5G casts a long shadow over Australia’s notorious NBN

A funny thing happened to me this week: my broadband internet provider sent me a potential new deal that substantially undercut the present monthly cost of my internet plan.

Why would they do that and effectively give me a lower price for a similar product?

The answer was that it would involve switching from a current National Broadband Network (NBN) contract to a fixed wireless 5G modem with very similar speeds and unlimited downloads.

I suspect – although I don’t know for sure – that my provider has figured that it can control the costs of its 5G connection, and the profits made from it a lot easier than having another company in the form of the NBN sitting in the middle.

NBN faces real competitive challenges

In one simple example this shows the very real technological and business challenges facing the NBN – challenges it also pointed to in making its latest pricing proposal lodged with the Australian Competition and Consumer Commission (ACCC).

That proposal claimed that “accelerating” competition from mobile broadband is threatening the market share and viability of the NBN.

Typical 50mbps download speed plans on the NBN costs consumers around $70 per month, although mine is dearer than that, while Fixed Wireless Access 5G broadband at the same speed is being offered by suppliers such as Optus and TPG for a price reduction of around $10 to $15.

At this point it is important to note that wireless 5G broadband has different speed and congestion dynamics to a wired broadband connection.

There are certainly times when a fixed connection will be superior – but from a consumer point of view, they can both easily be swept into the same “internet” basket.

This growing competition from 5G is a very real threat to the NBN’s business case, which relies on it being the almost ubiquitous internet provider to most households and businesses.

How many customers will leave the NBN?

If the number of households and businesses that abandon the NBN grows significantly over time, the idea of the NBN being able to soak up its large fixed costs by growing its pricing power starts to make no sense at all.

If the NBN starts to spread its costs over a smaller number of customers, the chances of it making an economic return shrink alarmingly.

It is also hard to launch into a price war if your competitors are already offering lower prices for ostensibly similar products.

NBN starting to cut costs

On its side, the NBN has recognised the challenge by cutting around 10% of its staff or 500 jobs, most of them in management as it tries to cut costs to meet the competition.

In an email to staff chief executive Stephen Rue said the NBN’s “environment is changing”.

“The competition NBN faces to win and retain customers is intensifying,” Rue said in that email. “Continuing to deliver on our purpose of lifting the digital capability of Australia means navigating these changes”.

Rue said the changes would make NBN “more commercially and operationally efficient”, although it is hard to see that this will be the end to the cost cuts to meet the growing 5G competitive challenge.

Fibre upgrades and higher speeds may hold the key

With its high historic costs and the need to keep a large staff in the field to keep upgrading the fibre, fixed wireless and satellite network, NBN will have its work cut out competing.

Perhaps its best chance is to upgrade as many connections as possible from fibre to the node to direct fibre, allowing consumers to be exposed to higher speeds that 5G will struggle to match.

It will be a tough task, particularly when your biggest customers – the big telcos who are reselling the NBN to their customer bases – start to send those customers 5G plans that undercut the NBN product.