Friday, 13 July 2018 11:35

Best to sell NBN Co only a decade after rollout ends: expert Featured

Best to sell NBN Co only a decade after rollout ends: expert Courtesy NBN Co

The best option for NBN Co after 2022 — when the network rollout is completed — would be for the government to retain it for at least 10 years as that would bring it the most benefit from its investment, a network expert says.

In a paper outlining what could be done with the company that is rolling out Australia's national broadband network, the NBN, Dr Mark Gregory, an associate professor in network engineering at RMIT University, said that other options were:

  • for NBN Co to be sold off as a single entity;
  • for disaggregated technology footprints to be sold off separately; and
  • for disaggregated technology footprints, excluding satellite and fixed wireless, to be sold off separately.

Gregory pointed out that even though the NBN Co had repeatedly stressed that the rollout would be complete by 2020, this meant that one would have to wait at least another two years to give people the time promised to switch over.

That time interval is 18 months, hence it would be 2022 before one could think of disposing of the network, he said.

Rather coincidentally, Gregory's paper was published in the Australian Journal of Telecommunications and the Digital Economy in the same week that Telstra announced that it would be undergoing what is effectively a structural separation.

He said the impact of this announcement on the telco market would have to be looked at separately, but "(the) announcement provides Telstra with the opportunity to participate in the future sale of the NBN. Telstra could spin off the business as a separate ASX-listed company, take on infrastructure investors for a future purchase of the NBN, or part of the NBN, and effectively follow what happened in New Zealand with Telecom New Zealand becoming Spark and Chorus".

gregory horizontal

Dr Mark Gregory: "There is nothing to be gained by the government setting out on a chaotic path due to ideology and it is for this reason that the telecommunications industry should consider carefully what happens next."

If the government did decide to hold on to the NBN Co for at least 10 years, then it would be able to maintain the momentum of the disruption that it had created in the Australian telecommunications sector, Gregory said.

Additionally, there would be uniform national pricing, the digital divide would be reduced through a focus on regional and remote telecommunications, revenue growth would take place over time, a single entity could upgrade technologies like FttN, FttC and HFC to FttP over a period of about five years, and telecommunications infrastructure security could be improved.

"Disruption needs time to work its magic and the next decade will be critical to the future of the telecommunications market. A rushed sale of NBN Co puts the beneficial outcomes expected from a period of positive disruption at risk," Gregory said.

Retaining the NBN Co in government hands would enable the bedding down of a uniform national pricing regime. "The telecommunications industry needs a period of price certainty and this option is the best approach to achieve this goal. Uniform national wholesale pricing and an improving quality of service from NBN Co provides service providers with a level playing field upon which competition can thrive," he wrote.

Spreading fibre to rural and regional areas would only be possible if the NBN Co remained in government hands. "Australians living in regional and remote areas have long suffered because commercial telecommunications providers have not been able to service the demand for reliable and low-cost telecommunications products and services. NBN Co has facilitated effective competition in regional and remote areas for the first time. It would be unwise to unwind this competitive environment before it has a chance to become the norm," Gregory pointed out.

As to revenue, he said average revenue per user would have time to grow to the oft-stated goal of $52 per month, and the return on investment would give the government more leeway in choosing to sell at a time when it could get the best return, rather than being forced into a fire sale.

When it came to the second option — selling off the NBN Co as a single entity — one would have to look closely at viability, wholesale competition, foreign ownership restrictions and price control, Gregory noted.

As to viability, the NBN Co plan indicated that ARPU of $52 was needed each month to break even, but it was highly unlikely that this would come about by the financial year 2021 as ARPU in 2018 was only $44 per month. Given that mobile connections, both 4G and 5G, would pose competition — especially as many mobile vendors were now upping their data caps — there would be a 10% to 15% drop in anticipated NBN connections and an accompanying loss of revenue, Gregory said.

Wholesale competition could motivate a privatised NBN Co to extend fibre to 93% of premises. But "effective wholesale competition may not occur in regional and remote Australia due to customer density and the cost of infrastructure", he said.

nbn aug7 big

While a privatised NBN Co would rely on the industry-wide wholesale levy for providing wholesale broadband services to regional and remote areas, it would not gain the proceeds of the industry levy if a competing wholesale provider offered service providers an improved wholesale product at the same or lower price than what NBN Co was offering.

Gregory said that if NBN Co was sold as a single entity, then the government would have to look at lifting foreign ownership restrictions as it was quite likely that a buyer would come from overseas. But, he asked, was this in Australia's best interests?

"Legislation for foreign ownership restrictions of a privatised NBN Co should occur. Telecommunications is an essential service and NBN Co would largely remain a dominant company owning most of the nation’s vital telecommunications infrastructure under this option," he said.

"Foreign ownership restrictions are likely to significantly reduce the potential pool of purchasers with the capital necessary to purchase NBN Co and this is likely to have a negative effect on the sale price."

As to price control, Gregory pointed to the privatisation of other utilities like electricity and gas where consumers had ended up paying more. "It may be necessary for the Australian Competition and Consumer Commission to be given power to declare wholesale infrastructure, in areas where there are less than three wholesale infrastructure providers, for the purpose of price control," he added.

By 2021, the NBN Co would be the third largest telco behind Telstra and Optus, based on projected EBITDA. Given this, it might be difficult to find a buyer unless a considerable part of the government's investment was written off - and this was something the government had said it would not do. Hence this sale option did not look attractive.

When it came to the NBN Co being disaggregated and sold off as a number of entities — FttN, FttB, FttC, HFC, FttP, fixed wireless, satellite, transit and business/wholesale — any of the existing telcos could seek to buy one and optimise it for a financial return. There would be no consideration given to upgrading or increasing the footprint.

The FttP assets would be likely to attract a premium and the company that bought this part of NBN Co would be able to disadvantage those who picked up other technologies by rolling out fibre to other areas, Gregory said. "A disaggregated sale of NBN Co assets would require careful planning to ensure that infrastructure-based competition was able to evolve," he added.

nbn fttc

There could also be a return to the situation in earlier years. If Telstra picked up one of the assets, it would benefit by not having to pay per connection charges as it does now. But other companies would then have to pay Telstra the $15 connection fee for that technology.

"The worst-case scenario, as a result of this option, would be for none of the telecommunication companies that purchased NBN Co assets to upgrade or to expand their infrastructure footprints," Gregory said. "Whilst this is not anticipated, the result could be a very slow upgrade pathway to competitive, all-fibre networks and a short-term adoption of 5G as an alternative infrastructure that offers headline connection speeds that can be marketed as being 'better than FttN/B/C'."

The final option that was outlined was for disaggregated technology footprints, excluding fixed wireless and satellite, to be sold off separately. The wireless and satellite assets would stay with a truncated NBN Co and be funded partially through an industry levy.

"Government retention of the fixed wireless and satellite assets does not prevent the assets being sold in the future. Retention would provide the government with the time necessary to ensure that the competitive and pricing outcomes from the sale of the rest of NBN Co have been successful and, if not, that remedial action has been taken before privatisation of fixed wireless and satellite occurs," Gregory said.

In conclusion, he said that while the NBN had been a disruptive force in Australian telecommunications, "disruption should not be confused with chaos and the period after the sale of NBN Co as a disaggregated entity could be chaotic if legislation and regulations do not adequately provide for access, pricing and competition".

"There is nothing to be gained by the government setting out on a chaotic path due to ideology and it is for this reason that the telecommunications industry should consider carefully what happens next."

A number of factors had to be taken into account before any sale of the NBN Co and it was therefore imperative that the government get as much input as possible from competent bodies, Gregory said.

"For this reason, the government should commission public inquiries by the ACCC, the Australian Communications Consumer Action Network, the Australian Communications and Media Authority (infrastructure technologies, standards and security) and Infrastructure Australia prior to the legislated public inquiry by the Productivity Commission into the sale of NBN Co."

Photos: courtesy NBN Co and Dr Mark Gregory


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Sam Varghese

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Sam Varghese has been writing for iTWire since 2006, a year after the site came into existence. For nearly a decade thereafter, he wrote mostly about free and open source software, based on his own use of this genre of software. Since May 2016, he has been writing across many areas of technology. He has been a journalist for nearly 40 years in India (Indian Express and Deccan Herald), the UAE (Khaleej Times) and Australia (Daily Commercial News (now defunct) and The Age). His personal blog is titled Irregular Expression.



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