Labor’s Got a Plan To Fix The NBN Multi Technology Mess
There’s no doubt the discussions around NBN from politicians have left something to be desired. Aussie gamers have been watching the NBN debate unfold slowly from disaster to disaster.
Now the rise of mainstream discussion on 5G and the competitiveness of a ‘Multi Technology Mix’ based NBN is getting into full swing. The discussion gets further complicated by the number of technologies involved and the CVC pricing that connects customers, ISPs and NBNco.
Michelle Rowland the Shadow Minister For Communications gave a speech today at the Commsday Summit which covered Labor’s position on the digital divide, 5G, and digital inclusion.
Rowland called out Australia’s “great complacency” – the “she’ll be right” attitude that assumes because we have prospered in the past, “it must inevitably continue”.
Rowland also went into significant detail about the NBN. Here’s everything that was said.
I would now like to turn to the subject of competition and the NBN.
The Labor Party gave Australia competition policy.
We introduced the Trades Practices Act.
We opened up capital markets.
We floated the exchange rate.
We removed tariffs, despite the challenging near-term impact this had on working people.
We developed a national access regime to ensure businesses could access significant infrastructure such as airports, electricity, gas pipelines and railway lines.
Yes — we did do all these things – and we did it because promoting competition is in our DNA.
It is not a stretch to assert the flexibility and dynamism of our modern economy is a testament to structural reforms undertaken by the Hawke and Keating Labor Governments.
And these past lessons are not lost on us today.
Central to the efforts of policy makers since that time has been the desire to promote robustly competitive industry structures.
The policy and regulatory environment is a set of signals to business, which responds accordingly.
I want to focus on this today because of the evolving dynamics of competition in the telecommunications sector remain an important issue.
The fault lines of today are not those of two decades ago.
It is important for both the public and industry to understand how Labor thinks about these issues.
Over the past few months, we have seen various headlines proclaim that next generation 5G services will render the NBN redundant.
These arguments have been made in spite of recent ABS statistics reporting that fixed-line networks still carry 92 per cent of internet traffic in Australia – nearly 3.5 million terabytes over the December quarter.
Furthermore, nearly three fifths of the fixed-line footprint — 5 million of the expected 8.6 million active services — are yet to connect to the NBN.
It is a fact that the mobile networks we have today are not built to handle the volumes of traffic supported by the fixed network.
Nor are they designed to handle the peak hour demand seen in the residential home broadband market.
For these networks to carry 20 per cent of the total domestic traffic load, it would likely require a material increase in capital investment that would, presumably, have the effect of increasing prices.
So the claim that 5G is going to replace the NBN, or render it unnecessary, is simply not a useful, factual or relevant frame for policy discussion.
My view has always been that the two are complementary and will create value for society in different ways.
This does not mean wireless networks won’t present a significant challenge to the NBN.
Mobile will present a value proposition to particular segments of consumers.
This includes consumers who have modest usage requirements, people in the inner cities and those who receive poor speeds or reliability over the copper network.
Some have suggested Labor should be worried about 5G.
As I’ve made clear, including at this forum in the past – we are very excited about 5G.
We are obviously dismayed the multi-technology mix has reduced the competitiveness of the NBN, as any potential shareholder would be.
Nearly 1 in 3 consumers in the copper footprint can’t achieve over 50 megabits per second.
And NBNCo’s competitors know where most of these homes are.
If wireless were to take an extra 5 per cent of market share relative to assumptions in the current NBN Corporate Plan, it would — all things being equal — reduce $4 billion in revenue streams to NBN, at present value, over the course of the current business plan from 2020 out to 2040.
Notwithstanding these challenges, the competition NBN will receive from wireless is, on the whole, a good thing.
That is because infrastructure-based competition, when oriented towards the long term interests of end-users, is a good thing.
That is the principle.
The NBN has never been an end in and of itself.
It was always a means to an end.
That end being the consumer: the student, the entrepreneur, the small business owner, and the broader social and economic benefits to the nation at large.
Whilst NBN will have an ability to control its operations, it may not necessarily be able to control its own destiny.
Competition, and the cost recovery arrangements that have potential to distort it, will take place within whatever parameters, incentives and structures, governments devise.
This is why the task of constructing policy is important and why it needs to be managed carefully.
We recognise that in the end, markets will function, and consumers will make choices based on value.
For this reason there needs to be a more substantive discussion about how we deal with the economics of the multi-technology mix.
Delaying discussion until completion of the rollout risks another two years of policy drift which I do not believe we can afford.
The sooner we can begin clarifying the balance of trade-offs the faster and more effectively a set of long-term arrangements can be implemented.
In order to form these assessments our policy discourse needs to move beyond conceptual debates.
We need modelling and analysis that provides tangible insight into the trade-offs policy makers need to consider.
We are yet to see any public financial analysis of what implications would follow for entry level prices, consumers, and the NBN business case if there were changes to pricing design – such as moving to a flat access fee or a rebalancing between AVC and CVC.
The Government’s approach to Universal Service Obligation reform remains uncertain in both trajectory and substance.
And there is no public analysis about the distributional impact of how a structured write-down — which has been called for in some quarters — might flow through.
This is where I believe that pricing design, price levels, competition settings, funding of regional services, the ownership structure of the last seven per cent and USO reform all begin to join up.
We may be foregoing creative possibilities because of an unwillingness to consider reform in a more holistic manner.
There may be a modest grand bargain of sorts — and there may not.
In any event I am optimistic something better is within our grasp if we are prepared to match lateral thinking with tough decisions.
That does not mean we should make bold decisions for the sake of it.
Such exuberance needs to be avoided — but we shouldn’t be afraid to be bold if the public interest warrants it.
Labor is steadily working through these issues with the modest resources available to us in Opposition.
Several of the key questions we are working through are as follows:
What are consumers willing to pay?
And by extension, where would benefits from any changes in wholesale pricing actually flow? To consumers? To shareholders of retail providers? Or some combination of the two?
What is the relationship between the sustainability of retail profit margins on the NBN and investment in competing wireless networks?
If competition to NBN is indeed robust, is the market best placed to organically temper wholesale prices on its own?
What synergies exist between the assets NBN will own at rollout completion, USO reform and broader public interest objectives?
And would the realisation of these synergies be constrained under particular ownership structures?
A Government does not need to have a precise answer to all these questions.
But it should have a view.
In this context, I felt that whilst the wide-ranging ACCC communications market study was certainly useful in parts, it was also, perhaps, a missed opportunity to join up the pieces.
I want to deal briefly with recommendation five which proposed the future disaggregation of NBN into competing fixed-line businesses.
As I outlined earlier, 4G and 5G are going to give NBN enough to think about.
My view is that NBN and wireless broadband are the future of infrastructure-based competition for residential broadband in the Australian market.
The market should be designed to encourage competition along this dimension.
Labor does not want to see fixed-line networks duplicating each other because we do not consider this to be efficient investment.
We saw this with the cable wars, and it was simply not productive.
We do not want to see uneven competition in inner city residential basements.
I want to be very clear on this point.
We are comfortable for NBN to be a ubiquitous fixed-line provider because that was always the policy intent.
This is not a religious argument.
It is simply borne out of what has and has not worked over the past twenty five years, and why the NBN was set up.
As Geoff Dixon, the former CEO of Qantas once noted, it is often easy to pronounce oneself in favour of pure competition.
To declare that the more competitors you have, the healthier any given industry will be.
This equation is a simple one, and the economists will usually cheer you most of the way.
However this is often an overly simplistic view of what is a more complex world.
For particular sectors to flourish, and the long-term interests of consumers to be maximised, they need more than competition, they need sustainable competition.
Where market failure exists the Government needs to have a coherent view about the price and quality dimensions along which they want competition to occur.
There is no scientific formula, but as a Member of Parliament my conversations with the community in every corner of this country are helping to form my views.
The public has a far better instinct for these issues than they are often given credit for.
The ACCC market study recommendation for NBN to be broken up into several separate fixed-line entities — contesting each other at the margins — on the basis that it would improve competition.
I should caution, however, this does not mean it stacks up in the real world.
Consumers are the core of our policy focus.
But it would not be wise for any Government to throw taxpayers under a bus in the name of competitive purity.
A leap of faith, in that sense, is not fiscally responsible — particularly if the long-term benefits to consumers, if any, remain highly uncertain.
The fiscal implications of the multi-technology mix are already serious enough.
In the lead-up to the development of the Corporate Plan in 2015, NBN was skilful in persuading the Government that $49 billion was needed to deploy the multi-technology mix.
Once that figure was signed off the incentive for cost discipline went out the window.
The current level of excess is apparent everywhere you look.
We now have a multi-technology mix which, according to NBNCo’s own analysis, will cost $200 million more per annum in steady state to maintain and operate — and generate $300 million less per annum in revenue, relative to a fibre to the premises network.
That is a $500 million earnings gap.
That is enough to subsidise two thirds of the losses in the non-commercial footprint.
That is nearly 10 times what the Government’s proposed regional broadband levy will raise.
On top of this, in August 2017 there were roughly 300,000 homes, of which 220,000 would have been revenue generating, that disappeared off the NBN business plan.
Yet cumulative capital expenditure forecasts increased by $1.4 billion from the year before.
This would suggest taxpayers are spending the same, or possibly more, for the NBN to serve fewer connected homes.
That is another $140 million per annum that isn’t coming back.
Yesterday Andy Penn observed that 1 million more consumers could substitute from NBN to wireless.
If that number materialised at some point in the future, it would reduce NBN’s market share to 65 per cent.
There are some big challenges here, and as the Australian Financial Review recently observed, the scale of the iceberg remains unknown.
I spent most of 2017 focusing on the lived experience of consumers.
In my address at this forum last April and October I outlined a series of priorities:
· Seeing fibre to the curb to be deployed in areas where design and construction on fibre to the node had not begun.
· Stopping the practice of consumers being sold speeds that NBN infrastructure could not deliver.
· A greater alignment of accountability with responsibility in terms of the end user experience.
· Putting the speed monitoring program in place as quickly as possible to ensure consumers had the information they needed to make choices.
· I also made clear that pricing needed to change because the deteriorating economics of the NBN and price-based competition were combining to deliver a poor peak hour experience.
There was progress on a few of these issues, and less progress on others.
What I hope is clear is that whilst we are in Opposition, we are not an Opposition who is idle.
In 2018 we will continue to focus on improving outcomes for consumers, but we will increasingly focus on the economics of the NBN and the medium term settings.
In terms of the NBN it is clear that at every juncture policy makers face difficult trade-offs between consumers, the budget, stakeholder interests and an efficient market design.
It is my view that communications policy over the past four years has been dealt with a piecemeal manner.
At its core, it has been lacking in creativity, vision and a coherent narrative.
I am not making any assumptions about the next election.
It will be a very hard fought contest that could go either way.
I offer that in sincerity.
But if the Labor Party is fortunate enough to be elected by the Australian public, we will be ready to tackle these issues.
We won’t be the dog that caught the car.
We will be rigorous in our approach, we will make choices, and we will explain the trade-offs to the public.
We have done this on negative gearing.
We have done this on the recently announced dividend imputation policy.
And we will do this on communications policy.
Can NBNCO compete in a world of 5G? Will 5G wireless be able to provide enough bandwidth and speed for Aussies to pump data up and down stream? These are the questions we’ve yet to have answered.
Until then, I’ll stick with asking for full fibre.