NBN's New Price Plans Are Too Little, Too Late

Image: SMH / Adam Turner

Lack of speed kills: finally NBN Co is thinking about a genuinely 21st century offering for customers. But the damage has already been done. The mess made of the National Broadband Network was entirely predictable and can be attributed to politicians forgetting three basic rules of economics.

This week NBN Co announced pricing changes for the National Broadband Network. It includes a new plan boasting a download speed of 1 gigabit per second and an upload speed of 50 megabits per second for $80 a month.

These are 20-fold improvements on the maximum NBN speeds now. Almost a decade since the first customers were connected, NBN Co is thinking about a genuinely 21st century offering in terms of speed and price.

NBN Co Just Dumped On FTTN Customers (Again)

NBN Co has announced plans to increase speeds for some customers by 2023. However, if you're currently saddled with a fibre-to-the-node (FttN) connection - like most residential NBN users - there are no plans to upgrade the bandwidth for the next four years. Guaranteed speeds won't exceed 25 Mbps, even in 2023.

Read more

The NBN is late, over budget and slow. Australia places 58th globally for fixed-line broadband speed. Not only do the NBN’s advertised speeds lag international standards but the actual speeds often don’t come close to what is promised.

Customer interest as a result has been unenthusiastic. NBN Co may well need to take a massive write-down on its assets because they don’t look like they’re worth A$50 billion.

All of this was entirely predictable, based on politicians failing to remember three basic lessons from Economics 101.

Here's a look at how Australia's leading internet service providers price their Premium Evening Speed NBN 100 plans:

1: Technology often outstrips imagination

The history of innovation is littered with examples of remarkably important things being invented with no clear purpose in mind, or by accident, and then exceeding our wildest expectations.

Penicillin and vulcanised rubber (which led to the tyre for automobiles) were both invented by accident. The world wide web was developed as a means of communication among particle physicists. Most of us carry around in our pocket a computer (mobile phone) roughly as powerful than the world’s faster supercomputer circa 1985. Those have turned out to be pretty useful.

When the Coalition decided to scuttle Labor’s NBN plan for fibre-optic cable to every premises, on the basis that “fibre-to-the-node” and using existing copper telephone wires to the premises would be much cheaper, this is what the chief spruiker of the Coalition’s NBN plan, Malcolm Turnbull, said about broadband needs in 2010:

There isn’t much or anything you can do with 100 Mbps that you can’t do with 12 Mbps for residential customers.

The breathtaking lack of insight and imagination in this comment is responsible in no small part for the Flintstonian broadband infrastructure Australia now has.

Prioritising speed of roll-out (which hasn’t even happened) over speed of internet (which sure has happened) was a massive mistake.

NBN Speeds Are In The Toilet (And Customers Are Pissed)

The latest complaints report from the Telecommunications Industry Ombudsman (TIO) has revealed NBN customers are among the least satisfied internet users in Australia. A whopping 13,406 NBN-related complaints were made to the TIO in the last financial year, an increase of more than 100 per cent compared to the year before.

The number of complaints was also five times higher than non-NBN services such as ADSL2. That ACCC NBN performance monitor report can't come soon enough.

Read more

2: Positives justify subsidies

You having fast internet is good for me when we connect. When consumers can connect quickly to a business’s website that’s good for the business. It makes it more profitable for businesses to invest in their internet operations. This has benefits for other consumers and even other businesses.

A great illustration of this is in Dunedin, New Zealand, where there have been all sorts of business-to-business spillovers from the city having the fastest internet speeds in Australasia. The ABC’s Four Corners program has highlighted how this has revolutionised New Zealand’s video-game development industry, among other things.

Economists call spillover effects to third parties externalities. Pollution is a negative externality, while the benefit of fast internet is a positive externality.

A sound business model for the NBN ought to recognise the positive externalities and ensure they are incorporated into the price mechanism, by offering a partial subsidy to encourage people to sign up. Like the reverse of a carbon price.

One of the NBN’s key problems is the way successive governments structured national investment in it. Setting up NBN Co as a quasi-corporate entity needing to make a commercial rate of return on the roughly A$50 billion investment in the network was a huge mistake. It was the opposite of providing a subsidy.

The telecommunications companies who retail the NBN have complained that NBN Co’s wholesale price points mean it is hard for resellers to make a profit. It’s a kind of quality death spiral: an unattractive product means fewer people buy it, leading to the product getting worse, leading to even fewer people buying it.

So Just How Borked Is The NBN?

Despite slight improvements to our fixed broadband speeds, Australia remains well outside the top 50 when it comes to fast internet. We are currently ranked 58th on the Speedtest Global Index with average download speeds of 41.31 Mbps - a huge 25.21mbps below the global average. So what went wrong?

Read more

3: Uniform pricing doesn’t work

Finally, it’s never a good idea to charge everyone the same price when there are different costs to serve different people.

The idea was that higher returns from easy-to-service city homes would subsidise the higher costs of service homes in regional and remote areas. But city homes, precisely because they are cheaper to service, have other options. If not enough city customers signed up to the NBN, prices would be driven up, making the network even less attractive to city customers. It’s textbook adverse selection, just like in health-insurance markets.

The government tried to get around this by banning competition. But that’s never really possible, especially from technologies not yet invented. Like 5G. The 2010 business case assumed no more than 16% of households would go wireless. Oops.

As economic journalist Peter Martin wrote in 2011:

NBN will never make a return on the cost of its capital or meet its customer targets if it faces competition. Its corporate plan says so, at point 1: “The plan assumes effective regulatory protection to prevent opportunistic cherry picking […] the viability of the project is dependent upon this protection.”

Another Reason NBN Speeds Suck

Broadband modems supplied by Australian internet retailers are incapable of delivering 100Mbps download speeds over the average fibre-to-the-node connection, according to the consumer watchdog's own performance testing. At the same time, poor Wi-Fi performance from supplied modem/routers is another key bottleneck stopping Australians enjoying their promised NBN speeds.

Read more

What to do from here

Multiple governments have bungled the NBN. But there is a way to salvage things – a bit.

Holding constant the technology (fibre-to-the-node), the best thing the government could do is write down its investment massively – ideally so low that it can flog NBN Co off to someone who can be subject to access regulation – ensuring, like other utilities, ownership of infrastructure doesn’t stymie competition – and make a modest rate of return.

Our super funds are always sticking up their hands for infrastructure investment. This would be a good one.

Ideally, though, the technology should be fixed. Fibre-to-the-premises was always going to be expensive, but it was also going to be fast, and as future-proof as we could get.

Lack of imagination and inability to think past 12 Mbps less than ten years ago should not hold the nation back now.

The Conversation

NBN: The Silent Train Wreck

You might be surprised to learn that location is starting to take second place to internet connectivity as a search criteria for new office space. And this is causing a massive problem.

Read more


Richard Holden, Professor of Economics, UNSW

This article is republished from The Conversation under a Creative Commons license.


Comments

    5G will kill NBN for the average home consumer (when it rolls out). 4G is more than enough currently for my paltry needs. The write-down will have to be enormous to make this mess appealing to any company.

      I tend to disagree, purely due to the physical limitations of wireless technology. If a majority of consumers moved to 5G latency and bandwidth would make it nonviable, and you'd be hearing all the same complaints about slowness and unreliability as we get with FTTN NBN. Also keep in mind, 5G infrastructure requires fiber optic cables for the backhaul, so 5G would be reliant on the NBN or some other fiber network to operate.

      I'm also not sure if your needs are in line with many modern consumers, with the increased adoption of 4K televisions, 4K content requires a large amount of bandwidth when streamed, and 4G would struggle to keep up in most instances, and even 5G may struggle with multiple devices simultaneously streaming.

      A full fiber NBN would be reasonably future proof for at least the mid term, with only changes to endpoint equipment required as technology improves.

        4G is fine, I have 100mbs fiber to the door, but my tiny 4G (some kind of 4G+) hotpsot gets me 150mbs at times.

        So if they had spent the NBN money on higher density of localised micro cells then 4G would be plenty fine.

        Also, instead of fiber to the node, they could have had interim fiber to local wifi, no problem at all and easy to upgrade as the "last mile" is not fixed infrastructure.

        And don't give any of the security issues BS - If I really had a desire to compromise your security I could take an optical tap off the fiber to your house and you would never ever know unless you found the physical device. That is just for starters.

        Last edited 20/09/19 3:05 pm

          It's always going to be harder to physically tap a service than to grab something from wifi. If nothing else you'll be a lot easier to catch on security cameras.

          You also don't address the congestion/interference issues that are regularly raised when discussing 4G/5G as an alternative. Sure you're getting good speed now, but if most of the people in your area are using fixed (or not even using internet) then it's not congested. If you've got everyone in your suburb using wifi and trying to watch 3 HD streams from Netflix while gaming and downloading how good is your performance going to be?

          Side note, I do think 5G will be fine for some people. Especially casual users who are just checking email or browsing the web, even in a congested scenario. I do however, think it will suffer for streaming/gaming/high volume downloaders though.

          Back to the article, I remember early political arguments against the NBN stating that there was no way it'd ever pay itself off. That there was no viable demand other than a "few" gamers and porn. It's amazing how short-sighted that was and how much business relies on the internet.

          4G is fine, I have 100mbs fiber to the door, but my tiny 4G (some kind of 4G+) hotpsot gets me 150mbs at times.

          Sure, but your FTTP is capable of 1Gbps+

          So if they had spent the NBN money on higher density of localised micro cells then 4G would be plenty fine.

          The infrastructure costs of this would rival the cost of residential FTTP installation for an inferior technology, so why?

          Also, instead of fiber to the node, they could have had interim fiber to local wifi, no problem at all and easy to upgrade as the "last mile" is not fixed infrastructure.

          WiFi infrastructure capable of possibly handling hundreds of connections is expensive, once again, why spend money on an inferior technology? Do it right the first time and you're saving money in the long run.

          And don't give any of the security issues BS - If I really had a desire to compromise your security I could take an optical tap off the fiber to your house and you would never ever know unless you found the physical device. That is just for starters.

          Sure, I wont notice a quite bulky box and whatever power requirements you need to tap fiber in my front yard, also sure you wont be caught on cameras while you install the tap. Pretty sure I could set up something like a WiFi Pineapple with much less risk.

        Fair points. Keep in mind we have FTTN and that is for many consumers as good as it gets. No arguments with mobile fibre backhaul (that’s where fibre makes absolute sense and towers are connected via fibre already). 5Gs differentiator over 4G is that latency has been “addessed”.
        FTTP would be far superior than anything else BUT wireless will very soon get to the point where it’s enough for most SOHO customers.

    After finally getting NBN cabling run to my house, and causing property damage in the process, I'm still facing a wait till 'maybe' Feb. 2020 to get my service hooked up - jeezus!
    Kind of like being sold an empty beer glass at the bar...

    I'm just glad I swapped over to 4G as I too would've been waiting until mid 2020. Currently, the best I could get was ADSL 2+ "Off Grid" which had major speed and latency issues. Now, my 4G never drops below 25mbs but averages 48mbs to 78mbs, this is a HUGE improvement to my old ADSL 2+ "Off Grid" which always never surpassed 8mbs!!! So bring on 5G and then inevitably 5G LTE...

    It took me a year to sort out my problems with FTTN, including not being believed when I quoted my speeds, and being threatened when I said I would walk away from my contract because it was not delivering what i pay for and therefore it had not been fulfilled. It took 2 attempts to fix, but at the moment I do get the best speeds available even though I haven't yet worked out where my node is. The only reason for this is that most people where I live do not use landlines, which means I have to think carefully before risking changing to 5G once that arrives. That, more than the NBN, will be my bottle-neck, but no matter how you look at it, the local internet services the govenment has lumbered us with are simply not good enough for what we are charged and its unlikely to change, regardless of what new technologies are invented. On FTTN we are mushroom babies.

Join the discussion!

Trending Stories Right Now