NBN Co boss defiant in face of calls for cheaper wholesale prices

NBN Co chief executive Stephen Rue has refused to yield to pressure from retailers to reduce the wholesale costs of the NBN, saying the plans’ comparatively high cost was necessary to pay for the network.

But in good news for retailers and consumers, Mr Rue also dismissed concerns NBN Co would raise prices, saying its plan to increase revenue by $7 per user would be achieved by customers voluntarily moving to higher-speed plans and by businesses buying extra bandwidth.

Announcing NBN Co’s first-quarter results on Monday, Mr Rue was upbeat about the progress of the roll-out, saying the government-owned corporation was on track to meet its target of connecting 8 million homes and businesses to the fibre network by 2020.

In the three months ended September 30, he said NBN Co had connected an additional 339,000 premises, bringing the total number of premises now connected to 4.4 million.

The NBN is made up of a mixture of high-speed fibre to the premises, fibre to the node and copper to the premises, and …
The NBN is made up of a mixture of high-speed fibre to the premises, fibre to the node and copper to the premises, and hybrid fibre coaxial (HFC) connections. Glenn Hunt
“We are confident we’ll continue to deliver in partnership with the industry, meeting our corporate plan targets for the 2019 financial year and driving towards network completion by 2020,” Mr Rue said.

Despite his upbeat tone, NBN Co has come under constant pressure from retailers over its wholesale pricing structures. Most retailers – from giants such as Telstra and Optus, to start-ups like Mate Communicate – agree the mismatch between what NBN Co charges and what consumers are willing to or can afford to pay means the retail margins are unrealistically low.

Late last month, Amaysim shut down its NBN retail business altogether, claiming the “punitive” wholesale cost made it impossible to provide a “world-class product at a reasonable price”.

Many argue a write-down – which would result in the government losing a portion of the multibillion-dollar loans it has provided NBN Co – is necessary to make the NBN affordable to customers and viable to retailers.

But Mr Rue was clear that NBN Co did not consider this complaint persuasive, saying the NBN had always been a user-funded rather than taxpayer-funded project.

NBN CEO BIll Morrow.
It was Mr Rue’s first results presentation as CEO since he took over from his predecessor Bill Morrow (above) in August. Adam Hollingworth
“The NBN was set up to deliver great economic and social benefits, and it does that by extending the benefits to the whole of society,” he said.

“In order for us to achieve that we need to have a strong business model.”

No plans to raise prices

Monday’s results showed NBN Co currently receives $44 in average revenue per user per month (a figure known as “ARPU”). That was up slightly on the previous quarter, but far short of its long-term ARPU target of $51 by 2022.

The NBN’s most popular 50-megabit-per-second plan currently costs $45 a month, well short of the target ARPU. However Mr Rue said NBN Co did not plan to reach the $51 target by increasing this plan’s cost.

Instead, he said about half of it would be achieved by businesses purchasing more data and bandwidth as their needs develop, with the remainder coming from households voluntarily opting to upgrade to the more expensive 100 Mbps bundle.

5G not a threat, HFC rolling out

Mr Rue downplayed concerns the launch of 5G mobile technology over the next couple of years would pose a threat to fixed-line broadband, insisting the high-speed mobile technology would be “complementary” to the NBN, not a replacement.

Last year, NBN Co called a halt to the roll-out of hybrid fibre coaxial connections to fix issues with the technology, which is traditionally used to transmit cable television. Mr Rue said the roll-out of HFC had picked up pace, and NBN Co was now connecting around 10,000 premises a week using HFC cables.

The majority of NBN connections – 2.3 million – are now fibre to the node (FTTN). Fibre to the premises (FTTP) accounts for 1.2 million connections, while HFC accounts for 438,000 connections. The latter two are increasing, while the roll-out of top-quality FTTP connections barely increased over the year.

Overall, revenue for the quarter was $620 million, a 53 per cent increase on the corresponding quarter in 2017.

NBN Co made an $875 million loss for the quarter. However, earnings before income tax, depreciation and amortisation (EBITDA) and before subscriber costs, put NBN Co just in the black, with earnings of $74 million.

Subscriber costs are the costs NBN Co must pay telecommunication companies when they migrate their customers onto the NBN. This is a one-off payment, and cost NBN Co $344 million for the quarter.

NBN Co plans to connect a further 3.6 million homes and businesses by 2020 to bring the total connections to 8 million, meaning subscriber costs will continue to eat into earnings.


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