Libs' credibility spent on NBN pricing

Libs' credibility spent on NBN pricing

Summary: Sometimes, even the Liberal Party gets what it asks for — in this case, a guarantee that NBN pricing won't match Internode's dizzying heights. But when the party still manages to find a way to complain, it's hard not to wonder whether its anti-NBN financial arguments are so riddled with inconsistencies that they're no longer relevant to the world in which the rest of us live.

TOPICS: NBN, Broadband, Telcos

I have always admired the convoluted art of MC Escher and Salvador Dali­. I understood the plots of Inception, Momento and Mulholland Drive at first viewing. I even know some of the lyrics to "Louie, Louie". But I cannot, after years of trying, make sense of a Coalition telecoms policy that repeatedly and determinedly ignores reality to support a politically skewed and desperately optimistic world-view in which unfettered private-sector interests will supposedly deliver future-proof broadband to everybody for free.

The Coalition's telecoms platform is more of a Möbius strip: one-sided, repetitive and inescapable. (Möbius strip image by David Benbennick, CC BY-SA 3.0)

But I'm getting ahead of myself. Rewind to Monday morning, when iiNet's NBN pricing hit the wires and tech journalists wondered aloud how NBN-hating Liberals would spin prices ranging from $49.95 to $99.95 a month. With a single announcement, iiNet proved that Internode's pricing — which put 100Mbps/40Mbps services at a nosebleed-inducing $189.95 per month — was an anomaly (and one which will soon, apparently, be changed).

We now know that, despite years of Opposition bleating that the NBN was going to bleed us dry, NBN services will cost between $34.50 and $99.95 per month. That is so similar to current ADSL2+ pricing that it casts a pallor over the Liberal Party's entire strategy of blasting the NBN as a high-priced white elephant. In fact, with just around 1800 customers online, the NBN has already emerged as a highly competitive marketplace.

The Opposition will never admit it, of course. But it doesn't have to: any right-thinking observer can see the absurdity of the party's position when it is compared with reality.

Remember back in July, after Internode's pricing was released, how Malcolm Turnbull hastily called a media doorstop to tell journalists how the pricing absolutely, positively proved the NBN was a failure and that Stephen Conroy had no credibility at all? He created a huge sensation: news reports screamed about the high price of the NBN; talkback radio was abuzz with NBN non-believers who screamed about the high price of the NBN; it seemed we were destined to get ripped off.

After iiNet's pricing was announced, I asked Turnbull's office when he would be holding a doorstop to discuss the implications of the pricing. Surely, I figured, he would have an opinion about the latest figures, just like he did the previous time?

Sorry, came the response; he was going to sit this one out.

Fletcher says if consumers wanted 100Mbps speeds, they would be willing to pay prices like Internode's $189.95 package.

Happy to step into the ring, however, was Paul Fletcher, another opinionated Liberal minister who you would've thought knows better. He's the one, remember, who stood up in parliament and said discount NBN pricing from Exetel and Dodo could be ignored because they were cut-rate operators with dismal customer-service track records (I still reckon an offended Larry Kestelman is holding back on announcing Dodo's NBN pricing until he finds a way to deliver it for $29.95 a month).

iiNet, of course, is our second-largest ISP and is well-known for providing good service; this fact alone torpedoed Fletcher's argument dead in the water. But he's a relative newbie and apparently doesn't know when he's been beaten, so Fletcher rushed ahead to fill the vacuum Turnbull had left behind. His subsequent announcement argued that iiNet had proved the NBN won't be cheaper than ADSL — and that its ability to price high-speed plans under $100 proved that "an experienced retailer like iiNet does not think consumers will pay much of a premium for those speeds".

Fletcher's claim that the NBN won't be cheaper than ADSL is correct, but I don't believe anybody ever believed the point of the NBN is to deliver broadband for pennies. The Liberals' habit of comparing real-world pricing to their unspoken ideal pricing — which would seem to be zero, from the sound of it — falls flat when one considers that the NBN is indeed comparable to existing broadband offerings.

Fletcher really jumps the shark, however, when he claims that iiNet has lowered its NBN prices based on low expected demand. If consumers wanted 100Mbps speeds, he is saying, they would be willing to pay prices like Internode's $189.95 package — but just weeks ago, the Coalition's entire argument about the NBN was that consumers would not be willing to pay $189.95 per month for fast broadband.

Similar logical inconsistencies popped up in the discussion that followed my inquiry to Turnbull. iiNet or not, he said, the real pricing issue was that NBN Co had already indicated it would be raising wholesale prices by an average 5.7 per cent per annum for the next 12 years. That is the real issue now, his dodge-and-feint strategy now argues.

I don't know about you, but my council rates went up by around 9 per cent last year, water by 10 per cent, train prices by over 10 per cent, electricity by even more. Only mobile rates and internet access stayed the same, and that's because they're contractually set. Not so for my coffee, which has increased by about 15 per cent — which for a journalist is a serious hit to the bottom line.

In real-world terms, then, even if NBN pricing went up by 8 per cent annually — to account for wholesale increases plus an inevitable retail margin — it would actually be no different than the increases we're copping from nearly every other part of the economy. Does this represent a failing on the part of the NBN's business model, or simply reflect the fact that life in Australia is getting more expensive every year?

Turnbull, Fletcher and their peers would have you believe it's the former — heck, for them, everything is a failing of the NBN's business model — but you and I know that it's really a symptom of the latter.

The funny thing is that the Coalition has long demanded proof that the NBN is going to generate enough revenues to be financially viable, but entirely reasonable plans to set product prices and increase costs, like the rest of the world does to deliver acceptable financial returns to investors, are knocked back time and again.

One can only conclude that the Coalition's NBN will be given away for free, built on a shoestring budget, deliver robust next-generation infrastructure, and magically generate enough revenues to pay for itself and deliver commercial returns. Furthermore, this is all meant to happen by the goodwill of a private-sector telecoms sector that will, through some magic, suddenly be inspired to invest billions in next-generation infrastructure for nothing more than the warm fuzzy feeling it will give them.

Rather than having a telecommunications platform, the Liberals have a policy Möbius strip: you can look at it from as many different angles as you want, but in the end it only has one side.

When I asked Turnbull if this meant a coalition government would subsidise NBN access to preserve the profits of these apparently altruistic private-sector operators, there was no response.

The Opposition has made an art of rampant NBN criticism and dodging requests for hard facts in support, but its constantly-shifting ideology remains riddled with internal inconsistencies. It's understandable that government intervention in infrastructure markets may seem unpalatable for free-market, big-business advocates, but the Liberal Party's constant policy tweaking, back-pedalling and logically inconsistent policy rephrasings are rapidly diminishing it to a telecoms industry sideshow.

Rather than having a telecommunications platform, it appears the Liberals have a policy Möbius strip: you can look at it from as many different angles as you want, but in the end it only has one side. There is no progression or escape; and if you follow it, you think you're getting somewhere but always end up at the same point.

iiNet gave the Coalition what it said it wanted — lower NBN pricing — but the Opposition still isn't happy because it fundamentally wants no part of Labor's NBN. This is Liberal's prerogative, of course, but it is also the prerogative of logically-minded voters to expect a more rational argument that might, just once, be punctuated with the admission that something about the NBN isn't really that bad.

Christopher Nolan may have been playing with our minds in Inception, but even that universe had internal rules that must be followed. Opposition policy enjoys no such restrictions — and this fact could become the party's biggest shortcoming as the steady progression of less-than-horrible facts around the NBN proves the Liberals are doing nothing more than tilting at windmills.

What does iiNet's pricing tell you about the NBN? Would you like to see a more reasoned opposition, or even one which is capable of recognising it's been proven wrong? Or is the pricing still too expensive? In which case, how much would you pay for the NBN?

Topics: NBN, Broadband, Telcos


Australia’s first-world economy relies on first-rate IT and telecommunications innovation. David Braue, an award-winning IT journalist and former Macworld editor, covers its challenges, successes and lessons learned as it uses ICT to assert its leadership in the developing Asia-Pacific region – and strengthen its reputation on the world stage.

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  • What a load of garbage
    • Damn fine response that pap, ever considered a career in analytical criticism? No? Ah...
    • Yes according to the NBN Corporate Plan 2011 – 2013 the stated goals of NBN Co pricing are to provide value that is equal or better than what is available in the wholesale market today and foster early migration. And of course retailers in competition with each other will reduce plan costs as customer bases grow.

      But even if the retail prices quoted here represent some sort of base, the ability to compound annual increases may quickly remove equal to or better than pricing.

      For example there’s nothing to stop NBN Co shifting its goals in order to improve ROI. The reality is that NBN Co will be chalking up huge costs throughout most of its roll-out time – a build lasting 10 years or more. And there’s real exposure to further build cost blow-outs.

      But the real impetus to equal or better prices is dependant on whether or not several of the NBN business case assumptions will be met. For example those assumptions include level of take up, speed and data usage (“demand”). If demand is stronger than assumptions, my bet is that wholesale prices will move up subject to existing supply agreements. On this basis retail prices would follow suit. With increased prices, the public either (1) accept (2) downgrade plans (due to affordability) or (3) use an alternative such as LTE where possible. Higher demand/pricing - the problem swings against the broadband user - price increases eating into affordability. Well meaning goals can soon easily be forgotten and changed particularly by new monopoly with a hotline to Canberra.

      But on the other hand, right from the beginning demand could fall well short of assumptions. Reasons may be many and varied but the lack of overall Australian affordability for high speed and data usage might be one, while stronger than expected competition from LTE might be another. In this case the wholesale price is more likely to move down. But with lower demand/pricing - the problem swings back to shareholders – the Aussie taxpayer as the assumed ROI will not be there.

      So there’s plenty of uncertainty surrounding annual cost increases, increases in NBN final and ongoing costs, the potential to move goals for a higher ROI, and the level of future demand. That means there’s plenty of uncertainty about future wholesale and retail prices.
      • although i "do not agree", nice post sachmodog.

        you have finally put your point across succinctly. normally i read your posts, giggle, shake my head and think liberal sheep. but i actually enjoyed reading your post.

        but regardless of what any government does there will always be risk and unfortunately, we cannot wait forever for LTE or whatever the latest trend, with the inevitable same limitations, may be (this week). because the nature of these builds equates to years not months, so every year we sit idle is another year lost.

        other countries have been replacing their copper with fibre since the 90's, yet here we are in 2011 and still squabbling over the politics of cost, roi etc and totally ignoring the nuts and bolts. the pstn is superseded and unable to handle our needs now let alone in the future and it needs replacing (like dirt roads/asphalt - I know it's a well used analogy but it is spot on).

        the pstn is a telephone network (hence pstn) which was adapted for internet usage out of necessity alone and as such it has been a great interim measure. but it can no longer handle the requirements even now. for example, you buy an (up to) 24Mbps plan today but may only achieve 6, 12, 18Mbps, because of distance factors. lets's be realistic here, there's not too many products you or I would accept where you pay for 24 but receive just 6, simply because the supplier says, sorry that's the way it is, like it or lump it. we wouldn't accept it and the ACCC wouldn't allow it, so why do we accept it in comms? exactly as i said to mr svperstar, i do not agree it's right but it is the way it is done now, so... let's fix it.

        then we have the let private enterprise build it furphy. of course, they will not invest in unprofitable areas, so there will never be a fair, oz wide network unless the government does it or pays for a lot of it...period! so which is best for the nation/taxpayers?

        sure private companies will invest the minimum they need to in cities, scrape the cream and if the government (read us TAXPAYERS) will pay them $bs to build and own OUR network, then they will of course build in rural areas.

        but where's the poor old old taxpayer (who under the NBN will own the network which will pay for itself over time and can be sold off later at a handy premium), the very taxpayer you people claim to be so concerned about in such an alternate scenario? they/we get 0, in fact our hard earned tax dollars are gifted to big business and we are out of pocket to the tune of $b's, which will never be recouped/repaid and we will NOT own the network/asset for future sale.

        this is the most hypocritical part of all of this. the incessant claims of the opposition and their supporters, re poor old taxpayer because of the nbn, but the system they promote is actually absolute, anti taxpayer and simply pro ideology.

        so that then evolves into another ideological argument "(socialist) monopoly". totally ignoring that comms again likes roads, is a natural monopoly and ignoring the unhealthy stranglehold one comms company currently has over australia. seriously, generally when buying goods we do not deal with owners, distributors (a lot of the time SOLE distributors) when we buy products, we deal with retailers and pit them against each other - i.e. competition. we really don't care who the distributor is and whether they have a monopoly on that product/brand, because in the end, we want the best retail deal. nbn is exactly the same.

        the choices are -
        1. one lot of nbn cabling to your home with a choice of many rsp's
        2. lot's of non nbn cabling to your home (if you are profitable enough) with choice of those who own the cables, only
        3. choose one non nbn isp, have then install the cabling and be stuck with that one isp forever or until you pay for another isp to install more cables.

        then we have another furphy, that isp's having dslams installed is competition. come on, installing a dslam in a "telstra exchange" and connecting to "telstra's network" is not network competition. as david havyatt pointed out in another forum, in relation to the existing dslams and nbn pois...

        "DSLAMs in exchanges are no more "infrastructure" than the equipment ISPs will install at POIs".

        absolutely spot on david... if dslams is competition, then the nbn poi scenario is competition too, you can't have it both ways...

        seriously now, what ever happened to aussies paying their taxes and the taxes then used for upgrading national infrastructure? umm, isn't that what taxes are for? yet for this project alone... the conservatives want assurances of absolutes that they themselves as business people, know can never be provided. absolute minimum prices for consumers whilst receiving maximum roi...impossible.

        good thing we have able people like mike quigley doing the juggling act to give us the affordable prices we have been promised, whilst keeping the fiscally anal at bay with a realistic roi...
        • The now civility is a surprise. It is accepted strictly on the basis that it is understood that a reversion to feral outrage could be an any time likely scenario. In fact that might have already happened today elsewhere – so for that there could even be some regret - today.

          Now it would be no surprise to you that choice 3 – to the extent of one non NBN-isp providing cable to your home is essentially a/one structure I could support. The big licks of fibre to exchanges/nodes can still owned by one entity Australia wide. Obviously it would be a condition of non-NBN Co winning the rights to build and operate a sector, that strict service and pricing provisions be agreed. There can be agreed penalty clauses and termination/ISP substitution clauses based on strict breach thresholds etc. Pricing and performance could follow the regulated model administered under an independent regulator.

          I accept the hollow arguments about competition under DSLAMS verses POI etc.

          I find it difficult to automatically accept the argument that cable must be or should be part of “national infrastructure”. That’s not to say that I don’t have empathy for national infrastructure. But when I think about national infrastructure I think of roads, bridges, ports, schools I think of 20-50 years life. I think of very essential services. The idea that cable is or should be national infrastructure is really just an extension of knowing that copper was once wholly owned by taxpayers via PMG/Telstra. But rightly or wrongly, I would be genuinely surprised if cable remains the majority backbone of node to person or premises communication inside the next 20 years. On this basis it doesn’t automatically qualify as worthy national infrastructure.

          But what I am more concerned about is the sale of NBN Co at an anticipated profit. This is where I believe things may come unstuck. Will we get back the cost of the NBN in sale $ proceeds?

          Reasons in the negative:

          (1) There are a limited number of Australian corporations worth anything like the overall $47.7 billion NBN cost. Even less so in the telecommunications industry (i.e. Telstra is currently capitalised at $ 38.39 billion Optus $38.2 billion).

          (2) As you know the revenue/costs/earnings/ competition will largely determine the end value/price of NBN Co itself not actual cost. It is because of the uncertainty surrounding those aforementioned factors that it is anyone’s guess as to end value/price. Maybe in the end, we will get back to separating the unprofitable verses profitable - nothing would surprise.

          (3)The real threat of new technology competition risks cutting away at NBN value all the time (already alluded to above)

          So I think it is wrong to automatically assume that taxpayers can sell off to break even or make a profit. But to be fair, at a guess, the potential loss I refer to above maybe equal the cost of subsidising non profitable sectors under choice 3.

          So that still leaves me on the side of leaving government with responsibility provide only a regulated legislative and contract framework + some subsidy for unprofitable sectors, with a transfer to private companies of the essential investment and business risk. Cake and eat?
          • firstly thank you for the mostly civil reply.

            it seems you have finally noticed that if you come here to correspond rationally, i will do likewise. but if you come here as you have previously, as an unofficial spokesman for a political party (any party) with corresponding sarcasm, you will be treated with the contempt you deserve.

            as for your ideas most novel in a simplistic way imo and really going over no new ground.. i.e. in your now veiled opinion, labor still couldn't arrange the proverbial in a brothel, so nbnco's forecasts are wrong and your's nbn no good, bring in private companies (in a nutshell).

            funny you don't think communications (cable) is national infrastructure? so if conflict broke out, you don't think modern telecommunications would be of national importance? going to the nth degree i know, your here said sh!t happens!

            anyway we are going around in circles. i could take each of your numbered points and counter-point them. then you could do likewise again. alas neither of us will budge.

            funny however, that you now say after screaming monopoly, one entity can in fact own the oz wide network to the node...

            perhaps there's hope for you yet ;-)
          • Yeah while Labor's arranging ability does we go... wait for it....Quigley appears to be doing pretty well!

            Tad over to say that I meant my forecasts were right. Just meant uncertain and NBN won't be right cause projections are almost never right.

            If s h don't worry the government has plenty of broad wartime authority to take control over industry and services including cable. We can both get uniforms as well (if you want)
          • yes well they won't need that authority and you won't need that uniform with OUR SOCIALIST nbn, eh ;-)
  • I am sure he was speaking of the Coalition responses and not the article...:)
  • This is the greatest article on the NBN I have ever read, sir. Spot on.
    • Not 100% on greatest - but I second this!
      • Thanks folks, really appreciate it. Wonderful to see that it has elicited such a massive hailstorm of discussion! (through which I am still working :-P)
  • Great article... The coalition never mentions that the prices include landlines.

    From our Petition Results it is clear that the vast majority of Australians would switch to the NBN when it arrives. In fact; they can't wait to get it!

    94% want it.
  • OK the NBN might be the same price as the services we have now but we are paying 35 billion to set it up, that is a hell of a lot of money that we, the tax payers are paying. What a waste. Everything I hear says that hardwire is on the way out and wirelss is the future, if thats true or not i dont know but any way you look at it this elephant is costing us 35 billion, thats us, the tax payers, and you bleet that it isnt any more expensive than what we have now, well it is you know it is 35 billion more expensive. This is a bad government that wastes our money, the school rebuild scheme, 1.5 billion was proved to be wasted on that, the pink batt scheme wasted I dont know how much but also burnt a heap of houses down and killed 4 installers, the $700 tattoo and big screen tv scheme, how much have they spent trying to stop the boats, the latest bungle was paying for 4000 refugees to be flown from Malaysia to here, I remember reading somewhere that little stuff up cost 300 million. This government is hopeless.
    • You are incorrect with your figures Peter. The tax payer will only invest 27 Billion in this infrastructure (that means the revenue it creates will pay us back). It is also incorrect to call telecommunications infrastructure a waste of money. That is why both the Coalition and the Labor party are prepared to invest money in it. If you actually mean 'value for money' then that's what you should say. And considering you are not across the technologies like wireless, it may be better to inform yourself before forming an opinion (don't just go by what you hear as there has been many misleading articles on this topic). If your concerned with waste than perhaps you should focus on the Coalitions carbon polution reduction policy. They have said they will pay industry over 3 billion to cut there carbon emmissions. Turnbull has said publicly that it will cost much more than this to achieve the 5% reduction by 2020. Therefore they are spending our tax payers money to achieve a goal, there own members think is impossible! This is a waste..
      • Sure $27 billion. But have you got a memory lapse on the extra $11 billion to be paid to Telstra? Plus possible overruns. And who really knows when revenue will capable of paying back. NBN forecasts are just that. If LTE was not a large part of the future why would Telstra , Optus and others be planning such huge wad investment into LTE? LTE will eat projected NBN revenues.
        • just when we thought this thread couldn't possibly get any sillier, due to the involvement of the chatbot (thanks gwyntaglaw) mr ss, looky here.

          now that you have told us about the competitiveness of LTE, why don't you embarrass yourself as you normally do and now mention nbn monopoly too?

          seriously if you clowns are aussies i'm not telling anyone i am from now on...!
        • Seriously, why do you fall for the Libs figures? These are the people that spent $600k per person "processing" Naru refugees and think CO2 is "invisible, so it doesn't matter".

          I'll take the NBN's forecasts over theirs any day....
    • and for you Peter...

      as one who dislikes politicians generally, here's one from left of field and the who would ever have thunk it files... suggesting the nbn and australia is actually in good hands.
    • wow, looks like the liberal party online response team is stepping it up this week...

      btw for those unable to distinguish a paid political shill vs an actual commenter it's really easy to spot, they'll mention the issue in the article, taxpayers then move onto other topics to associate negativity with until it comes down to "gobermint bad, vote other partie!" they all follow the same formula.
      Hubert Cumberdale