NBN expensive now, worse in the future?

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.
Written by Phil Dobbie, Contributor

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.

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.

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