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Category: Telecommunications / Internet Culture / Federal Government

NBN write-down needed to avoid internet price surge, telcos 'going broke'

Tuesday, 27 Sep 2016 15:25:01 | Andrew Robertson

Carriers are warning internet prices could jump or telcos might go broke. (Reuters)

The telcos who buy space on the National Broadband Network say the most pressing issue for them is the wholesale pricing of access to the Federal Government-owned broadband provider.

Most internet service providers charge their customers a fixed price, while the National Broadband Network's prices are variable, creating a profit-destroying mismatch.

The problem is only getting more urgent as NBN subscriber numbers grow rapidly.

David Forman, the head of telco lobby group the Competitive Carriers Coalition, warned that his members could go under if things did not change.

"The circumstances as they stand now, if they were to continue, then definitely telcos would go broke," he said.

The NBN has responded that the equation is simple.

Telcos pay an access charge based on internet speed, plus a usage charge, where the usage charge is flexible and goes up with bandwidth consumed.

What is not so simple for the telco is that it pays the NBN much more for someone watching Netflix all day long (which uses a lot of bandwidth) than for someone who occasionally checks their online banking.

"We're about to go into consultation very much to refine that, because what I'm hearing from the retail market is that they're really keen to get some cost certainty around that so that as usage grows they absolutely understand where their cost structure is going," responded Sarah Palmer, the executive general manager in charge of pricing at the NBN.

The issue has come to prominence after a surprise warning last week from TPG that next year's profits will be lower than expected because it will be paying a lot more for access to the NBN.

Its shares were hammered, losing more than 20 per cent.

"People in the market have known for some time that there are lower margins coming with the NBN," TPG director Robert Millner told The Business last week.

"So our guidance was some $40 or 50 million under what the analysts had predicted, and I feel a lot of the analysts hadn't done their homework well enough."

NBN forced to cut usage charges

The NBN reduced its usage charges in April after pressure from the telcos and is set to cut them again.

"As a wholesaler we are acutely aware that our success lies in the retail providers' success, and their success is ensuring that the consumers really value the NBN and want to use it and want to buy it and want to use more of it," Ms Palmer said.

But internet prices in Australia are already high compared to most other developed countries.

Mr Forman said the only way to seriously tackle that was for the Government to bite the bullet and write off a large part of the now nearly $60 billion cost of the NBN.

"Acknowledge that there's already been a lot of investment that is now sunk, and was far more than expected, to take the pressure off the NBN in terms of the pricing they have to set to recover that level of investment that they have got on their books," he argued.

However, writing down the value of the NBN will be a tall order in a highly charged political environment.

The NBN has been a political football since it was first announced by the Rudd Labor government in 2009, and what the Turnbull Government is building now is very different to what Labor had planned.

"If you're saying we're going to do an old-fashioned network upgrade, then why would the Government be involved?" telecommunications consultant Paul Budde asked.

"Telstra could have done it, Optus could have done it, TPG was keen to do that."

Gone is Labor's Rolls Royce fibre-to-the-home broadband network and with it speeds of up to a gigabyte a second.

In its place, a mixture of technologies and new and existing networks with what critics say is a higher pricetag of nearly $60 billion, but much slower speeds.

"If you go to cities where many of the people are already on ADSL or ADSL2-plus type of service, then the NBN is not providing any better service," added Mr Budde, who has been a supporter of the original fibre-to-the-home plan.

AustraliaPlus


 

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