Fast broadband or just dark fibre

The company building Australia's NGN network (NBN Co) has released it's latest performance report detailing operations over the last 6 months.

The report highlights some concerning results......

• Lower than expected capex and higher than expected opex - essentially this means that it is costing a lot more than NBN Co had originally planned. Not surprising giving the age of the existing access network but not helpful for the raw economics of the exercise (assuming there ever was any). 

• Interest but very few connections - of the 3000 applications to connect up to the network (covering 109,988 households) only 4% of these applicants ended up signing up for a live service. And, that's not a one-off. In the last 2 years there have only been 951 households connected. Sure there are many factors at play here (and relatively few premises passed) but again it's not helping the business case.

• Regulatory issues not squared away - the regulator is yet to complete its review of NBN Co's service undertaking (the SAU) and set the 'ground rules' for the way in which the new monopoly and industry interact. Against the backdrop of Federal election next year (and likely chage of Government) there is very little certainty for the market which is not conducive to investment.

• Already talk of a future sale into private hands - the report is quite bullish on the likelihood of a sale and this is worrying as whilst stakeholders are working on the assumption that a sale may occur in the long-term the purpose of the exercise is to create a public open-access good, providing returns to the nation. Indeed the regulator is conducting its review of NBN Co's wholesale pricing and product structure on this basis. However if NBN Co is to become a private monoploy sooner rather than later then the regulatory framework need to be sufficiently liquid to allow ex post changes. It's one thing to allow a public body to operate a monopoly network to return a public benefit, quite another to have that same power in the hands of an private investor.