NBN Co’s business model has been slammed by major telecommunications providers, which say the government needs to reconsider whether the company should have to fully recoup its investment costs.
In public submissions made in response to an Australian Competition and Consumer Commission review of the communications sector, Optus, Telstra and other leading retail service providers said a review of NBN’s costs and pricing was needed sooner rather than later.
The government requires the $49 billion NBN to recover the cost of its rollout around Australia, which directly affects the prices it charges telcos for access to its network, which they pass on to consumers.
The ACCC’s draft report, released in October, included a proposed recommendation that the government consider whether the NBN should continue to be obliged to recover these costs.
In its response, Telstra said there was “widespread commentary” about the commercial viability of the network, noting NBN Co chief executive Bill Morrow himself had said the current revenue per user coming from retail service providers would not generate enough total revenue to produce a positive return on the investment made.
Telstra pointed to NBN information that there was $14 billion “of unrecovered revenue … that will ultimately need to be recovered from consumers within the current regulatory and policy framework”.
In order to achieve a positive internal rate of return, a measure used to determine profitability, there would need to be a higher take-up of telco deals offering higher NBN speeds.
While NBN was forecasting a significant rise in consumer demand for higher speeds in coming years, “there appears to be limited evidence to support this assumption”, Telstra said.
“Based on current projections, it will be many decades (if ever) before the full cost of investment is paid back, by which time Australian consumers would have paid tens of billions of dollars in … return on capital.”
It said the government should consider these issues “sooner than the medium term”.
New pricing arrangements announced by NBN in December, which aim to encourage take-up of faster speed bundles, could improve returns.
Optus also pushed for a “near-term” review of the draft’s recommendation for the government to consider whether NBN should be required to recover its full cost of investment through its prices.
It said the requirement to achieve a dedicated internal rate of return limited NBN’s ability to adopt pricing reforms to promote the long-term interests of users.
Its submission also said NBN’s “pricing policy appears to be dictated” by its average revenue per user growth requirements, which had “very real impacts on consumer pricing”.
TPG Telecom said the NBN should be allowed to finish its rollout as quickly as possible.
“Governments should accept whatever the financial outcome is for that, take the financial hit (as we expect will be necessary) and the NBN should compete with private capital so that the industry can return, as quickly as possible, to a more rational economic circumstance,” it said.
“We consider this will take quite a long time.”
The NBN Co submission said “these matters are policy matters which are appropriately considered and progressed by NBN with its shareholder’s departments”.
It did not provide further comment.
This article originally appeared in the Sydney Morning Herald on January 5
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