The alarm bells are starting to ring at Australia's broadband wholesaler NBN Co as it feels the heat from Starlink and 5G.

The company has said it will cut 500 jobs, or 10% of its workforce, which it says will allow it to continue its network upgrades.

But NBN acknowledges it lost 10,000 satellite customers in 2022 – around a tenth of its total customer base – although it does not know if they joined another satellite provider.

Elon Musk's Starlink is already at a similar scale to NBN's satellite business, with around 100,000 users. Its 100Mbit/s downlink service directly threatens the government-backed NBN Co, which offers remote customers up to 100 Mbit/s but with monthly data caps.

Figure 1: Satellite competition is becoming a worry for NBN Co.
(Source: NASA)

In response, NBN is looking to upgrade its satellite and fixed wireless services with 750 million Australian dollars (US$501million) in additional funding from the previous government.

It says the deployment of 5G mmwave FWA will mean another 120,000 customers currently confined to satellite will be able to shift to wireless. It has also begun a three-month trial at 100 Mbit/s without data caps.

The company has acknowledged the competition from Starlink as well as the 5G FWA services from the three MNOs, Telstra, Optus and TPG.

But in submissions to the regulator ACCC last year the company warned it faced "revenue sufficiency risk" as a result of the impact of FWA and satellite substitution.

Death spiral

"The consequence of this is that NBN faces the risk of being unable to generate sufficient cashflows to sustain its business and continue to invest in the network to meet its policy obligations and the needs of end-users," it said.

The submission pointed out that almost one in three households has chosen not to connect to the NBN where it is available, while the mobile players have positioned their 5G offerings as NBN-comparable and an NBN substitute.

There are signs this substitution is already happening. Total residential NBN connections fell by 0.1% in the December quarter – the first such decline, according to ACCC data.

Critics are now saying the company is in a death spiral of declining subs and rising costs.

Economist Leith van Onselen writes that the NBN project is expected to cost A$57 billion, roughly double the original cost estimate, which means it needs "nearly every Australian household to subscribe."

"However, with increasing numbers of households leaving the NBN for cheaper wireless alternatives, these fixed costs will need to be recouped from a shrinking subscriber base, which will place further upwards pressure on prices.

"But as prices rise, more households will leave the NBN for wireless, and the cycle will repeat.

"Hence, NBN Co is tumbling into a 'death spiral' of falling connections and rising costs."

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— Robert Clark, contributing editor, special to Light Reading