How attractive is pricing for the proposed National Broadband Network?

Today the Government released a report by McKinsey and KPMG suggesting it could build a National Broadband Network — without Telstra — for about $43 billion. There are potentially strong benefits of widespread public access to the internet, even if these benefits are hard to add up and may not be realizable today, especially for faster broadband speeds. One of the features highlighted in the new report is open access at a low price, around $30 wholesale for the cheapest tier, which would translate to about $50 retail. In an interview with ABC News Radio this afternoon, I was asked if this really is an attractive price. By today’s standards, it does seem low. However there are two important assumptions being made. First, there will be no cost blowouts beyond the mild scenarios outlined in the report (try not to think of Myki). Second, that $50/month will still be attractive when the network is ready in about a decade. Let us not forget that even over the past few years prices have fallen dramatically. OECD data shows that a broadband plan in Australia costing $130/month in 2005 only cost $70 per month in 2008. Prices are falling across the world and this trend is likely to continue: telecommunications technology (both wired and wireless) is experiencing rapid innovation. I’m not saying that the Government should not proceed but that we should view these projections with a bit of caution.

A separate issue is whether Telstra is likely to partner with the Government on this project. They have to decide by June. While there are potential cost savings involved, I suspect it is unrealistic. Leaving aside past personality issues and legal threats, the reality is that both parties have different objectives. The government wants to offer broad-based access at a low cost, including to non-metropolitan areas that are expensive to serve. Telstra would probably find it profitable to offer fiber in metropolitan areas and at a higher price. Would they really want to go all the way up to serving 93% of the population with fiber as the Government intends? In the report, costs are a lot higher for serving the last 10%. This may matter to voters, and politicans, but to Telstra the remaining 10-20% of the population may be adequately served if they had NextG coverage, or less. Plus there is the matter of Telstra’s existing copper lines to complicate matters…

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