The poor economics of the National Broadband Network (NBN) were laid bare earlier this month when NBN Co announced that it will slash 500 jobs (out of 4650) in order to lower its cost base and maintain competitiveness.
The decision followed accelerating competition from mobile broadband, which is steeling market share from the NBN and threatening the viability of the network, which has to recover tens-of-billions of dollars of sunk investment.
Telstra, Optus and TPG have each introduced fast Fixed Wireless Access 5G broadband that can deliver high data transfer speeds and low latency at lower cost than the NBN.
Elon Musk’s StarLink satellite internet service is also emerging as a viable alternative to the NBN.
For example, a typical 50mbps download plan on the NBN costs consumers about $70 per month, whereas Optus and TPG are offering Fixed Wireless Access 5G broadband at the same speed but $10 to $15 cheaper.
Customers are, therefore, increasingly ditching the NBN for cheaper wireless alternatives.
For the first time since its inception, the NBN saw its total residential connections fall by 0.1% (9,000) over the December quarter according to ACCC data. That’s despite record growth in Australia’s population of nearly 500,000 people in 2022.
“NBN’s offering is not competitive”, says Mark Gregory from RMIT University.
“People are looking at all these alternatives because the price of broadband in Australia is too high, and rather than going down like it should be doing it’s continually going up”.
“It’s … over-priced and under-performing for what Australia needs”, Gregory added.
Telecommunications consultant Paul Budde likewise suggested the NBN is in a ‘death spiral’, because its falling subscriber base means it needs to increase prices to recoup its investments, which will cause a further decline in subscribers.
The NBN is now expected to cost taxpayers and private financiers a total of $57 billion from 2024, which is roughly double the original cost estimate of $29.5 billion proposed by the former Coalition government.
These enormous fixed costs mean the NBN needs nearly every Australian household to subscribe for the network to remain financially viable.
However, with increasing numbers of households leaving the NBN for cheaper wireless alternatives, these fixed costs will need to be recouped from a shrinking subscriber base, which will place further upwards pressure on prices.
But as prices rise, more households will leave the NBN for wireless, and the cycle will repeat.
Hence, NBN Co is tumbling into a ‘death spiral’ of falling connections and rising costs.
