Tuesday, 28 September 2021 13:27

NBN meeting its social responsibility to Australians during COVID Featured

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That's the title of an open letter sent by CEOs; Phillip Britt of Aussie Broadband, Kelly Bayer Rosmarin of Optus, Andy Penn of Telstra, Iñaki Berroeta of TPG Telecom and Kevin Russell of Vocus to NBN Co CEO Stephen Rue. They wrote to appeal to NBN Co's social responsibility towards all Australians requesting additional broadband capacity during this time of need. The letter was also copied to Paul Fletcher, Minister for Communications, Urban Infrastructure, Cities and the Arts.

The five telcos represent more than 96% of the 8.3 million Australians connected to the NBN.

They said, "Australians are suffering from the impact of COVID more today than at any other time since the outbreak began. Australia’s most populous states remain in lockdown and State borders remain closed as daily case numbers continue to hit record highs.

"We appreciate that NBN Co understands its heightened level of social responsibility during this national crisis caused by COVID, and has supported Australians working online, educating their children online, and staying connected with loved ones they cannot see in person. We are thankful for the relief that NBN Co has provided in the past.

"However, now is not the right time to pull back on the levels of support NBN Co has provided for previous lock downs, and now is not the right time to profit from COVID-driven increases in consumer demand. The level of ‘relief’ offered by NBN Co for the current lockdowns is insufficient, and the rebates do not come anywhere close to covering the increases in wholesale costs paid by telecommunications providers to NBN Co.

"The wholesale costs borne by all retail service providers continue to increase month after month at an unmanageable rate and, without further action by NBN Co, this will ultimately result in poor consumer outcomes.

"At the onset of COVID in early 2020, NBN Co responded by providing a 40% uplift in capacity at no extra cost – ensuring Australians had access to fast, reliable broadband. Today, Australians need unconstrained connectivity more than ever, however NBN Co has not reinstated the 40% capacity uplift. Instead, it has implemented a different relief program that means RSPs are paying substantially more in CVC overage charges than what could have been anticipated."

They are asking NBN to meet its social obligations retrospectively adjusting the current COVID relief program to make it sustainable for all. The CEOs requested NBN to take the following approach:

1. Update the starting month for the baseline usage to May 2021.

"The industry has been dealing with the effects of COVID-19 for over 18 months, and had adjusted its forecasts for the new “COVID-Normal” usage that was occurring in the first half of 2021. The environment has changed significantly since the Delta outbreak in Sydney however, and the resulting lockdowns that have occurred in almost every state and territory since June 2021 have led to unexpected and significant increases in usage. Using the current baseline, these increases have not been accommodated and as such RSPs have been exposed to significantly increased CVC overage charges. A change of this baseline to the average from 1 May – 26 May 2021 would align with NBN Co’s most recent changes to the bundle inclusions and will accommodate the significant increase in demand driven by the current lockdowns."

2. Update the calculation methodology to use the individual usage of each RSP.

"Under the current relief program, the credit for an individual RSP is based on the total industry overage for the period. Being based on industry overage means an individual RSP cannot calculate the credit amount they will receive until it is announced by NBN Co after a given period. As a result, RSPs have no certainty over their input costs when supplying an NBN product to consumers, nor are they able to take any action within the period to offset these cost increases. This creates pressure for all RSPs to cut costs to ensure the financial sustainability of the NBN products, which will ultimately lead to poorer outcomes for consumers. A change to this methodology to use individual RSP usage will allow RSPs to calculate their maximum overage exposure and enable efficient management of input costs.

"Taken together, these changes would mean any overage charges above the average from 1 May – 26 May 2021 baseline (plus 25% CAGR) for an individual RSP would be rebated by NBN Co. We believe this proposal will more fairly share the burden of current COVID-related increases in consumer demand between NBN Co and RSPs, and protect consumers from higher prices and/or a lower quality service," the CEOs said.

They urged NBN to apply the changes retrospectively from June 2021.

I continue to feel this industry tension is due to the need for NBN Co to eke out every cent, to meet their business plan. The RSPs are caught between a market not willing to pay substantially more for the MTM NBN and an NBN Co that needs to establish a profitable business for their political masters. COVID and the increased usage by consumers is an opportunity for NBN to grow their revenues, at the expense of RSPs – bolstering NBN's business plan.

NBN has been able to continue to forecast enough revenue to avoid an asset impairment, assisted by reduced interest cost when they exchanged their Commonwealth debt for cheaper market-based debt.

Given NBN's slim forecasted ROI, any impediment such as extended COVID rebates, or not succeeding in achieving their SAU variation aspirations, will put in jeopardy its ability to continue to forecast a positive ROI. Something that their current political masters would want to avoid, especially with a looming federal election to be held on or before 22 May 2022.

NBN needs to spend much more capital to gradually replace FTTN. This technology was sold to us by the Coalition in 2013, based on a forecast that the median household in Australia would only require 15Mbps in 2023. How many households in Australia could run on just 15Mbps in 2021? Even without the COVID effect, 15Mbps wouldn't be enough for most households today.

Without the requested relief the RSPs will have no alternative but to start to pass-on the additional NBN cost to consumers.

It is highly probable that the NBN again will become a political football leading up the next federal election.

We live in interesting times and the ball is firmly in NBN and Paul Fletcher's court to respond.

This first appeared in the subscription newsletter CommsWire on 24 September 2021.


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Chris Coughlan

A versatile technology executive with extensive experience in most disciplines and technologies in the Information and Communications Technologies sector. Roles have encompassed general management, product management, business development, sales management, industry marketing, operations management, research and development, business case development, market research and forecasting, regulatory, strategy management, solution development, major project construction, process design and management, technology and management consulting, and engineering.

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