NBN admits three in four FTTN customers won't get top speeds
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NBN admits three in four FTTN customers won't get top speeds

The National Broadband Network has admitted only one in four customers connecting through the most controversial technology in the mix will access its much-touted top speeds.

The disclosure, to a parliamentary committee, comes as pressure is mounting for the government to write down the value of the multi-billion dollar project as it struggles to deliver the service that would underpin its financial worth and the taxpayer investment in it.

Some NBN users will not have access to 100 Mbps speeds by 2020.

Some NBN users will not have access to 100 Mbps speeds by 2020.

Photo: Daniel Munoz

What the NBN response shows is that when the rollout concludes in 2020, three out of four fibre-to-the-node (FTTN) customers are not expected to be able to access its fastest download speeds, of 100 Mbps.

The controversial FTTN connection uses fibre to the nearest neighbourhood node and then uses copper wire for the rest of the journey to a consumer premise.

Consumers who have fibre to their premises (FTTP), fibre to their building (FTTB) or fibre running down their street (FTTC) customers are estimated to be able to utilise the top speed plans.

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Those most dependent on FTTN connections will be those in suburban and semi-rural areas as inner-city customers will usually access the NBN through existing pay TV or other cables (known as HFC). Geelong in Victoria is heavily dependent on FTTN connections as are some parts of outer Sydney.

An NBN Co spokeswoman said 90 per cent of customers accessing the NBN through the various wire methods (as opposed to satellite) would still be able to access speeds of up to 50 Mbps in 2020, with all able to access at least 25 Mbps.

Future network upgrades would also be funded with its forecast $5 billion annual revenues after roll-out, she said.

Currently, more than 80 per cent of NBN users are on speeds of 25 Mbps or less. Recent discounts offered to wholesalers by the NBN are expected to see more people shift towards a 50 Mbps speed plan.

This pricing shift has become part of a larger debate, with experts increasingly questioning the value of the network and tipping a possible write down from the government.

The government has ploughed $30 billion of public money into the NBN with a plan to eventually privatise the network to recoup the investment along with a return.

Any writedown would potentially jeopardise that plan.

A Macquarie Wealth Management note on Tuesday said it expected the “NBN pricing structure to continue to evolve, and the merits of writing down the NBN to continue to be debated”.

Price cuts announced in December could see the NBN considering "the long-term impacts of such a model if widely adopted".

The note said a "catalyst" for a write-down could be a change in the NBN business model, or deteriorating economics from higher building costs, delays and lower than anticipated take-up, or a combination of these factors.

In a document outlining its investment strategy, wealth management firm Morgans said a write down was required to “make the NBN work” and to bring down costs.

It considered the NBN a "great social investment" but a "poor financial investment" due to lower customer take-up and lower revenue per customer than the NBN had forecast thanks to competing technologies that sometimes offered better speeds more cheaply.

Its calculations suggest the last mile access price needs to be cut back to pre-NBN levels of $15 a month – from $43 now, and a $52 medium-term target. The last mile is the final stretch of wires that connects homes to the wider network.

“Essentially, this would require a large portion of the NBN’s capital base to be written off,” the report says, speculating it is “equally conceivable that our current Prime Minister, Malcolm Turnbull, could write down the NBN to improve the consumer outcome and attract votes”.

In December, JPMorgan analyst Eric Pan also called for a restructure saying it would be in the best interest for the public if the government required a lower return on investment and could focus on service over profitability.

To do so would “likely” involve a write-down.

Ord Minnett research from December outlined a possible write-down in a "long-term scenario".

Most analysts predicted upwards movement for the share price of telcos if this happened.

Despite the growing chorus pushing for a write-down, minister for finance Mathias Cormann said there was “no basis” for it.

He said the investment could only be written down in line with accounting standards, which required the NBN Co to assess that it was required.

“The NBN has determined independently that a writedown is not appropriate at this time,” he said.

“There seems to be some confusion by some about the relationship between the valuation of NBN and the internal rate of return.”

Opposition communications minister Michelle Rowland said a writedown was not about accounting rules but “whether it would help to strike a better balance for consumers, taxpayers, industry and the broader economy”.

Another expert calling for a write-down, telecommunications consultant and former advisor to the UN Broadband Commission Paul Budde, said it was “firmly” on the agenda.

He pointed to the Australian Competition and Consumer Commission’s late-2017 comments that an "asset revaluation" may be needed to enable the NBN Co to charge lower prices.

Using figures from a 2016 report from auditing firm PwC, which indicated the NBN might only be worth $27 billion when complete, and his own calculations, he predicted a 50 per cent write-down.

About $30 billion of the cost to build has come from taxpayers.

Mr Budde encouraged telcos to “mediate the politics” in 2020 when the NBN is rolled out to create an “official industry-led commission”.

The major telcos have also queried the financial viability of the NBN.

When asked about whether industry-led action could be on the cards, John Stanton, chief executive of industry body Communications Alliance, said it was “vitally interested ... in the nature of access technologies and how they combine with commercial arrangements”.

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The alliance was working with the NBN on “a raft of” future options. He would not make comment about a write-down.

The NBN Co would not provide figures on how many premises would be connected by FTTN in 2020, with the figure included with FTTB in its corporate plans.

Jennifer Duke

Jennifer Duke writes about media and telecommunications.

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