NBN Co shouldn't 'tax' city customers: Ergas

Conservative economist Henry Ergas has said that NBN Co should scrap its uniform wholesale pricing model and subsidise regional Australian broadband directly.

The Australian Competition and Consumer Commission (ACCC) should force NBN Co to scrap its uniform wholesale pricing model, and instead force the company to subsidise regional broadband pricing directly, according to conservative economist Henry Ergas.

As part of the Labor government's vision for the National Broadband Network (NBN) project, the price for wholesale services across the country and across fibre, satellite, and fixed wireless are the same, starting at AU$24 per month.

This means that the wholesale price for services in densely populated areas is likely more expensive than it costs NBN Co to offer it to those customers, while in regional Australia, the cost is more than is charged to retailers.

In a submission to the ACCC regarding NBN Co's revised special access undertaking (SAU) , which outlines how the company will operate for the next 30 years, Ergas said that cross-subsidies should be avoided, or should be fully transparent.

Ergas said that cross-subsidisation is effectively a "tax" on customers in low-cost areas.

"Such a tax is an extremely inefficient way of financing subsidies to consumers in high-cost areas, and hence is inconsistent with the long-term interests of end users. As telecommunications is an intermediate input, imposing such a tax will not only lead to conventional allocated inefficiencies, but will also result in a first-order productive inefficiency."

Ergas argued that NBN Co should be forced to set prices in low-cost areas that reflect the actual cost of providing services in those areas. If NBN Co then wants to charge a similar price in a high-cost area, the losses incurred should be charged back to the government.

"Such a charge would obviously be reflected in the government's budget process, and hence would be subject to the disciplines, transparency, and public accountability that process involves," he said.

Shadow Communications Minister Malcolm Turnbull has suggested that under a future coalition government, customers in regional Australia would have their broadband subsidised directly from government , rather than through the current mechanism of forcing equal prices across the board through NBN Co's wholesale price.

The news comes as Opposition Leader Tony Abbott this week said that he would "hit pause" on the NBN rollout in order to bring the budget back into surplus, despite the fact that all but the interest paid on the debt for the NBN is off-budget.

Turnbull told Macquarie Radio earlier this week that the asset that NBN Co is creating is "worth a fraction of what they're spending." He said that the money in regional Australia would have been better invested in improving mobile network coverage.

"Now, what the government should have done — and it is a scandal that they did not — what they should have done was said to the existing companies, Vodafone, Optus, and Telstra, 'look, guys, we want to provide very fast broadband over wireless in these areas that are too spread out to do fixed line, so we know you're going to have to invest a lot more in towers and equipment, and we know it's not going to be economic, so you tell us how much subsidy you need to do that, and essentially the person who asks for the least subsidy, all other things being equal, will get the job.'"

He said that this would have saved the government from running the business, and would give not only improved mobile broadband, but also good voice coverage in regional Australia.