I know it’s not nice to kick a man when he’s down — and I’m not talking about Don Burke, I wouldn’t hesitate to put one on him if the allegations are true. What a grub…
No, I’m talking about the National Broadband Network, which hit another snag yesterday. It’s the debacle that keeps on giving. It’s perfect symbolism for an inept, wasteful and completely incompetent Australian political system.
Kevin Rudd got the ball rolling with the idiotic NBN plan last decade. And the Libs have been saddled with trying to make the unworkable work.
Part of that plan was to use existing infrastructure where they could connect the NBN to premises around Australia. Part of that infrastructure is known as HFC (Hybrid-fibre coaxial) cabling.
Yesterday, NBN Co announced a problem with the speeds customers are getting on this infrastructure. It’s delaying the HFC rollout by up to six months.
From The Australian:
‘NBN Co has called an immediate stop on connecting households to the hybrid fibre-coaxial (HFC) portion of the National Broadband Network, with NBN Co boss Bill Morrow saying that the suspension is necessary to deliver a reliable and quality service on the pay TV cable.
‘NBN Co is aiming to have 3 million homes on the HFC footprint by the end of the rollout and the latest concession will now see significant delays in getting millions of homes connected to the NBN. It will also delay the payments Telstra is set to receive from NBN Co to compensate for its loss of its wholesale monopoly.
‘The move comes in response to the growing discontent from NBN customers who have been put on the HFC footprint, with many receiving lower than promised speeds and service dropouts. Mr Morrow acknowledged on Monday that the HFC network was struggling to cope with the number of customers being brought on to the NBN.’
On current estimates, the NBN will cost the Australian taxpayer around $50 billion. By the time the rollout is completed in 2020 (or probably later) the number will likely be well north of there.
In order for the NBN’s vast expense to stay out of the budget and make Australia’s finances look better than they are, the government pretends that it’s a commercially viable project.
That means that it must charge high access prices to the retail resellers like Telstra, Optus, and all the others.
These high access charges means broadband services are not as profitable as they once were. This is why you’re seeing share prices fall across the telco industry.
Check out the chart below. It shows the ASX 200 telecommunications index versus the ASX 200. As you can see the telcos (dominated by Telstra) have underperformed the index by around 40% over the past 12 months.
[Click to enlarge]
Because access charges for the NBN are higher than what the consumer is prepared to pay, providers are taking shortcuts and trying to protect their margins by providing a poorer service.
All these complaints about the NBN are really just poor connectivity service. The retailers selling the NBN are cutting corners to keep costs down and protect margins.
If the government really wanted to improve the NBN experience, they would cut the access charges. Then the resellers could earn a decent margin and compete on service alone.
But cutting the access charges would make the project non-commercial, and force the government to bring the cost onto the budget.
Despite this making commercial sense, the politics of it don’t work. And as you know, political needs trump commercial or consumer needs in this country.
As is often the case, our mates in New Zealand did the old high speed broadband rollout much better than us.
They just split Telecom NZ into a retail arm, Spark New Zealand [ASX:SPK] and a wholesale arm, Chorus [ASX:CNU] and got on with it.
Likewise, the government here should have split up Telstra and got Telstra wholesale to build the network within regulatory guidelines.
Instead, they created the NBN to compete with Telstra, at an enormous cost. The NBN now pays Telstra around $1 billion a year for the use of its copper wire infrastructure.
But on the flipside, as the NBN rolls out, Telstra loses more and more of its wholesale revenue. Telstra’s wholesale network was a former monopoly. Not any more.
Putting it all together, the government has created a very expensive monopoly provider to compete against Telstra. While this has wasted billions, it has also knocked billions off Telstra’s share price.
Ironically, Telstra is one of the most widely held stocks on the ASX. In effect, the government has stitched the Aussie taxpayer up twice: Once by burning through (at least) $50 billion in building a half-baked broadband network. And again by smashing up the share price of Australia’s largest telco.
A total breakdown in government due to some obscure citizenship law?
Editor, Crisis & Opportunity