Coalition to end the NBN monopoly

If the Coalition wins this year’s election, two things will happen to the NBN: it will no longer be a monopoly and it will become about half user pays.
 
I understand one of the key elements of the Coalition’s NBN policy, to be released in a few weeks, is that Telstra will be able to compete with the NBN Co as a wholesale provider of broadband internet access using its hybrid fibre-coaxial (HFC) cable.
 
Under the current deal between Telstra and the NBN, Telstra is to be paid for migrating customers from both the copper access network and the HFC to the NBN, other than pay TV customers.
 
This means Telstra and the NBN Co will compete in the cities, where Telstra’s HFC cable passes about 600,000 homes, but not in regional areas, where NBN Co will retain a monopoly.
 
That, in turn, means two things: first, Telstra will continue to be an integrated retail/wholesale operator in the cities and the “structural separation” of Telstra will be confined to places where it has no HFC cable, and second, internet prices in the city are likely to be lower than in the bush.
 
Coalition communications spokesman, Malcolm Turnbull, is likely to defend the idea of a price differential between the city and the bush by legislating a uniform maximum price for wholesale internet access across Australia. If it is lower in some areas because of competition, then it’s felt that this will be politically acceptable as long as the maximum is reasonable.
 
Australia will therefore have a wholesale internet duopoly, with one of the two players also a retailer able to use its competitor’s network to deliver services as well. Should make the ACCC’s life more interesting.
 
The main reason for ending the NBN’s monopoly and allowing Telstra to compete with it is that the Coalition hopes that will allow cash payments to Telstra to be reduced.
 
The other way the Coalition will reduce the cost of the NBN, as is well known now, will be to stop the fibre rollout at ‘nodes’ that serve several hundred homes, with existing copper used for the last leg of the journey – that is, it will be FTTN (N for nodes) rather than FTTP (P for premises).
 
The current NBN process, which is badly behind schedule, involves running fibre down each street using Telstra’s ducts and pipes and then connecting each home for free.
 
Using the copper for the last section is expected to save about $2000 per home, or nearly $20 billion – almost halving the cost of the NBN to the government.
 
Households and business that want fibre all the way can get it – they just have to pay for it, presumably by writing a cheque to the government for $2000.
 
That leads to a few awkward complications, one being that there will be some homes and business already connected to NBN fibre to the premises network for free. Will Mr Turnbull send them an invoice for work done? Hardly. They’re just likely to be very lucky. But happily, given the delays in the NBN rollout, there won’t be too many of those.
 
More importantly, the pricing structure for the NBN will have to become much more complicated.
 
Apart from competitive pricing in the cities, there will presumably also have to be different – lower – prices for those who pay for fibre to their premises, otherwise why do it?
 
And bear in mind two things:
 
1. Once the NBN’s last mile of fibre is made user pays, it must stay that way forever. The government can’t suddenly announce in, say, ten years’ time that NBN fibre connections will henceforth be free without repaying all those who have already paid for their own fibre; and

2. Those who pay for fibre all the way will be the heaviest users of bandwidth, and therefore the most profitable customers. In some ways, NBN Co would be better off giving them fibre for nothing.

But by only running fibre to the nodes, and by allowing Telstra to compete with the NBN in the cities, the Coalition will cut the sticker price of the NBN to about $20 billion and thus make it happen more quickly and eventually become a more profitable business, which is what it has been promising to do.

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