was undergoing another round of intense media scrutiny in advance of the airing on Australia’s premiere current affairs program, Four Corners, of an in-depth expose on the poor perception Australians have of the NBN.

My attendance at the event was on behalf of Hong Kong Broadband Network to discuss the topic of “Will We Be Ready for 2020? Global Operators Discuss 2020 Goals”. The panel contained operators from Poland, Qatar, Ireland, Greece as well as Hong Kong. All operators were focussed on ways to continue to invest in the network technologies that would drive broadband speeds beyond current speeds of 30 to 100Mbps towards the vision of 1Gbps or Gigabit networks.

After the panel I had the chance to talk to many colleagues from the global industry at different events around the conference. All wanted to know why Australia’s NBN was getting such a bad rap – wasn’t this a visionary project that was going to lift Australia to the top of the broadband global benchmarks?

My answer in a nutshell – both side of politics have agreed that fixed broadband is a national natural monopoly when it is demonstrably not for most Australians.

Sure there is lots of political theatre and debate over which broadband technology is best for Australia and whether the government should invest in more fibre now (the progressives’ position) or delay fibre investment as long as possible (the conservative’s position). However both sides of politics – progressive and conservative – have settled into a bipartisan view that a monopoly fixed broadband network is the way to go for all Australians.

In Australia, if there is to be any competition in the fixed broadband market, there is agreement it should only be at the retail level where service providers compete mainly on price while accessing the same underlying national monopoly network.

This idealistic view of broadband, along with the need to pay for the rollout of the national monopoly network rollout, has created a distorted product and service model and lead to huge distortions in the market. In particular the retailers are motived to cut costs and buy less bandwidth from NBN Co so they can compete on price and blame NBN Co (and the government) for the bad performance of the network.

NBN Co is responding like a true monopoly and just telling the retailers to buy more and pass the price on to their customers.

In Australia, with the long history of Telstra dominating the older copper and HFC networks, this national monopoly thinking is pervasive and hard to shift. Unfortunately Optus failed to overturn this thinking after Telstra (while still majority government owned) effectively used its huge financial firepower to overbuild Optus’ competing HFC network back in the 1990s.

The present conservative government has bought into this monopoly thinking rather than split NBN Co into competing FTTx, HFC, Fixed Wireless and Satellite operating entities as was recommended by its own expert panel in 2014. The government is now suffering the pain of owning the monopoly and the unsatisfactory customer experience that comes with the artificial monopoly structures that have been put in place.

Attempts to blame the previous progressive government that setup the corporate and wholesale structure of NBN Co are difficult to accept since the vast majority of the funding (approximately 85%) and rollout of the NBN will be under its predominantly HFC and FTTN model. Further investment will no doubt be required to move to a deeper fibre model in the 2020s.

This is all the more the case since the current conservative government has decided to increase regulation to dissuade alternative private fixed broadband investment to protect NBN Co’s financial position and strengthen its monopoly rather than let competition drive NBN Co to improve its performance.

The fact that private enterprise is willing to invest in fixed broadband (eg. TPG Telecom) to compete with NBN Co highlight the fallacy of the national natural monopoly argument. But given the high regulatory hurdles being put in place on fixed broadband by politicians, Australian telcos are turning to 4G and soon 5G wireless alternatives to find ways to beat the monopoly. This clearly highlights that in most urban areas fixed broadband is not a natural monopoly like the old telephone network used to be. Technology has created new options for broadband deployment, wired and wireless, that will quickly break down any monopoly in many areas if the market is left to do its work.

The excuse everyone turns to for this national monopoly arrangement is Australia’s geographic challenge. No private enterprise will provide services to the Australian outback because of the huge costs and low revenues. Of course this true, but it is also true of Canada, the United States, many parts of Europe, as well as even Hong Kong where fibre deployment has not yet reached 100% of households. Subsidies are needed to make this happen – but no where else is this solved by hiding the necessary cross-subsidies in a national monopoly company like happens now in Australia with NBN Co and previously with Telstra.

Most Australians are blissfully unaware that they are paying substantially higher prices for their fixed broadband services in the major urban cities (where most Australians live because Australia is paradoxically one of the most urbanised countries in the world) in order to subsidies their outback cousins. When asked many may accept this but at the moment it is a dirty secret that the politicians would rather keep quiet about.

In most other markets these subsidies are provided direct from the government budget or other industry levies. Given the importance of telecommunications in terms of national competitiveness in an increasingly globalised world these subsidies should not rest totally on the city based consumers of telecommunications but should be spread more broadly across the economy. After all this is how most other subsidised infrastructure is funded (eg. roads).

With the right subsidy structures and incentives private enterprise can deliver broadband infrastructure more efficiently to remote areas than relying on a politicised national monopoly try and be all things to all comers.

This sorry state of affairs looks set to continue for some time. Australia’s competition regulator has recently released a draft report that seems to back the status quo with some tweaks to NBN Co’s pricing and forcing retailers to be more transparent with their representations to end customers.

Without a massive restructuring of the market and a substantial write down of the government’s (and taxpayers’) investment in NBN Co it is hard to see things changing for the better in Australia.

So I expect this question will keep coming up at future events I attend unless some politicians (hopefully in a bipartisan way) make some big calls to totally rethink Australia’s fixed broadband market.

As they say – you broke it, you fix it!