NBN Co should raise its prices (right?)

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.

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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, Telcos, NBN

About

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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54 comments
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  • Brilliant. That is all.
    HazTechDad
  • Logic has never been at the forefront of any anti-NBN argument. The common-sense approach to broadband access and provision for the NBN is quite tricky to attack for the Coalition, forcing them to pick between 'competition' (as if the current oligopoly is somehow competitive by comparison) and provisioning access for areas outside the main centers.

    It's becoming tiring to retread the same arguments over and over for the NBN. Private enterprise lacks the forethought, will or resources to undertake such a monolithic project, which rightly requires government intervention. Create a monopoly for wholesale access to allow a level playing field in the retail space. It's the right public/private mix for the overarching objective and it provides the nation with an asset that will pay itself off many times over during its operational lifespan.

    NBN Co so far have been doing a stellar job, I just wish it would get rolled out in my area sooner.

    In all honesty, I actually feel bad for Malcolm Turnbull. Abbott has nixed his leadership aspirations by effectively asking him to fight an unwinnable war. The Coalition know that the NBN is good policy, but have to oppose it because political point scoring is more important for the Coalition than whats genuinely best for the nation. Abbott shirks responsibility for opposing the NBN by sending in Turnbull, Turnbull is forced to look extremely foolish time and time again with weak attacks on Labor policy that the public is well behind and, in turn, loses influence within the party for doing an ineffective job.

    I guess we've just got to hope that Labor retain another parliamentary term, ensuring the NBN is completed as it should be and not gimped in some way by Tony 'I don't need policy, I just do the opposite to Julia' Abbott.
    RealismBias
  • "But I jest. I do that, especially on Fridays".

    Sadly David, you had the nay-saying puppets (who actually believe such farcical facetiousness, as you outlined initially) frothing with excitement, until those words.

    Nice work!
    Beta-9f71a
  • Great suggestion about saving money on Medicare and all those other wasteful, anti-competitive government thingies like schools and roads, David. But you forgot to include one more part of the picture.

    None of these things make a profit, so in your new paradigm the essential services like those and NBN, etc, may be just a bit scarce as you move out of the cherry-picked urban areas.

    That'll serve those regional and rural people right for not living in the latte belts. They don't deserve hospitals, schools, roads and communications networks anyway, so there. I'm all right, Jack . . .
    anonymousI
  • OH dear we are really loosing our perspective on priority when the luxury of an NBN is compared with an essential like health care. As I have said many times in this forum the NBN was always going to be too expensive for the average punter to use.
    GBE-71384
    • David was just using "your" NBN rationale, elsewhere, in the first paragraph... LOL!

      But Elvis, things have changed since the 50's. So instead of placing your head in the sand and refusing to see, perhaps you should...because health and technology can and should be combined to benefit us (yes you too) all...

      http://www.computerworld.com.au/article/409627/telehealth_can_reduce_deaths_by_45_study_shows

      From within...

      "Last year, a report from Accenture showed that the rise of inexpensive Internet connectivity and smaller, cheaper and "smarter" health electronics should deliver better, more efficient health care"...

      ..."The first set of initial findings ... show that, if delivered properly, telehealth can substantially reduce mortality, reduce the need for admissions to hospital, lower the number of bed days spent in hospital and reduce the time spent in [emergency rooms]," the Health Department saidn in a statement. "At least three million people with long-term conditions and/or social care needs could benefit from using telehealth and telecare.

      "But please, rather than learn and accept progress, scoff............. now and then place head firmly back in sand, thank you!
      Beta-9f71a
    • Health IS a luxury.
      That is why Abbott slashed a billion dollars off hospital funding when he was health minister
      Goresh
    • Many first world countries are declaring internet access a basic right, gone are the days when the internet was something only a minority wanted anything to do with.

      In regards to people not being able to afford it - you need to stop listening to the Liberal's and actually look at the pricing.

      Here is iiNet's pricing lined up: http://i.imgur.com/JKbzG.png

      For Telstra Wholesale users it is a 100x quota increase!! for iiNet DSL - it is 10x and 5x increase respectively. If you however want faster speeds iiNet will give you 100/40Mbps for the SAME PRICE as you pay for 'up to' 24/1Mbps ADSL2+.

      The NBN may have some flaws, and I'm always willing to debate them with people - however the issue about retail pricing is dead, buried and cremated - please stop bringing it up!
      Duideka-0e151
      • ... and 100/40Mbps is actually CHEAPER in some cases.

        ie 200G+200G 24/1Mbps DSL is the same price as 500G+500G 100/40Mbps NBN

        Astonishing.

        Again, price is NOT a issue.
        Duideka-0e151
        • And who is the first the bring up the subject again?
          Knowledge Expert
      • Indeed Duideka

        http://en.wikipedia.org/wiki/Right_to_Internet_access
        Beta-9f71a
    • Healthcare is a luxury, look at other countries.
      evilsync
  • I've recently set my Dad up in Kiama on the NBN.

    He's paying $34.50 a month for 20GB of downloads with a 12/1 speed. Certainly as fast as my ADSL2+ connection in the city.

    Now, as a pensioner he's enjoying cutting off the Telstra land line for $24.00 a month, and his internet price has dropped from around $40. Exetel charged $15 to transfer his phone number to them, and then calls are just 10c untimed.

    So GBE, how is it that in my Dads' case, the NBN is prohibitively expensive when he's saving around $24 a month????
    sydboy007
  • This would be the same Productivity Commission who recommends a 250% increase in university fees for medical, science and engineering students as the best way to address the shortage of doctors, scientists and engineers?
    Goresh
  • Under current legislation, the NBN may well balance high profits in some geographical areas with low population density areas that run at a perpetual loss. All good in theory.

    But let's not forget that there once existed another nationwide communications company that was owned by the tax payer. That organisation had the same general idea, charge a flat rate for their products regardless of location, to provide services to the bush for an affordable cost to the consumer. They owned virtually all of Australia's telecommunications network.

    But it all fell in a big heap when this organisation was privatised. Suddenly there are share holders to be considered, and a large profit needs to be made. What a mess we ended up with.

    So while it's good in theory to have the NBN playing Robin Hood, and taking from the rich to give to the poor, the fact is that it's only a matter of time before some government privatises the NBN, and we have another PMG / Telecom / Telstra scenario.
    m35oz
    • No, we won't end up with another Telstra.

      The NBN is wholesale only. Unlike Telstra, which is a vertical monopoly.

      Second, the NBN is regulated by the ACCC. Their SAU to the ACCC calls for a maximum rate of return of bond rate+3.5%.
      HazTechDad
    • Not quite sure which 'nationwide company' you are referring to there, m35oz.

      It's certainly not Telstra, because they had multiple charging zones right through their PMG, TA & TC iterations, which they chose to retain long after modern equipment should have made such steep charging unnecessary.
      anonymousI
  • And the alternative being the status quo or the oppositions ... "just gift private companies $b's and wash their hands"!

    Again, the NBN isn't perfect (nothing is). But it is "far and away the best option, imo"...!
    Beta-9f71a
  • Noone here shows the remotest understanding of the analysis in the PC's report, including the author. Be clear - it is this government's policy that government businesses like NBN Co must charge a commercial rate of return. If they do not then they have to justify the lower rate of return by assessing and demonstrating the additional social benefits from their activities. That policy is called competitive neutrality. It has been in place for over 15 years. That is all the PC has done - it has evaluated the NBN policy against the government's competition policy and found that the NBN Co business model is returning less than a commercial rate of return but the government has not evaluated the additional benefits to justify this as it is required to do under its own policy. The government refuses to properly assess the benefits of the NBN. Maybe that is something to ponder - if this NBN policy is such a good model, why does the government not do the benefits assessment?
    policyfacts
    • The key part of your comment was "more than 15 years" ... competitive neutrality was a piece of Howard legislation which no other government or opposition has agreed with since it came into law.
      It's like measuring all labour reforms against Work Choices to see if the reform meets muster.
      Sadly, though competitive neutrality was actually written into law despite it being more neo-liberal dogma rather than sensible policy.
      jd@...