NBN’s constipation: Problems go much deeper than a lack of fibre

EVERYONE thinks they know the problem with the NBN. The truth is, it goes far deeper than we know - and it can’t be fixed.

EVERYBODY thinks they know the problem with the NBN: The government decided not to build a nice network of fibre to every home, and instead decided to build a whole lot of nodes. Many of us can only get NBN over copper or cable.

It’s all true. But the problems don’t end there. It goes much deeper.

Even if we fixed the hardware problem and ran beautiful glass fibres capable of a gleaming gigabit per second to everyone, we’d still be stuck.

PROMISES, PROMISES….

You buy your NBN connection from a retailer. They have to pay NBN Co for maximum usage. So do they buy enough access for peak times?

Why would they? They can offer you a package with an advertised speed of 100 megabits per second, but they don’t have to guarantee they can deliver it all day. If they buy less access their customers may be unhappy at peak times, but they save money.

The price telcos pay NBN Co for usage is called a CVC charge. It determines the choke point that the retailer faces.

If the retailers pay a high CVC charge per customer their choke point is slack and generous. All their customers can run Netflix at night. But if they pay a small CVC charge per customer the choke point in the network is tight and we spend half the night buffering.

Too many of us are wanting to binge on Netflix shows like The Crown, and the NBN can’t cope.

Unfortunately, there is very little public information on how much CVC charge each retailer pays per customer, and so no way of comparing them all on this. A spokesperson for Communication Minister Mitch Fifield said the government was putting the ACCC to work to make sure customers weren’t getting ripped off.

“The purchase of CVC is a commercial decision for retailers but the ACCC broadband performance monitoring will show how fast each major retailer’s internet service is by measuring actual data speeds in around 4000 homes,” the spokesperson said.

BUT WHOSE FAULT IS IT?

But maybe this is not the retailers’ fault? After all why does the NBN charge such a high CVC charge that it makes it uneconomical for retailers to buy enough access for the end users? Should NBN Co maybe restructure its pricing? It has already cut charges twice, why not more?

Or maybe it is the end user’s fault? Not everyone with NBN access is signing up. And around 85 per cent of NBN customers are buying the bundles with maximum speeds of 25mbps or lower. That means the retailers can’t charge as much as if we all signed up for the highest speed connections, and so they don’t have cash on hand to pay for all the access.

Users might not want to pay more and more, but we can’t pretend we aren’t using more and more. As this next graph shows, we’re using more and more data. The growth rate has slowed a little but is still an amazing 40 to 50 per cent annually.

FOLLOW THE MONEY

When you follow all the threads back, the problem is money. The NBN costs a lot to build. It is supposed to get the money back by operating like a business. But not enough money is coming into the system. Customers aren’t paying enough to the retailers, retailers aren’t paying enough to the NBN Co, and the whole system is starved of the cash it needs.

At every point, this shortfall shows up. It shows up in not deciding to build the more expensive fibre to the premises. It shows up in dud installations by dodgy contractors and it shows up in retailers not buying enough capacity to give their customers what they paid for.

It would all be fun and games if NBN Co was a private company, owned by someone else. But it’s not. It’s owned by us. By all Australians, young and free. Ultimately we are going to have to deal with this.

THE PAIN TRAIN STOPPING AT YOUR STATION?

What we’d all like at this point in the article is a solution. We want to find out there’s someone we can blame, some heads to roll, a few tweaks and we’re back on track.

The reality is we’ve gone an awfully long way down the path already. Fixing this mess is going to require a lot of pain. What we are deciding now is who gets the pain.

Here are two of the ideas for sharing the pain ...

One idea for injecting a bit more money into the NBN system is a levy. The minister in charge told media the other day that he was considering levying “fixed line competitors of NBN”. They would pass on some of that charge to their customers.

Another idea is to just give up on the idea of the NBN making profit on all the money it has invested so far. If it has to make a return on say $25 billion instead of $50 billon in investment, that could allow it to cut prices.

The PM has been spending a lot of time playing political football with the NBN lately. He would love to lay the blame on Labor. Picture: Mick Tsikas / AAP

But then the asset we have would be worth a lot less. And that’s a shame, because the plan was to sell it. We could still sell it, but the chances of selling it for a profit seem to be out the window. We’ve spent many billions on it, but Telecommunications expert Paul Budde says it just doesn’t seem to be worth that much.

“Once political sense finally returns to the NBN, the writing off of at least 50 per cent of the investment will be unavoidable,” Mr Budde wrote in a mid-year review of the NBN.

Of course, if we do that, we can’t sell the NBN for big bucks and use the money for health spending, education, tax cuts, etc.

(Incidentally, if we’d known from the start the NBN would lose money then it would have been accounted for differently and would have made budget deficits look even worse in the last 10 years. The NBN’s costs have all been “off-budget” because it was supposed to be a money-maker. But did they ever think it really was a money-maker? Or, did they just want to keep it off the budget?)

My guess on what will happen? I’d bet on the government writing off some of the money that’s been spent. That’s probably why Malcolm Turnbull’s been working so hard this week to get the NBN to look like Labor’s fault.