Turnbull's unfinished broadband business

While the strategic review showed the Coalition's NBN was in better shape than Labor's, new NBN Co management and a cost-benefit analysis may yet provide new recommendations on how best to proceed.

Amidst the continuing debates about the merits of Malcolm Turnbull’s national broadband network relative to Stephen Conroy’s, it doesn’t appear to have been appreciated that there may yet be significant changes to the nature of the rollout and the context within which NBN Co will operate in future.

When Turnbull’s strategic review of the NBN was released on December 12 it might have appeared that the NBN’s course had been set: it would be a $41 billion network, using a mix of technologies including copper and HFC cable, which would deliver download speeds of at least 50 Mbps to 90 per cent of Australians by 2019. By contrast, the review concluded that the Conroy fibre-to-the-premises network would have cost $73 billion and taken until 2024 to complete.

While the review made a compelling case for the Turnbull NBN – Conroy’s, already two years behind schedule three years into the rollout, would deliver its 100 Mbps to only 57 per cent of premises by 2019 and require an increase in average broadband bills of up to 80 per cent to generate its promised returns – the review’s findings aren’t the last word on the NBN.

On the day of the review’s release Turnbull also announced a panel of experts which will conduct an economic and social cost-benefit analysis of broadband, including an assessment of the different properties of the available technologies. Conroy and Kevin Rudd have been criticised for not undertaking such a review before they committed to the original version of the NBN.

There are, of course, those who criticise Turnbull for not being forward-looking enough and for not ‘future-proofing’ the NBN by building the ubiquitous fibre-to-the-premises network envisaged by Conroy.

The panel, however, has been tasked with considering the benefits of bringing forward improvements in broadband speed and the respective benefits of alternative or potential technologies.

It will also consider the extent to which market-pricing mechanisms might capture the value of benefits from the network, and whether there should be infrastructure-based competition to the NBN, among other things.

The panel, to be chaired by former Victorian Treasury secretary Michael Vertigan, includes economist Henry Ergas, the first chief executive of eBay in Australia, Alison Deans, and the former chairman and chief executive of the Australian Communications Authority, Tony Shaw.

It would clearly be open to the panel to conclude that the economic and social benefits of an all-fibre-to-the-premises network would outweigh the substantial additional cost. Certainly the strong – and at times emotional – views of those primarily in the technology community that believe if a gold-plated NBN is built the applications will come, will have an opportunity to be aired and tested.

Frankly, however, that is an unlikely outcome. Conroy’s version of the NBN was committed to not only without a cost-benefit analysis but without any assessment of the merits and potential of existing infrastructure, in an environment where the technologies for upgrading not just HFC networks but copper are evolving rapidly.

Last week Turnbull released a report on broadband availability and quality – the first to be commissioned by the federal government – that showed about 700,000 premises currently have no access to a fixed broadband service and 920,000 have estimated median peak download speeds of less than 4.8 Mbps.

It also showed that 3.1 million premises, or 28 per cent of premises, have access to high-speed broadband platforms including fibre-to-the-node, HFC and fixed wireless, with peak download speeds of between 25 Mbps and 110 Mbps.

That says two things: the rollout needs (as Turnbull plans) to be reoriented to those regions with no existing access to broadband; and that there is already access to relatively fast broadband for a significant proportion of the community.

Because there was no ‘stocktake’ of existing broadband before Conroy committed to his version of the NBN – which would have overbuilt even existing high-speed fibre – there would have been significant waste in the rollout.

Many businesses and education and health facilities already have dedicated fibre. It is also the case that the existing HFC network footprints can be extended or in-filled, and the technology upgraded, to deliver faster download and upload speeds.

Individual businesses and households could also, should they choose, pay to install fibre to their premises within a fibre-to-the-node network. Retail service providers would amortise the cost of installation within plans similar to mobile phone plans.

It isn’t just the cost and benefits of building the network that matter. The cost to broadband users would also determine how economically useful the network might be, as well as the likely take-up rates for high-speed broadband and therefore the economics of NBN Co itself.

The strategic review’s conclusion was that to deliver its targeted minimum return of 7.1 per cent NBN Co would have needed to increase prices by between 50 per cent and 80 per cent – or between $27 and $43 a month – relative to the estimated $75 to $95 a month for a 50 Mbps download and 20 Mbps upload service today. Higher speeds, of course, would be even more expensive.

In all likelihood, as the review noted, the price rises would have had to be even greater because in themselves they would have pushed users onto mobile-only services, creating a nasty and destructive spiral of rising costs and falling usage.

To be truly useful and to provide the general economic benefit that the proponents of all-fibre networks assert, the NBN must also be affordable, especially given that the majority of costs associated with the original NBN lay in the connections to individual premises – mainly to residential properties.

The strategic review provided a starting point for an intelligent appraisal of the options available to the government in pursuing an NBN by making an assessment of the differing costs and timelines between the existing NBN and one that used a mix of technologies, including existing infrastructure.

The cost-benefit analysis will add other dimensions beyond cost and speed comparisons, including an exploration of the potential social benefits, as well as the appropriate role of government and the role, if any, of infrastructure-based competition in the NBN.

The panel has been directed to report within six months, by which time NBN Co’s new chairman, Ziggy Switkowski, and new chief executive, Bill Morrow, will have had time to get their own heads around what they have inherited – the strategic review concluded that there is already about $15 billion of taxpayer funds already irretrievably committed to the NBN – and be able to contribute their own better-informed opinions as to how Turnbull should best proceed.

The combination of the strategic review, the cost-benefit analysis and the new, more experienced NBN Co board and management ought to provide what Conroy and Rudd should have commissioned before they committed to the NBN: a detailed understanding of the costs, benefits and options for minimising the costs to taxpayers and consumers while maximising the benefits. Once Turnbull has received all the available data and advice, he’ll be in a far better position to determine exactly what the NBN should look like and how the rollout should be re-oriented.