NBN Co should raise its prices (right?)

Summary:Medicare has run its course, and we should immediately shut down the organisation and repeal the legislative framework that enables Australians from getting quality healthcare. In its place, we should put a framework that lets commercial healthcare providers compete on a level playing field, charging us whatever they need to make adequate commercial returns. This is because Medicare is, as we all know, an anti-competitive, government-supported roadblock to fair and full competition in healthcare, which is a vital sector of the economy.

Medicare has run its course, and we should immediately shut down the organisation and repeal the legislative framework that enables Australians from getting quality healthcare. In its place, we should put a framework that lets commercial healthcare providers compete on a level playing field, charging us whatever they need to make adequate commercial returns. This is because Medicare is, as we all know, an anti-competitive, government-supported roadblock to fair and full competition in healthcare, which is a vital sector of the economy.

(Aussie bank notes image by vagawi, CC2.0)

We should definitely do the same with the NBN. Shut it down, kick Stephen Conroy and his posse of hepped-up, cashed-up nation builders to the kerb so we can leave the development of our telecommunications market to private-sector infrastructure builders — who will then be able to make an adequate profit in charging us for services that NBN Co is determined to give us at reasonable prices.

Stuff reasonable prices. In fact, forget that last paragraph. Based on the results of the Productivity Commission's exploration of the NBN, and suggestion that it may breach competitive neutrality rules, the easiest and most direct course of action is simple; raise NBN Co's wholesale prices enough that it can deliver a private sector-like return.

Yep, raise the prices so that NBN Co can get a commercially acceptable return of around 8.4 per cent to 12.4 per cent. Then the NBN will be a properly commercial endeavour, government coffers will fill faster, the Productivity Commission will be satisfied that the NBN isn't making things hard for gen-u-ine investors, end users will know that they're paying more for broadband than they have to, just to ensure that NBN Co is making enough profit, Liberals will no longer have to complain that NBN prices are too low and Malcolm Turnbull can ignore the NBN and line up his ducks for his PM tilt next year.

But I jest. I do that, especially on Fridays.

The most surprising thing about the Productivity Commission report is that it seems to have been born in that strange netherworld, completely devoid of common sense and understanding of years of discussion about the project.

Yes, the NBN is a monopoly. Yes, it will generate a relatively low rate of return compared with private-sector projects. Yes, it will result in retail prices that are far lower than the doom-and-gloom predictions of its rivals. That's why it is, fundamentally, a piece of nation-building infrastructure and not a fully commercial project.

The whole reason that the NBN is aiming for a relatively modest 7 per cent return is simple; it is combining the areas where profit will be higher — dense inner-city deployments having large numbers of customers — with rural areas, where low numbers of customers make its services unprofitable. This kind of cross-subsidy has been the unapologetic business model of the NBN for years — Stephen Conroy told me this over a year ago about Tasmania's NBN services, and Mike Quigley confirmed it earlier this year in admitting that parts of the network will never be profitable — and it's common sense to any thinking person conducting even a cursory analysis of the project and its objectives.

Hold on; back up two points. Will. Never. Be. Profitable.

These words strike fear into the hearts of commercial operators, and they are the exact reason why the NBN isn't being planned with terms that would make it commercially competitive in the way that the Productivity Commission seems to desire. NBN Co's returns are being dragged down by its determination to service areas that profit-minded, private-sector operators wouldn't touch with a 10-metre barge pole.

This has always been the implicit compromise in the network's design and premise, and deciding whether this sort of financial structure is allowable doesn't require the involvement of the Productivity Commission. It doesn't require prices to be raised to preserve the profits and competitive abilities of alternative fibre providers. All it requires is asking yourself one simple question:

Do you believe that all Australians, regardless of where they live, should have access to world-leading broadband and communications services?

If you answer no to this question, then you're missing the whole point of the NBN. And if you answer yes, there is no way to satisfy this goal without government intervention. And if the government is to intervene, then you must consider whether you'd prefer it keep prices as low as possible to fuel a competitive retail market, or whether you'd be happy to allow it to charge higher prices to ensure that the principle of competitive neutrality is not violated. And if you're happy to pay higher prices, well, that just about settles it, doesn't it?

What do you think? Would you be happy for NBN Co to raise its prices to preserve competitive neutrality? Or do we need to simply accept that the NBN is an infrastructure monopoly, and its egalitarianism requires non-commercial terms and a unique sort of competitive environment?

Topics: Broadband, Government, Government : AU, NBN, Telcos

About

As large as the US mainland but with a smaller population than Texas, Australia relies on ICT innovation to maintain its position as a first-world democracy and a role model for the developing Asia-Pacific region. Award-winning journalist David Braue has covered Australia’s IT and telecoms sectors since 1995 – and he’s as quick to draw le... Full Bio

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