SMBtech business IT and technology news

NBN Co faces consequences of wrong political infrastructure decisions

The NBN company announced that it will have to lay-off 500 people in order to lower their costs as they are facing increased competitive pressure from the other players in the market.

It looks to me that this means that NBN Co forced to realise that by following the political winds and going ahead with the MtM model are now paying the price as reality is hitting them. They did make those decisions with their eyes wide open as – a decade ago – senior telecoms engineers and others had warned them against taking this convoluted and inferior approach.  They could have mentioned to their political overlords, that this approach would lead to higher costs, poorer results and a much longer period to finally get this right (as we now know more towards 2030).

As National Party MP Tony Windsor put is back in 2010  “Do it once, do it right, do it with fibre.”

Because the MtM was a political decision there was always the risk that another government would no longer accept the inferior outcomes of the MtM and that as a result they would also no longer support the financial consequences of that outcome. 

Over the last decade those who made the MTM decisions didn’t want to backflip and for political reasons kept supported them. As we have seen for many years the services are not up to scratch and on top of that there are the high cost involved in the convoluted politically motivated infrastructure process.

Making up the balance of the situation in 2023

  • Significant underperformance in several areas of the NBN, opening the market wide open for competitors to use clever ways to offer alternatives through mobile, wireless and fixed broadband solutions.

  • The company has belatedly decided that the MtM model needs to be replaced with a proper fibre solution, that means ongoing new investments in the NBN (= more costs).

  • A new Government that has indicated that they are not supporting the NBN to take the extra costs into their pricing models. For the time being those billions of dollars in debt have been pushed forward in the hope that better times might solve that issue (which it won’t).

  • A Regulator that is also on their back as they are reviewing their wholesale prices and conditions, again with the same aim to limit NBN Co to charge prices that are unrealistic as consumers are only prepared to pay so much for a broadband service.

  • NBN Co has failed to convince the regulator and the government to limit competition to their operation (a classic example of dominant behaviour).

The NBN company now understands that the other avenues it tried to pursue (limit competition, increase prices, etc) is not going to work so they decided that the next step is cutting costs.

This in itself is interesting as what we have seen a similar approach, over the past decade +, in the international telecommunications industry. The only way for incumbent telcos and their duopoly or triopoly competitors to still create a positive financial outcome is to cut costs and fortunately for them the technology is assisting them.  5G, cloud computing, robotisation, AI, etc makes it possible to deliver more capacity and better services at lower (operational) costs.

The reality is that NBN Co will most likely never be able to have the 90-95% residential customer  utilisation as was envisaged when the NBN as an all fibre-to-the-home network was introduced in the mid to  late 00s.

You can only have a successful wholesale telecommunications monopoly – operating as a national utility – if you leap-frog other infrastructure technologies and establish yourself right in front of everybody else.  As a result of the MtM decision you now have a hotchpot of technologies of which several are inferior to what other telecoms infrastructure providers can offer and as a result the MtM infrastructure will not be fully utilised as many customers will use the alternative. While this will never be a threat the whole NBN network it will affect up to 30% of the Australian residential broadband market. But that creates a significant hole in the NBN Co business plan.

In order for the NBN company to address this problem they will have to compete much harder for these customers. We all know very well what this means in the telecommunications industry, you will have to offer competitive prices. The sad story for the NBN is that this will undermine their financial situation. So as a result of the wrong political decisions made a decade ago and NBN Co agreeing to go ahead with them, they are now finding themselves between a rock and a hard place.

This story will most certainly not end here. There will be more pain for the company as well for the government as they will be the parties that will have to pay for the wrong decisions made in the past.

Leave a Reply