The National Broadband Network (NBN) is once again in the news after global ratings agency S&P today repeated what many observers had been noting for a while: that the NBN is unlikely to generate a commercial return any time soon.
According to S&P, the prices the NBN charges retail service providers such as Telstra (ASX: TLS) and TPG Telecom (ASX: TPM) for access to its network are too high – and going higher – for it to attract enough customers to achieve the required level of profitability.
By way of background, the Federal government has demanded that the NBN make a commercial return on the $30bn of taxpayer money spent on the project. Moreover, due to the government’s assumption that the NBN will in fact make a commercial return, NBN expenditure is classified as an “investment” rather than a simple expense that hits the Budget’s bottom line.
S&P disagrees, believing a write-down of the value of the NBN is “inevitable” and suggesting the government lower its commercial return demands to allow the NBN to in turn lower its prices and perhaps achieve profitability.
A better way
However, instead of going down this route and keeping the NBN in government ownership, I’ve got a better idea.
And it’s based on what has occurred in Australia’s mobile phone industry over the past two decades.
While it hasn’t happened in a straight-line (Vodafail, anyone?), the reason that mobile network customers have generally experienced deflation in their bills over the past 20 years – meaning they now get more bang for their buck in terms of voice calls, text messages and, more recently, data than they did years ago – is competition.
Namely, competition between mobile network operators Telstra, Optus and Vodafone (and, in due course, TPG Telecom). This has encouraged each network operator to heavily invest in their networks, ultimately leading to better service at lower cost for their customers. The rise of low-cost mobile resellers (or “mobile virtual network operators”) like Amaysim (ASX: AYS) has also helped.
I think the same forces will work in Australia’s broadband market.
So I’d sell off the NBN to the highest bidder – even if, as is likely, the government is forced to take a loss on its investment – allow the new owner(s) to charge customers whatever they feel is appropriate, and also remove all regulations restricting competition to the NBN.
And then I’d sit back and watch as competition works its magic.
Is this the perfect solution?
Of course not, but life is rarely perfect. For example, my solution would probably mean those in remote areas of the country would likely have to pay more and/or have inferior service compared to those living in more highly populated areas.
And I could be wrong in believing that the NBN’s current monopoly status wouldn’t prove an unconquerable barrier for competitors once the NBN is in private hands.
Even so, my solution removes the ongoing financial burden on taxpayers, while also removing politics as a consideration for whoever ends up owning the NBN.
And these can only be good things.