This has been a disastrous week for the NBN -- huge numbers of complaints, high fees, and slow speeds exposed

(Source: NBN)

It has been a terrible week for the NBN.

The Telecommunications Industry Ombudsman’s annual report showed there were 27,000 complaints about the national broadband network, 159% up over the previous financial year.

Prime Minister Malcolm Turnbull called the whole project “a mistake”.

“Well, it was a mistake to go about it the way [Labor] did; setting up a new government company to do it was a big mistake,” said Turnbull.

Both the prime minister and the NBN chief executive Bill Morrow say the organisation isn’t returning enough money back to the government. Turnbull said the current 3% is “not a commercial return that the stock market would expect”.

No kidding.

The NBN currently collects $43 in average revenue per user (ARPU) each month but needs to boost that to $52 in order to meet its financial obligations to the federal government.

But it’s a struggle to charge people more when there is so much dissatisfaction about the service. Just ask the ombudsman.

Critics ask: why is the NBN obliged to bring back a commercial rate of return at all?

The government doesn’t expect a direct profit from road-building projects. It’s a cost it bears because it brings benefits to the community and the economy. Why couldn’t some or all of the cost of the NBN be written off, so that the organisation, retailers and consumers could all breathe a little easier?

“If our expectation is that the National Broadband Network has to be profitable to be a success, then it should’ve been left to private industry,” Michael Jankie, chief executive of Melbourne startup PoweredLocal, told Business Insider.

“But the whole point of government-funded infrastructure is it can run at a loss and recoup the benefits somewhere other than the balance sheet.”

One of the biggest proponents of this thinking is telecommunications entrepreneur Bevan Slattery. The boss of dark fibre outfit Superloop has said from the start that the NBN would never make a profit and the chase for an impossible financial return has forced the whole broadband industry to provide a substandard service to consumers.

“I firmly believe you can’t get a commercial return on this infrastructure,” he said back in 2010, when the NBN was just a hypothetical for most Australians.

“Don’t play cute, don’t spin, don’t bullshit.”

Slattery declined to comment to Business Insider for this story, referring to his presentation at an industry conference in April this year, where he said if the economics are not fixed the “NBN will be the most expensive broadband network in the developed world”.

“The ACCC, NBN Co and Turnbull need to accept that the model is broken,” he said in his presentation.

The entrepreneur has proposed that between $20 billion and $30 billion of the money ploughed into the NBN be written off – just as the government would do for highways and bridges.

Bevan Slattery Source:

One of the biggest performance bottlenecks irritating end customers is retailers not buying enough capacity from the NBN. A write-off, Slattery says, would allow the bandwidth fee (called CVC) to be slashed.

“The government will be unelectable if they don’t sort this by the end of 2017,” Slattery said.

“The NBN was supposed to be fast and affordable.”

But writing off the cost is a politically sensitive issue, especially with the modern scrutiny on government spending and deficits.

“[Voters] have been taught to think short-term. This is a because we look at debt, as a whole, as bad. But when it’s government borrowing money to build these projects, even with cost blow-outs, it’s not a bad thing,” said Jankie.

“Revolver Lane, the co-working space we operate from, has paid $50,000 to an alternate fibre provider to fund the last-mile [broadband] roll-out to the office building we are in. Why? Because they recognise that for innovation, $50,000 is a small overhead to fund for necessary, fast, internet.”

The idea of writing off the construction cost and bring down prices for consumers has become more urgent with the rise of mobile internet as a genuine competitor to fixed line broadband.

NBN CEO Bill Morrow. Source: NBN

Morrow acknowledged this new threat this week, laying down an ultimatum to the government to either protect it from competition from mobile networks or provide financial relief.

“Things are going to have to happen. The government has two options: to regulate to protect this model, or to realise that the NBN won’t have the finances it thought and might require some off-budget monies to go in to make it happen,” he said.

Slattery agrees, predicting that wireless alternatives will “over-run” the NBN if a solution is not found by the end of 2018. Telstra will be trialling 5G mobile at the Commonwealth Games on the Gold Coast in April.

The government is planning to charge a broadband levy of about $7 a month per premises from fixed-line rivals to the NBN. The funds will then be handed to the national network – but the prime minister this week ruled out applying the levy to mobile providers, knowing how unpopular he would be if everyone had to pay $7 extra on their mobile plans.

Adding to the headache is the NBN’s obligation to pay Telstra about $15 per month for every user. This is a fee to access infrastructure spaces, which Telstra owns.

“Because the decision was taken back in 2009 to have a completely separate company than what the incumbent Telstra was, NBN is obligated to pay Telstra a lot of money to lease their ducts, to have rack space in the exchanges and to have access to the pits,” Morrow told a senate estimates hearing this week.

“That amount of money that we need to recover, actually does lift up the price up we have to [charge] to consumers.”

At the hearing, Morrow seemed as flabbergasted as anyone about the predicament his organisation was in. He lamented being wedged between the seemingly incompatible obligations to bring all Australians fast broadband at a low cost and still make a profit for the government.

Morrow probably hopes that the government might start listening to people like Slattery and Jankie.

“We need fast internet to be a modern economy. As critical as good roads,” said Jankie.

“The focus should be on the right product that can be upgraded and future proofed and not the cost.”

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