Stop forcing the NBN to make a profit, says the consumer watchdog

(Source: NBN)

Australia’s consumer watchdog has suggested the federal government should consider liberating the NBN from its obligation to deliver a profit for Treasury.

The Australian Competition and Consumer Commission (ACCC) released its draft report on the communications sector on Monday, with the national broadband network a major topic of discussion.

With the national network having to subsidise its roll out to unprofitable remote locations while keeping prices competitive in the city and fighting off competition from mobile networks, NBN chief executive Bill Morrow started a public debate last week when he laid down an ultimatum to the government: protect it from competition or provide financial relief.

The ACCC’s draft report agreed that the NBN was in an impossible position, and urged the government to think about, at least temporarily, removing the obligation that it had to return a profit to Treasury.

“Given the social objectives it is required to fulfil by supplying services to uneconomic parts of Australia, and depending on future developments, the government could consider whether NBN Co should continue to be obliged to recover its full cost of investment through its prices,” the report says.

“These could include direct budget funding arrangements for non-commercial services, debt relief measures or an asset revaluation. The latter step is consistent with that usually taken by private sector enterprises if and when business plans are not met.”

The same idea was also floated by prominent tech industry figures last week, including Michael Jankie, chief executive of Melbourne startup PoweredLocal.

“The whole point of government-funded infrastructure is it can run at a loss and recoup the benefits somewhere other than the balance sheet,” he told Business Insider.

“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.”

The NBN has operated its entire life knowing that it had to provide dividends and profits to pay back its costs to the government and make it attractive for a sell-off five years after completion.

However, prime minister Malcolm Turnbull last week conceded that the current 3% return would not be enough if it were a private company.

“It certainly is not a commercial return that the stock market would expect,” he said.

ACCC chair Rod Sims, in response to Morrow’s ultimatum last week, said protecting the NBN from mobile competition would be “disastrous” for consumers, predicting that it would drive up internet prices.

The ACCC’s draft report expressed concerns at the NBN’s wholesale economic model, where the retail internet providers are required to pay extra for sufficient bandwidth – called CVC — to serve customer expectations.

Currently, both the NBN and the retailers acknowledge that a price war is discouraging sufficient purchase of CVC, resulting in congestion for customers in peak periods.

The consumer watchdog also reported that advertising of maximum speeds by retailers was a problem, as it didn’t reflect the actual experience that customers would receive after signing up to a long contract.

“While we think it’s great that consumers have a wide choice of plans, we want to ensure they have accurate information and tools to help them understand how to choose the best service for their needs.”

The ACCC is combatting the confusing situation for consumers with two programmes – a “guidance” document for retailers to be more truthful in advertising and a broadband performance measurement scheme, which will name-and-shame the retailers that are providing below-average service.

Feedback will be accepted on the draft report until December 8, with the final version due out early in the new year.

NOW READ: A former NBN boss says politics killed a once-in-a-lifetime chance to transform Australia’s digital future

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