NBN Co struggles to stack up for value against the competition

NBN Co says its fixed-line broadband services are increasingly seen by users as not providing value for money compared to alternatives.

The company said yesterday [pdf] that a survey it had commissioned and run over the past six years showed a gradual erosion in customer sentiment about the cost-performance of its broadband services.

NBN Co has previously only once released these figures - in late July [pdf] - but they did not contain the 2022 numbers.

The addition of the 2022 numbers show that the value-for-money gap is widening between NBN and non-NBN fixed-line and mobile services.

NBN Co said it needs to retain customers to meet financial projections and to “recover substantial investments in its network”, although the extent to which that recovery should be permissible is a hotly-debated regulatory topic.

The contest for apartment dwellers

The numbers are offered in an explanatory statement that accompanied a freshly revised special access undertaking (SAU) submitted to the ACCC for review.

And they are far from the only ones concerning competition. 

While NBN Co has routinely criticised cellular operators for offering NBN-like 5G fixed wireless services - even going so far as to scope the size of the exodus it faced back in April - it hasn’t previously put forward a level of detail on its competitive threats as it did late on Wednesday.

The company said that as at October 2022, it estimated that “approximately 2.9 million (or 26 percent) of about 10.4 million residential premises are connected to a competing non-NBN broadband network.”

This is still within NBN Co’s long-stated target range of 73-to-75 percent take-up, which was based on an acknowledgement that not everyone in Australia would wind up buying NBN services.

However, NBN Co said it was concerned that 83 percent of premises without NBN “are connected to a fixed wireless network or use a mobile device alone”, which it said “underscores the current substitutability of, and growing competitive pressure exerted by, these services.”

NBN Co has long asked regulators to treat cellular services as a competitive threat, and bring them under the broadband tax, which would add to their costs and make it harder for mobile operators to compete on price.

It renewed that demand yesterday, but also attempted to lay out more evidence as to why the ACCC should consider cellular services as substitutable for NBN fixed-line, from a regulatory standpoint.

One of those evidentiary points concerns NBN Co’s relatively small fibre-to-the-basement (FTTB) network, which serves unit blocks (multi-dwelling units or MDUs, in NBN parlance).

“Take-up of NBN Co’s FTTB service is not ubiquitous and is instead about 41 percent in MDUs in which NBN Co believes it is the only FTTB provider,” the company said.

“This … is a clear indication that fixed wireless (e.g., 4G or 5G service via a fixed modem in a premises) or mobile broadband (e.g., via ‘traditional’ wi-fi dongle or pocket wi-fii) services are a substitute for NBN services for end-users in MDUs. 

“These services are a competitive constraint on NBN Co.”

NBN Co claimed that some of the fiercest competition it sees is in MDUs, a market it describes as being “high density” and “high value”, with a relatively low cost-to-serve.

It alleged that building managers or owners “may” be offered incentives to “encourage … end-user preferencing of rival services over competing NBN FTTB services.”

NBN Co also said that in MDUs where it faced direct FTTB competition, its take-up is around 36 percent - some 25 percent lower than in blocks where it does not face infrastructure-based competition.

NBN Co argues that competitors are advantaged because they do not have to cross-subsidise the costs of uneconomic builds; and because many are exempt from paying the broadband tax.

The company is hoping its analysis of competitive threats will persuade the ACCC to set a “ regulatory (including pricing) landscape [that] accounts for these impacts.”

“The extent of competition and substitution risk outlined mean that NBN Co faces substantial revenue sufficiency risk,” it said.

“The consequence of this is that NBN Co faces the risk of being unable to generate sufficient cashflows to sustain its business and continue to invest in the network to meet its policy obligations and the needs of end users.”

A further consequence, NBN Co argues, is that it should not be perceived as being only interested in raising NBN prices, since it claims to be competitively constrained from doing so.

However, industry has previously raised concerns that NBN Co’s revised SAU will result in broadband prices hitting materially higher levels between now and 2040.