NBN struggles to generate returns as Australians pay more for lackluster service
The NBN is facing criticism for raising prices without improving service standards as it struggles to generate a return on its investment and compete with the growing 5G wireless technology.
One thing that is becoming increasingly clear is that the grandly titled National Broadband Network, or NBN, is no gold mine.
Unless there are some dramatic changes down the track, it is hard to see the government-owned network being sold off to private owners for a bonanza price – a repeat of the multi-billion dollar privatisation of Telstra (ASX: TLS), which boosted government coffers and also gave birth to the $240 billion Future Fund.
At the moment, it looks more likely that the NBN will always struggle to generate a return on the funds invested so far.
That might not be so bad if everybody was happy with the service and pricing delivered by the NBN but that seems to be far from the case – in part due to the multi-technology mix used to create it more quickly.
ACCC find prices rise but not services
A recent study by the Australian Competition and Consumer Commission (ACCC) found that Australians are paying more for their NBN plans while service standards have not improved.
Their figures showed that consumers on entry level NBN plans paid 3.6% more in 2021-2022, while those on middle speed plans paid an extra 4.7% and customers on high-speed plans saw prices rise 9%.
Despite these fairly hefty price rises, NBN service standards remained “largely unchanged”, according to the ACCC, with download speeds slightly faster and upload speeds virtually unchanged.
Critics say that the NBN is jacking up prices without improving services and leaving more than 8 million customers fairly unhappy as they try to recoup the initial investment in the network and generate some meaningful financial returns.
The problem is that raising prices to cover up financial troubles is a dangerous game in an area in which technology is changing all of the time.
5G will be a massive challenge to the NBN
With the rapid growth of 5G wireless technology, there is a danger that increasing numbers of customers could abandon fixed wire services – in turn, reducing the returns on the NBN.
The ACCC report shows that 5G is already becoming a hot point of competition between the major telcos as the technology keeps rolling out across the country.
Current Federal Communications Minister Michelle Rowland has now admitted that the NBN can’t generate a commercial return on parts of its network – particularly in rural areas – which has effectively led to the company writing-off the recovery of $31.5 billion in losses.
“The government recognises that NBN Co will not be able to generate a commercial return in delivering all of its obligations, particularly in regional and remote Australia, and it is expected the company will take a flexible approach to supporting these activities,” a new statement of expectations says.
The initial build of the NBN cost $44 billion and the Federal Government’s equity stake is $31.9 billion but the company will now try to recover only $12.5 billion, which will still see wholesale prices rise, although faster speed plans might become cheaper.
Losses will persist
A Productivity Commission report estimated that the NBN will still have $25 billion in accumulated losses by 2040, with losses incurred during the construction phase unlikely to be offset through future revenue.
While the multi-technology mix used was one of the reasons for a less than commercial return, the other is the initial decision to focus first on regional areas, effectively starving the company of the initial burst of revenue that would have arisen if much more densely populated metropolitan areas were the first to be connected.
NBN stays public – because it needs to
The Labor Government’s plan to keep the NBN in public ownership is really the only course open to it because as the Productivity Commission found, the NBN is “unlikely to earn a commercial rate of return in the future if the asset values currently used to measure rates are those reported”.
Nobody in their right mind is going to pay greater than the current market value so selling the NBN to private owners would crystallise an epic financial haircut.
With new technology chipping away at the foundations of the NBN, it is difficult to see any pot of gold at the end of this particular rainbow.