Home Telecoms & NBN NBN woes: govt must carry the can, says Paul Budde

NBN woes: govt must carry the can, says Paul Budde

A veteran independent telecommunications commentator claims that government policy, not the NBN Co or retail service providers, is to blame for the fiasco that the national broadband network rollout has become.

Paul Budde said at its core, the problem was one created by politicians, going all the way back to the original NBN policy which was drafted by the Labor Party.

"The only solution for the government is to realise that their government-led rollout is not simply a commercial exercise. If it was based on commercial principles, the rollout would first start in markets where they can charge a premium price," he pointed out. "The government must realise that they can’t burden the NBN Co with an unrealistic return on investment." 

While he had supported the criticism of the wholesale charge made by entrepreneur and former Internode owner Simon Hackett at the beginning of the project, Budde said it had been insufficient to reverse the thinking at the time.

But, he said, the change from fibre-to-the-premises to fibre-to-the-node had compounded the problem. "A FttP model would have provided NBN Co with a range of other revenue options and the CVC would, in that scenario, not have become such a fundamental stumbling block as it is today."

Budde said that the CVC charge brought about retail prices for "truly high-speed broadband products" that exceeded by a big margin comparable products sold in other countries.


But the reality of broadband was that most customers decided on a package based on price as they did not bother about "complex wholesale price calculations".

"...more in general they are not interested in the cost involved in what they buy. If, for whatever reason, they believe the price is too high they don’t buy it and this pricing elasticity issue is well known in the broadband and Internet industry for well over two decades. Politicians can fabricate a price but they often fail to understand the market realities," Budde said.

He said that was happening now was that, as the wholesale prices specified by NBN Co were too high, customers were not buying the higher speed broadband packages that would differentiate the NBN from previous DSL and HFC broadband services. 

"This then results in disappointment, (and) also adds the many technical problems that customers experience - mainly because of the current rollout that utilises ageing old infrastructure (also politically motivated) – and it becomes clear that all is not well in NBN land."

Budde said companies were avoiding the fundamental underlying issues and blaming each other as none of them had the guts to point a finger at the real problem. "Companies are always extremely reluctant to involve themselves in political discussions," he added.

"So therefore, the retail service providers are blaming the above-mentioned wholesale prices they are charged by NBN Co. This company is owned by the government and is mandated to follow government policies, so the company on its own cannot make the changes that are needed to make higher-speed broadband packages more affordable. While behind closed doors they might discuss this with the government, if the government sticks to their policies, NBN Co has no room to manoeuvre."

Thus, the only thing that NBN Co could do was to blame the RSPs for not buying more capacity from them in order to create better quality broadband products, and accuse them "of deliberately keeping prices low (and thus broadband quality down) in order to get as many customers as possible on to their service, the so-called land-grab issue".

But, he asked, was that not what was sought to be created: maximum broadband competition at a retail level?  "I would say that policy, at least, is working."

He said the RSPs were operating in a free and open market and were subject to market forces of which a very critical one was the price customers were prepared to pay. "The higher-speed packages are clearly available from all those players, but consumers choose not to buy them because they can’t afford them." 

Arguing that RSPs should simply increase the price to assist NBN Co in earning more money from the higher-priced services to make the failed government NBN policy work, did not make sense in a competitive market and simply would not work, he added.

Budde had some advice for those advocating that RSPs take on higher charges in order to solve the problem.

"In an open and competitive retail market that works according to open-market principles, RSPs will not increase prices if they know that their customers will not buy them. So therefore, you cannot also burden the RSPs with higher charges in order to solve problems created by politicians," he said.

"Take those ‘social’ costs out of the equation and treat that part of the investment as a national interest investment. This will then allow NBN Co to create the correct foundation to charge realistic commercial wholesale prices to the RSPs and, based on that lower cost basis, these retail providers, in turn, will be able to start selling competitive high-speed broadband at affordable prices. There are plenty of indications that there is a high demand for such services if the price is right."


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Sam Varghese

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A professional journalist with decades of experience, Sam for nine years used DOS and then Windows, which led him to start experimenting with GNU/Linux in 1998. Since then he has written widely about the use of both free and open source software, and the people behind the code. His personal blog is titled Irregular Expression.