Govt sell-off plans could cost chance to fix the NBN, ex-CTO warns

The federal government’s focus on maximising the sale price of the NBN could cost Australia the “next big opportunity” for fixed-line telecommunications reform, one of the network’s original architects has warned.

Former NBN Co CTO Gary McLaren said the expected privatisation of NBN Co after 2020 represented "the next big opportunity to reform Australia’s fixed telecommunications market".

That opportunity could see the company split up or "disaggregated" to increase market competition after its completion, in line with the 2014 Vertigan Panel of Experts report.

However, with the government positioning NBN Co as a “national monopoly with significant regulatory protection against competition” to boost its potential value, the opportunity to promote better infrastructure competition was in danger, McLaren said.

"The privatisation of NBN Co, after completing the rollout in 2020, now appears to be the next big opportunity to reform Australia’s fixed telecommunications market," he said.

"However, it is also a dangerous time as the quick political fix will be to privatise NBN Co as a national monopoly with significant regulatory protection against competition.

"This will be done to maximise the sale price and minimise the politically embarrassing financial losses on the investment funded by the Australian taxpayer.

"This would perpetuate the fundamental cause of Australia’s fixed telecommunications problems, that is the monopoly fixed telecommunications infrastructure market. It must be prevented at all costs."

McLaren raised concerns over the current lack of infrastructure and retail competition in the fixed-line market, and the concentrated power of NBN Co and Telstra, whom he said were increasingly "in position to call the shots on how technology is deployed".

He said policy makers and regulators needed to act "sooner rather than later to address ... structural issues to bring back competition as the main driver of investment, innovation and efficiency in Australia's telecommunications sector."

"If this opportunity is not taken and settings are not put in place soon, then the next 5 to 10 years are likely to be characterised by a continuing slippage in Australia's performance against other broadband markets as market power is concentrated into the hands of NBN Co and Telstra."

By the numbers

Maximising the future sale price of NBN Co has become a key concern for government as the commercial and economic viability of the project continues to be questioned.

In October last year, both NBN Co's CEO Bill Morrow and the ACCC warned about the network's future profitability.

Telstra also remains sceptical of NBN Co assumptions that it can achieve its target internal rate of return (IRR) from a presumed shift to faster and more expensive services that would boost average revenue per user (ARPU) figures.

“There appears to be limited evidence to support this assumption,” Telstra said, noting that projected ARPU growth “will put further pressure on RSP margins” and that current connectivity virtual circuit (CVC) pricing "does not allow industry to support this increased data consumption".

But others - aside from McLaren - are concerned about any government or regulatory moves to prop up the project's economics, at the expense of other decisions.

The Northern Territory branch of Regional Development Australia for example, warned that government protections could “further distort the market”.

It advised the government to “accept a significant write-down on its investment with the NBN rather than seek to introduce policies designed to limit competition with the NBN in order that it receives its anticipated ROI.”

The government has so far resisted all calls for a writedown of its NBN investment,

TPG Telecom also joined the call for prudence in governmental policy, warning that "more political/regulatory decision making is likely to compound ... structural inefficiency".

"NBN Co should be allowed to finish its rollout as quickly as possible," TPG argued.

"Governments should accept whatever the financial outcome is for that, take the financial hit (as we expect will be necessary) and the NBN should compete with private capital so that the industry can return, as quickly as possible, to a more rational economic circumstance.  

"We consider this will take quite a long time."