NBN will cause Australia to lead globally in mobile: S&P

A writedown of the NBN and additional government funding is 'imminent', according to an S&P report, while the tight regulation around fixed broadband will likely lead to greater mobile adoption.
Written by Corinne Reichert, Contributor

A report from S&P has predicted that regulation around Australia's National Broadband Network (NBN) could push the local mobile market further ahead.

According to the Australia's National Broadband Network: Disruptor And Disrupted [PDF] report, this is because mobile networks have been excluded from the regional broadband scheme charge and from anti-cherry-picking laws.

"In our opinion, regulatory distortions will exacerbate the nascent trend toward mobile substitution," the S&P report argues.

"NBN Co's average access charge of AU$44 per premises per month simply leaves too much money on the table. This has spawned an infrastructure arms race among MNOs as they seek to bypass the NBN with their own 'wireless fiber' networks.

"The corollary, in our view, is that Australia will likely be a global leader in mobile broadband adoption."

NBN's high access charges, "opaque" services, and "inferior technology" means mobile solutions will serve as a substitute, according to S&P.

The report adds that it does not expect mobile networks to replace the NBN or fixed broadband options in the near future, calling the threat "more chronic than acute".

"In the near to medium term, capacity constraints will limit the widespread adoption of mobile broadband. However, we expect technological advances, regulatory distortions, and elevated mobile network investment to slowly tilt the balance," it explained.

However, this could lead to a "prolonged arms race" in deploying mobile network infrastructure, which could eventually lead to industry consolidation, the report added.

The report also pointed to the likelihood of an NBN writedown and additional government funding.

"The company forecasts overall market take-up of between 73 percent and 75 percent. Any shortfall in NBN Co's revenue target raises the prospect of a writedown and additional government funding to support the company, potentially in the form of debt relief or direct subsidies," the report said.

"Successive Australian governments have underestimated the complexity of the NBN rollout. And the more the NBN costs, the more end users are expected to pay. NBN Co will need to substantially achieve its forecast revenue growth in order to generate a positive internal rate of return."

High bandwidth inclusions and price cuts also increase the potential for a writedown, the report said.

Lastly, the report expressed "uncertainty" over whether changes to NBN's wholesale pricing structure would benefit RSPs in the long term.

"The retail market is intensely competitive, and a clampdown by the ACCC has made it more difficult for RSPs to overpromise on service standards," the report explained.

"We also note that NBN Co.'s recent 'Focus on 50' promotion was carefully designed to improve end-user experience rather than to simply reducing the wholesale access charge. And it appears to be working."

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