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NBN: We're Beating Europe & Not Overcharging Anyone

Executives from Australia's controversial wholesaler reject the accusation they are overcharging customers and insist the project is now on track to meet targets.

Iain Morris

October 31, 2018

7 Min Read
NBN: We're Beating Europe & Not Overcharging Anyone

Executives at Australia's NBN have the guarded look of men who have fought long battles against savage opponents. The A$49 billion ($34.8 billion) public-sector project to build a nationwide broadband network, wholesaling capacity to retail service providers, has taken flak for years and remains a boondoggle to its biggest critics.

A trip to Berlin, where NBN Co Ltd. met with Light Reading at last week's Broadband World Forum, must have seemed like R&R to senior managers normally stationed on the Australian front lines. Their observations of European broadband also make the hostility back home even harder to justify, they say.

"I get frustrated because we get killed in Australia," says JB Rousselot, NBN's chief strategy officer. "I say come to Europe, and you'll see we're not doing that badly."

Figure 1: On the Front Line Ray Owen, NBN's chief technology officer, addresses an audience at Informa's Broadband World Forum event in Berlin this month. Ray Owen, NBN's chief technology officer, addresses an audience at Informa's Broadband World Forum event in Berlin this month.

A comparison of the official broadband targets does not really flatter NBN. The European Union aims to bring 30 Mbit/s connectivity to all households by 2020 and ensure half can access a 100 Mbit/s service. NBN's goal is to provide 25 Mbit/s everywhere and 50 Mbit/s for 90% of properties by this same date.

Notwithstanding the progress made by several high-flying gigabit nations, most industry observers will be stunned if all European countries achieve these targets, however. NBN, by contrast, now claims to have a "line of sight" to its goal. After fretting about the pace of rollout in previous years, Rousselot says the operator is now firmly on track to cover about 11.6 million premises and connect around 8 million by 2020.

For those unfamiliar with NBN, the big idea is to use a mix of broadband technologies to meet Australians' broadband needs. A high-profile example of "structural separation," the initiative took flight when broadband incumbents Telstra Corp. Ltd. (ASX: TLS; NZK: TLS) and Optus Administration Pty. Ltd. were forced to sell network assets to NBN and relinquish their wholesale role. At first, NBN was mainly wedded to full-fiber networks as the broadband technology of choice, although fixed wireless and satellite technologies also figured in its plans. When a new government decided those were too expensive, NBED began flirting with everything from cable to VDSL, a performance-boosting technology for last-mile copper. (See Telstra Profits Pummeled by NBN and Australia's NBN Seeks More Govt Cash to Cover Loss-Making Rollout.)

Tony Brown, NBN's tough-looking media chief, reels off the list of 2020 coverage targets for specific technologies with the military precision of a sniper lining up his sights: Fiber-to-the-premises (FTTP) for 1.9 million properties; fiber-to-the-curb (FTTC, which in NBN's case means the distribution point close to customer homes) for 1.5 million; fiber-to-the-node for about 4.9 million; and cable for 2.5 million. Fixed wireless will serve another 600,000 homes and satellite up to 400,000. (See NBN Finally Revs Up DOCSIS 3.1 Engine.)

So where does the rollout stand? Rousselot says the job is about two-thirds done, with 7.4 million households now "ready to connect" and about 4.4 million receiving service of some kind. Because NBN has concentrated its early efforts on broadband-deprived rural communities, the focus is shifting to urban areas and some of the higher-speed technologies in the menu. That means targeting customers who until now have used cable and copper-based broadband technologies provided by Telstra and Optus.

But if the deployment is going as swimmingly as Rousselot claims, then why does the Australian press still treat NBN like an enemy of the people?

That is largely an unfortunate but inevitable consequence of the fact that taxpayer money is being used, he says. Rousselot and Brown also dismiss the long-running argument that NBN is not delivering the speeds customers require. Although the proportion of subscribers on connections of at least 50 Mbit/s has risen from about 15% last year to 50% today, customers are simply not buying the very highest-speed services where these are available, they say. "We have a gigabit [offering] on fiber, and the take-up is just a couple of dozen people," says Brown.

Next page: Not out of whack

Not out of whack
Criticism has not come solely from opinionated Australian journalists, though. The retail service providers on the NBN network have repeatedly complained that wholesale charges are too high, squeezing margins and limiting adoption of the zippiest services. Telstra has even called for a 50% cut to NBN's pricing.

Customers always complain about prices, says Ray Owen, NBN's chief technology officer. Nor do the grumbles seem all that surprising in such a crowded retail market. When Rousselot spoke with Light Reading in late 2017, as many as 180 service providers used the NBN infrastructure. Some have disappeared in subsequent rounds of consolidation, he says. But even if the "big three" of Telstra, Optus and cable company TPG Telecom account for the bulk of NBN's business, competition remains fierce. (See Australia's NBN Plots Gfast Launch in 2018, Blames RSPs for Network Issues.)

Of course, NBN rejects any suggestion it is overcharging customers, and it says comparisons with other countries back up its case. "We spent time with BT [the UK telecom incumbent] before we came here, and with New Zealand colleagues, and when you look at their ARPU [average revenue per user] you see our numbers are not out of whack," says Rousselot. "The delta between wholesale and retail ARPU is roughly the same."

If such comparisons have not silenced the critics, the Australian public has warmed to the scheme, he insists, as people start to see the benefits. Business creation is faster in areas with the NBN than in communities without it. Data shows that a higher percentage of women are self-employed in those areas, too. (See Broadband Boosts Australia's Economy.)

NBN has also learned from its mistakes and experience, says Rousselot. The average activation time is now just 11 days, and NBN currently activates about 25,000 connections every week. The pressure is no longer to speed up the pace of activations but rather to maintain it as NBN’s focus shifts from FTTN to FTTC and cable. Encouragingly, about 95% of activations are now "right first time," according to Rousselot. That is a big improvement over the figure last year. Complaints to the Telecommunications Industry Ombudsman have also fallen even though about 1 million more customers are on the network than at the last reckoning. "That tells me we are doing a good job," says Rousselot.

For more fixed broadband market coverage and insights, check out our dedicated Broadband content channel here on Light Reading.

Others may find it hard to agree while NBN remains a sinkhole swallowing taxpayer money. When the company issued its half-year report in February, its net loss for the six-month period (covering the last half of the 2017 calendar year) had ballooned to around A$2.6 billion ($1.9 billion), from about A$1.8 billion ($1.3 billion) a year earlier. That was despite a sharp increase in revenues, which soared from A$403 million ($286 million) to A$891 million ($633 million) over the same period. NBN insisted the loss was "in line with expectations" and said it reflected the huge investments it has been making in network rollout, as well as spending on customer activations.

A more positive sign was a big reduction in losses at the level of adjusted earnings (before interest, tax, depreciation and amortization). That figure, which excludes payments to Optus and Telstra for customer disconnections, narrowed from about A$455 million ($323 million) in the year-earlier period to just A$131 million ($93 million). By 2022, those payments will end, says NBN, and the improvement should feed into the bottom line. In the meantime, Rousselot and his colleagues can expect plenty more abuse.

— Iain Morris, International Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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