Public policy shortcomings have continued to pay dividends for private internet network providers.
BROADBAND scarcely warranted a mention during this year’s federal election campaign.
That it didn’t was a curious omission, given Anthony Albanese’s brief tenure as communications minister, as well as the previous government’s pledge to spend $3.5 billion to replace outmoded copper cables with fibre equivalent in 2020.
It doesn’t take much digging to find Mr Albanese, in debate with Malcolm Turnbull just weeks ahead of the 2013 election, resting on a familiar refrain for Labor: “Do it once, do it right and do it with fibre”.
Still, just one MP has mentioned the issue on the house floor in the 11 days of the 47th parliament’s first session.
Her name is Elizabeth Watson-Brown, the newly elected Greens MP for the formerly Liberal-held seat of Ryan.
Covering much of inner-suburban Brisbane, including Indooroopilly and Ashgrove, the electorate extends deep into the city’s largely rural, north-western exurbia, including much of D’Aguilar National Park.
Internet connectivity for her constituents is, to put it mildly, inconsistent.
“We all remember how the Liberals under Malcolm Turnbull torpedoed the NBN when they ripped up the original plan of delivering fibre to the premises and replaced it with the significantly inferior fibre-to-the-node model, and now we’re paying the price,” Professor Watson-Brown told parliament in late September.
“But the problem runs deeper than that.” In her view, the problem is the involvement of private funding in Australia’s broadband expansion.
NBN Co, the government-owned enterprise in charge of the project, is highly dependent on external funding to operate.
Its private debt, which will incur big interest repayments from this year, comprised its largest source of new funding in 2021 with $5.6 billion raised through bank and capital markets debt in the six months to December 31 2021.
In addition, the outfit still owed the federal government $7.38 billion at the beginning of this year, after $9.1 billion was repaid over the course of 2021.
Operationally, NBN Co remains a lossmaking venture.
Even while improving its position by $1.26 billion last year – thanks to shrinking subscriber costs and a $262 million growth in telecommunications revenue – the business still finished in the red, with a shortfall of $857 million.
Privatisation was nevertheless the endgame for the Coalition while in office.
As communications minister in the Morrison government until May 2022, Paul Fletcher made that obvious by declaring the network built and fully operational, a major hurdle to privatisation, in 2020, and suitors have since circled in anticipation of the infrastructure going to market.
Telstra has been among the most aggressive in taking steps to position itself for a possible sale.
Legislation prohibits the network’s infrastructure being sold to a vertically integrated ISP, with Telstra’s long-touted restructure, through which its retail business will be split from two separate infrastructure-holding entities, helping it clear that regulatory hurdle.
Shareholders will vote later this month with a scheme of arrangements to incur a one-off cost of $126 million.
Telstra has never directly confirmed it wants the network, a nonpoint given the country’s new communications minister, Michelle Rowland, has now made clear the government will hold on to NBN Co for the time being.
That was evident when, within weeks of Labor winning the election, Ms Rowland wrote to the Australian Competition and Consumer Commission to notify it that NBN Co’s existing special access undertaking (SAU) variation would be withdrawn, deeming it “unacceptable”.
If carried through, the new pricing agreement would have allowed for price increases to providers, likely to have been passed on to users, of inflation plus 3 per cent.
Industry bodies were strongly opposed, and Ms Rowland rejected it as reflecting a view towards privatisation.
While a spokesperson for NBN Co didn’t respond to multiple requests for comment, chief executive Stephen Rue addressed the matter in August after the release of a revised SAU variation discussion paper.
That paper proposed a reduction in wholesale pricing, the removal of capacity charges for higher-speed tiers, and the progressive implementation of a fixed monthly charge, in effect equalising the standard of service available to users.
“We are planning to reduce our wholesale pricing to put higher-speed broadband within easier reach of more customers,” Mr Rue said.
“Our aim is to continue to support retailers and customers, so customers who are already connected to, or likely to connect to higher-speed services in the future, will be able to do so at a reasonable price and be assured of receiving high-quality broadband over a fast, secure and reliable network.”
There’s plenty on the public record to suggest Labor was headed down this path.
While in opposition last year, Ms Rowland unsuccessfully moved to amend legislation extending Telstra’s regulatory compliance with clauses critical of the carrier’s privatisation, including a passage that noted its sale “[a]s a vertically integrated monopoly was not in the national interest”.
Many current ministers, including Industry and Science Minister Ed Husic, echoed her concerns, and Ms Rowland has called Labor’s NBN policy a response to Telstra’s privatisation.
Professor Watson-Browne disagreed with the latter point, arguing that model paved the way for privatisation, but the point remained that the network not being sold has been a welcome development for some.
Among those happy with that outcome is RMIT University’s Mark Graham.
“It’s a logical step because the NBN is not finished,” Professor Graham told Business News.
Labor conceded as much in the lead up to the election. Rather than wind up NBN Co and sell the infrastructure, Labor pledged to keep the network in public hands while also spending $2.4 billion expanding the network to 1.5 million premises.
Details on that policy will be available in the government’s first budget, with further debt funding in the mix.
Whether it will sufficiently meet Labor’s original proposal, under which 93 per cent of premises would have been connected to fibre ahead of privatisation, is debatable, as the new government’s plan stipulates just 90 per cent of premises will have access to “world-class gigabit speeds”.
More than 12 million premises can connect to NBN services at present, with about 70 per cent connected to the network.
The percentage is similar in Western Australia, where access to technologically superior fibre-to-the-premises connections is limited to Victoria Park, South Perth and Applecross, and select regional cities.
FTTP connections were originally intended to be available to all users in Australia before its technology types were segmented following the Coalition’s election win in 2013.
Most users in metropolitan Perth access NBN internet via a fibre-to-the-node connection, considered the cheapest available.
Users in denser areas with comparatively fewer residential customers, such as businesses in Perth’s CBD, access fibre-to-the-curb connection, which is essentially the middle option between FTTN and FTTP, with the rest of the state accessing either fixed-wireless or satellite internet.
Professor Graham made a pointed observation that NBN Co’s credentials as a private company were arguable, given Australia’s median internet speed in August, per speedtest.net, ranked below Serbia, Peru and Oman.
In his view, any sale should be conditional on improved regulation of internet standards.
He pointed out that, unlike the US, where internet connectivity is monitored by the Federal Communications Commission, Australia imposes no similar standards on ISPs, ergo diluting the competitive advantage users would otherwise receive from having a private market.
An example he cited was the FCC’s decision to cancel a $US886 million grant for SpaceX’s Starlink after raising doubts with its internet speeds and cost to users.
Conversely, Starlink is widely available in Australia.
“Imagine that applied to the black spot program, where I get a lot of comments from people that black spot towers are put up but there’s so little capacity being provided that the overall performance is woeful,” Professor Graham said.
“With the NBN, if they had regulated through legislation the minimum performance … in 2010, the NBN would be finished by now, would be full fibre, and Australians wouldn’t be sitting at 66 in the world [for median internet speed].”
Private ISPs
The market for private operators remains wide open as Labor embarks on its NBN policy.
Investors have been keen to get their hands on telecommunications infrastructure in recent months, typified by Commonwealth Superannuation, Morrisons & Co and Brookfield’s $3.7 billion acquisition of since-delisted Uniti Group in April.
That’s come as other super funds, including AustralianSuper, have sought to park cash in telco infrastructure. Swoop, which touts former Uniti investors Tony Grist and James Spenceley as board members, has similarly gobbled up market share through acquisitions, finishing FY22 in the black after a $2.9 million loss a year earlier.
Andrew Forrest is a considerable backer of that ISP through his Tattarang outfit.
Stephen Cornish, who leads ASX-listed, Perth-based ISP Pentanet, acknowledged the federal government’s decision to reverse course on NBN privatisation had done little to quell investor interest.
“It was only a few months ago it looked like [the network] was going to be privatised, now it’s looking like it won’t be privatised,” Mr Cornish said.
“On what trajectory and on what timeframe does that script flip back again?
“There’s a lot of unknowns, but what we do know is infrastructure is long lasting.
“If you can be innovative and create cool, new infrastructure using new technology, you can last for the long term.”
Pentanet has made a name for itself in Perth in recent years, particularly through sponsorships of Perth Wildcats and West Perth Falcons, and promotion of its partnership with cloud gaming provider Nvidia.
This year it has begun rolling out its neXus technology, which creates a mesh network between fixed-wireless towers that optimises connections through interconnected nodes rather than ‘line-of-sight’ connections generally required for the towers to work.
Once deployed at scale, the technology should allow more users to access the provider’s network with the same number of towers as competitors.
Users in Perth’s northern suburbs are well covered by neXus, and Mr Cornish appeared bullish of its potential.
“The true form of what we’re building is both a network that uses neXus and overlays our 5G technology from the spectrum we’ve bought,” he said.
“It’s then it’ll give rise to this superior offering.
“The build we’re doing at the moment is really phase one, but for the most part it’s doing what it’s designed to do in delivering next generation bandwidth.”
Despite significant interest in internet infrastructure from institutional investors, a severe market correction for listed tech companies has filtered through to challenger ISPs, with Aussie Broadband having notably lost almost its gains from FY22 to be priced at about $2.30 a share as of September.
Swoop has similarly shed value, now trading below $0.50 a share after listing at more than $2, along with Pentanet, which has traded below $0.50 a share since April after a high of $1.10 just a year earlier.
Mr Cornish had few concerns with Pentanet’s business model amid the upheaval.
“All we have to do is keep our head down, keep building and keep doing what we’re doing,” he said.
“We really need to keep trying to educate [people about] what we’re doing, as we’re doing it, to as many people as possible, so they’ve got a wider sense of what we actually do.”
