How long can the NBN survive under government ownership?

NBN National Broadband Network government ownership Australia
It appears the National Broadband Network will remain in government hands for some time.

Governments can give birth to some really great businesses – just look at Commonwealth Bank (ASX: CBA), CSL (ASX: CSL) and Telstra (ASX: TLS) which have all thrived since being placed in private hands.

However, there must now be a big question mark hanging over one of the largest and most important government owned businesses – the National Broadband Network.

As a “nation building” project coming out of the former Rudd Government and then being somewhat scaled back and sped up in technology terms by the Turnbull Government, the NBN has in some ways done an amazing job of getting Australia wired up for broadband internet through a range of technologies.

During the many lockdowns in the early days of the COVID-19 pandemic, the NBN was very useful in allowing many businesses to pivot to at home working and internet sales.

Back to the drawing board on prices

Now, however, the NBN has just been given a big thumbs down from the current Albanese Government from moving ahead with its controversial wholesale pricing model, which would have resulted in a significant price rise in the usual customer NBN plans and has caused a lot of lobbying from the telco’s large and small that retail the NBN’s wholesale network.

NBN has gone back to the drawing board after Federal Communications Minister Michelle Rowland declared the plan it had put before the Australian Competition and Consumer Commission (ACCC) in March was “unacceptable.’’

“This means affordable prices and a quality, resilient network,” said Ms Rowland.

“In contrast, the Special Access Undertaking variation lodged in March 2022 under the former government would have allowed NBN price increases of inflation plus 3% a year on some products.”

“This was underpinned by unrealistic revenue expectations, and reflected a view to privatisation.”

From a consumer and reseller point of view all of that is probably great news, because the cost of the internet will remain more reasonable but in a longer-term sense, it leaves NBN in a vulnerable place and under government ownership for the foreseeable future.

According to Aussie Broadband, the cost to retailers for 50Mbps fixed line broadband connections would have been expected to equal 100Mbps plan offerings within just a few years.

Now the ACCC will host an industry meeting in mid-August to allow NBN and its stakeholders to present their views on a revised variation to the undertaking.

New proposal to arrive next year

The ACCC will also go through a public consultation phase after getting the revised proposal, which should arrive in early 2023.

While internet connection prices remaining steady is good news for the retailers and the public, it remains to be seen how the NBN will be allowed to fund and develop its network under government ownership and how it will meet the challenge of technological change.

While it has long been assumed that the NBN would be a monopoly asset, on the ground it is becoming increasingly vulnerable to competition in some parts of the big cities from telcos such as Telstra, TPG (ASX: TPG) and Optus using the 4G/5G mobile network, which in some cases is offering cheaper and faster broadband access already.

Competition has also arrived in the form of low-earth orbit satellites – such as Elon Musk’s Starlink.

In both cases it is very early days and competition is far from ubiquitous or without its problems but there is little doubt about the potential of competition that arrives in a box and can be set up by the consumer without the need for technicians on the ground.

Will new technology undercut the fixed network?

With NBN now set to remain in government hands for some time, it would be a brave person who forecast no new technologies arriving in the next decade or more – technology that could effectively erode or even extinguish NBN’s current monopoly status.

While we all learned something after Telstra was sold and effectively became a fixed line telephone wholesaler and retailer at a time when most internet traffic went along phone lines, there are other problems for NBN given the massive sunk costs it has paid in installing and improving on the fibre and other broadband networks.

Will it even be able to make a commercial return on those costs or will they effectively be added to Government debt levels forever?

The same queries arise about the long-term future for NBN if it will still be privatised at some time – with or without a monopoly on fixed broadband.

While the experience of the Telstra wholesale telephone monopoly was a bruising one, there is also a danger the NBN could become the opposite – a giant whale surrounded by hungry telco sharks all waiting to bite off the most profitable parts.

It will be interesting to see how the policy and technological landscape changes around the NBN and whether the company has the agility and resources needed to remain a strong and viable company, no matter who owns it.

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