NBN expensive now, worse in the future?

NBN expensive now, worse in the future?

Summary: A scan of existing fibre-to-the-premises (FttP) plans around the world shows that the NBN is already an expensive proposition, with bigger issues down the track.

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In the UK, BT is now offering its Infinity solution, with 160Mbps download speeds in selected areas — admittedly with a miserly 20Mbps upload speed — for just £45.75. That includes a rather curious insistence that you pay £10.75 for line rental, the telltale sign that BT was once the incumbent monopoly.

These days, £45 is worth just AU$70. That makes an iiNet AU$99.95 plan for 100Mbps on the National Broadband Network (NBN), with 1Tb of downloads, seem a little on the pricey side. 1Tb might sound like a lot, but two hours of high-definition videos per night will chew through at least two thirds of that.

home-fibre-plans

Here's the rub: High-speed connections will bring a plethora of over-the-top services, with many reliant on bandwidth-hungry video. That means paying more for the speed of the connection to the home (the access virtual circuit) and fatter connectivity circuits between the NBN and the retailer's own network (connectivity virtual circuit).

While NBN Co has announced that pricing will remain static for the next five years, consumer demand for bandwidth will see service providers wanting more capacity, with no economies of scale from the increased traffic passing between their networks and the NBN. Most telecommunications infrastructure achieves economies of scale, but this is a key component that won't. It means that retailers will have to increase prices as demand for more bandwidth also increases.

Yet, in the UK and many other places, usage is generally unlimited, although some limit P2P speeds at peak times. If Australia's pricing seems expensive now, there's every chance that the differential will increase. Overseas companies will sign up more people and achieve greater economies of scale, while Aussie service providers have to meet the cost of people using the NBN for exactly what it was designed for — transferring lots of data.

Perhaps I am being a little mischievous. NBN Co will always make the prices as low as possible while meeting the required return on investment for the government. So, if demand for bandwidth increases markedly, it's likely that its connectivity prices will drop.

It's unlikely, though, that prices will fall enough to match prices from fibre-to-the-home (FttH) investments overseas, simply because we're cross-subsidising huge tracts of the country where fibre would be too expensive to deploy on a purely commercial basis.

In large parts of the country, the international price differential is irrelevant. Without the NBN, you wouldn't get fibre at all. In other areas, look at the difference as a tax that will create jobs and growth opportunities for regional Australia. It looks like that tax could become as much as AU$30 per connected household per month. Hopefully we'll see payback from increased national productivity.

When you look at it like that, perhaps the difference is a small price to pay.

Topics: NBN, Government AU, Australia

About

Phil Dobbie has a wealth of radio and business experience. He started his career in commercial radio in the UK and, since coming to Australia in 1991, has held senior marketing and management roles with Telstra, OzEmail, the British Tourist Authority and other telecommunications, media, travel and advertising businesses.

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34 comments
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  • More expensive than what?

    There is no alternative, so it's a case of doing it and trying to minimise costs. What would be expensive is not having an NBN and the benefits it offers.
    Tony_McS
    • Plenty of alternatives (as the rest of the world shows)

      Other markets are delivering what the NBNCo is still talking about using a variety of technologies, at a considerably less cost. These are not press releases or hypotheticals but actual services with customers.

      Some of us believe there are lessons that can be learn't; others squark "NBNCo". Surprising what we can find when we look.

      Returning to the article :

      "Perhaps I am being a little mischievous. NBN Co will always make the prices as low as possible
      while meeting the required return on investment for the government."

      NBNCo's price is a factor of 3 points: 1) required amount to keep NBNCo expenditure off-budget, 2) capex AND opex expenditure and 3) borrowing costs.

      First puts ROI around 7% (arbitrary figure), second is unknown. Forecasts so far provided in the corporate plans have over quoted delivery, underquoted expense (typical for Govt entity). NBNCo purpose is not to make prices as low as possible, but to deliver a fibre network. NBNCo forecasts peak borrowings forecasted at $44b!

      "In large parts of the country, the international price differential is irrelevant."

      Really? Of course not;-)

      The price differential might be explainable / justifiable but never irrelevant.

      Since the announcement of Rudd's original $4.7b NBN later morphing into a $63.8b beast most, if not all, competitive infrastructure spending has been halted. Massive public subsidy required, delivery a year behind schedule (going for only 3) and the forecast to deliver 10 years into the future; breakeven hoped for in 2021. It's a circus!
      Richard Flude
      • "Since the announcement of Rudd's original $4.7b NBN later morphing into a $63.8b beast"

        False.


        "delivery a year behind schedule (going for only 3)"

        False.


        "It's a circus!"

        Your comments certainly are. Oh wait it's very exciting let me rephrase that; Your comments certainly are!
        Hubert Cumberdale
      • Irrelevant

        I actually said "In large parts of the country, the international price differential is irrelevant. Without the NBN, you wouldn't get fibre at all".

        As you can see, I have succeeded in upsetting both sides of the camp.
        phildobbie
        • Didn't upset me Phil ;-)

          My question still stands though - more expensive than what?

          None of the other so called solutions comes close to the NBN and would probably be even more expensive if we wanted to lower our expectations and use them.
          Tony_McS
          • Yes, what's the opposition's plan?

            Agreed. Other countries are not rolling out to the same extent, so it's naturally cheaper because they are not covering the expensive to reach locations. That's why I make the point at the end that, though expensive, hopefully the economic benefits shall overcome.

            If the opposition won't to roll out fibre to 93% of the population without cross subsidisation, it would mean:
            - much lower prices in major cities
            - the need to more heavily subsidise elsewhere.

            Direct subsidy to regional Australia (to get down to major city prices) would be more expensive than the Labor plan, because the consumer price would be lower and it would all have to come from tax, not from NBNCo.

            So the opposition has a question to answer:
            - does the government subsidise the bush OR
            - does the bush have a lesser service than the cities.

            Phew. That should keep the trolls at bay!
            phildobbie
      • Richie :D Hi there!

        "Other markets are delivering what the NBNCo is still talking about using a variety of technologies, at a considerably less cost."
        Really? Well NBN Co are talking about 1 gbps, what other technology is delivering that?

        "NBNCo's price is a factor of 3 points: 1) required amount to keep NBNCo expenditure off-budget ... and 3) borrowing costs."
        1) As I have proved to you before, there isn't a required amount of expenditure, see:
        "To sum, accounting treatment does not depend on the realised rate of return of NBN Co, or whether that rate falls below a benchmark." http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BN/2011-2012/NBNBudgetStatements
        3) NBN Co doesn't pay borrowing costs, they pay the 7.1% RoI, and the government uses that to pay the borrowing costs because it is the government who borrowed the money.
        karl_w_w
        • typo

          I meant required amount of return, not expenditure.
          karl_w_w
        • "As I have proved to you before..."

          NBNCo talks about a lot of things. High speed internet doesn't require 1Gbps.

          1) Accepted at the time, then challenged in a later post:

          "The Australian Bureau of Statistics is responsible for granting such status and deemed NBN Co to be a PNFC in early 2010, based on a $25 million McKinsey NBN implementation study. That study said NBN Co could generate a 7 per cent return, slightly more than 1 per cent above the long-term government bond rate."
          http://www.theaustralian.com.au/national-affairs/opinion/nbns-commercial-viability-is-a-joke/story-e6frgd0x-1226506971773

          I was looking at the wrong department (my memory isn't always as good as it use to be).

          3) "As a scenario, NBN Co has therefore retained the ability to raise up to $13.4 billion debt without explicit support from the Government."
          Corp Plan 2011-13

          "In this scenario, NBN Co has embedded debt funding costs into the financial model. It is expected that total external funding would contribute up to 31% of the total funding to FY2021."
          Corp Plan 2012-15

          It is hard to keep up; I've never seen a project run like it;-)
          Richard Flude
  • Rumours of cost increases. Evidence?

    Your troll credentials are enhanced by attacking the NBN on so many fronts at the same time.

    If the subsidy to the bush helps constrains population pressures on Sydney, we might be able to avoid the construction of yet more expensive commuter driven infrastructure. Like another harbour crossing.
    Listohan
    • Agreed

      In which case it should never have been sold to the public as providing a return on investment on it;s own merits, but as providing a return to the economy.

      I'll look out for the rolls. I think I tripped over one on the driveway just now.
      phildobbie
  • Compare to what we have now?

    If you want 100 Mbps in most parts of the country you will be up for many thousands of dollars per month, plus tens or hundreds of thousands to get it connected. Even 100 Mbps cable (with an extremely low 2 Mbps upload) is $130/month and you only get 500GB of transfers (downloads+uploads). If anything NBN is bringing prices down. Almost everything in Australia is expensive compared to other countries!

    Where is the comparison with Canada? Australia is closer in geography to Canada than all the countries listed. There you can get 50/50 Mbps 250GB for CAD $87/month stand alone, so NBN plans compare well. The next fastest one is 175/175 for well over $200/month, and still only 300GB transfers. fibe.bell.ca.
    zemm
    • "If anything NBN is bringing prices down."

      Indeed. It's curious though I remember a while back there were a few twits on Delimiter saying prices for NBN plans were "artificially low". Which obviously makes no sense. If you think about it prices for things such as ADSL2+ plans are actually a rip off considering what you get for the price you pay. Fibre is simply a better deal and the bar has been raised. That is what is meant to happen. It's called technology and it's called progress. Some people will never get or understand this.
      Hubert Cumberdale
  • Unequal comparrison

    It seems to me that the other countries you have chosen to compare Australia to are not really that fair a comparison, as seen below, figures courtesy of the CIA World Fact Book:

    Hong Kong - Size 1104 Sq KM - Population 7.1 million - 6431 per Sq KM
    Germany - Size 357022 Sq KM - Population 81.3 Million - 227 per Sq KM
    UK - 243610 Sq KM - Population 63 Million - 258 per Sq KM
    US - 9826675 Sq KM - Population 313.8 Million - 31 per Sq KM
    Aus - 7741220 Sq KM - Population 22 Million - 2.8 per Sq KM

    Indeed the only country that I can think of that even comes close to Australia's geographical size and population would be Canada:

    Canada - 9984670 Sq KM - Population 34.3 Million - 3.43 per Sq KM

    In Canada one figure quickly sourced off the Internet, Bell Canada would charge $82.95 p/m for a 50 Mb connection, admittedly it is 50 up and 50 down, but it is only 250Gb of data, with an extra 125 Gb costing $25 extra per month.

    Now I am no economist, nor accountant, but I would think that if you were to compare countries as to fibre plans, you would look at countries that are comparable, as I would also think that the higher the density the population is, the cheaper you could provide fibre per connection.
    San Sabastian
    • Not many people live on Lake Eyre

      I think the density argument isn't a good one. Even in regional Australia most housing is in towns. An average distance of runs from the exchange might be a fair comparison.

      But look, I am not downing the concept of the NBN. In fact the last paragraph attempted to argue the case that the extra cost is because we are so geographically disperse - the point you are trying to make. I then make the point that we'll hopefully see payback in terms of increased productivity from regional Australia.

      I really must find ways of incorporating all the points in the first paragraph.
      phildobbie
      • Population density vs Urban density

        Indeed. Density does matter, but it is the urban density that is important in regards to NBN, not overall national population density. Urban density is a measure of the number of people in areas where those people live, in cities and towns where NBN fibre will be rolled out (covering 92% of population.)

        And urban density in Australia, while being much lesser than urban density in Europe, is definitely comparable to countries like USA, Canada and NZ.
        Zok76
      • Not many live in the North West Territories or Nunavut either

        Again, I say Canada is a much better comparison to Australia than the US, UK, Germany or Hong Kong. Unlike the others, it has areas like Central Australia, namely the Noth West Territories and Nunavut covering an area of 3 million Square Kilometers, there are a total of 73000 people, I think that might be comparable to Central Australia. Indeed even a quick glance at Google Maps shows the majority of the population inhabits the lower regions of Canada, somewhat similar to Australia's coastline.
        As to average distances from exchanges, would that not be a function of urban density, the more people you fit in a given area, the more you will service from an exchange.
        So with average top 6 urban densities of Australia being 1366 per sq km, Canada 1750, US 2200, Germany 2891 and UK 4040 I would think it would take more fibre, more digging and therefore more cost, so effectively, should we not be paying a higher price per connection?
        San Sabastian
        • Other factors

          Population density is not the only factor in determining the price per connection. There are many significant differences between all listed countries, such as labour costs, climate (what do you think the construction window is in Canada compared to most of Australia?), regulatory environment, access to complementary infrastructure (existing ducts, poles), economies of scale, currency exchange fluctuations etc.

          Picking any one of those items as the only, or even as the most important, factor in determining the price of connection is bound to lead to meaningless conclusions.
          Zok76
  • The real question.....

    Here we go again… the standard “we must have NBN FTTH, it’s the only option” argument.

    The statement …. “ High-speed connections will bring a plethora of over-the-top services, with many reliant on bandwidth-hungry video “ is a little misleading …. particularly considering a HD stream works well on 5-6M …. even future UHD 4k TV requires only about 25M, and that’s using today’s compression technologies.

    The question remains, as always: can we afford to spend an extra $20Billion+ to extend fibre to 10million+ residences, particularly when we have more convenient alternative technologies that are rapidly improving bandwidths, at a greater rate than the requirements of consumers and any foreseeable applications?
    FiberLover
    • Yes we can.

      Yes, we can afford to spend 1% of the federal budget over 10 years (to be fully repaid through a user-pays system) to supply 92% of Australians with the most efficient and upgradeable broadband infrastructure.

      There are no other foreseeable technologies that can provide for the very foreseeable bandwidth needs of consumers AND BUSINESSES in the coming decades. (Look up Cloud computing, 4K video, Telepresence.) And no other broadband technology offers even remotely the same bang for the buck (Mbps/$). Claims to the otherwise can only be politically motivated, and/or misinformed.
      Zok76