“If people want to access high-speed fibre, they will have to pay $5000 for the privilege… We believe that people in regions should pay the same price as people in Brisbane CBD or Sydney CBD. Under the Coalition plan, there will be different prices, one for the CBD and a higher price in regional Australia.” – Minister for Broadband, Communications and the Digital Economy, Anthony Albanese, press conference, 9 August.
Both major parties are trying to convince voters that their plan is better than their competitor’s. So, is it true that the Coalition’s broadband plan will cost more for regional households and businesses?
Competing NBN policies and costs
Albanese’s statement seems to conflate the cost of provision with the cost of access. The National Broadband Network’s (NBN) wholesale price is based on provision, access and usage:
- Provision is the cost of installing a connection to the user premises.
- Access is the monthly fee for being able to use the NBN, covering operations and recovering capital expenditure.
- Usage refers to the charge per data volume or digitally delivered service. (Usage charges would be set by internet providers - not NBN Co or the government.)
The government’s NBN rollout includes both the deployment of technology - fibre, fixed wireless and satellite - and the provision of the connection to the premises itself. All of this is provided to the end user at no up-front cost in all but the most exceptional cases.
The Coalition’s policy brings the optical fibre connection to one of about 60,000 neighbourhood “nodes”, or kerbside cabinets, where that fibre connection is then adjusted and linked to the existing copper wire to the home. This technology is known as Fibre to the Node (FTTN) and is intended for 71% of premises.
The policy also provides for 22% of premises being connected by fibre all the way to the home for many new housing estates and where the copper has degraded to the point that fibre is more cost-effective.
Those who won’t be connected by fibre to their home can pay for their own connection or possibly co-fund their connection with local councils or private entrepreneurs (this would then split the cost of connection, making it cheaper for individual households).
If all this technical explanation is confusing, here’s a way to think about how both policies work. Suppose our major roads were sealed, minor roads were gravel, and access roads to homes were dirt. The ALP’s policy is like having all roads sealed, with 93% of access roads being sealed and the remaining 7% being upgraded to gravel. The Coalition’s policy is like having all minor roads sealed, but access roads will only be sealed if this is cheaper than gravel. If you want a sealed road to your home, you are welcome to pay for it yourself.
Albanese claims a self-funded connection under the Coalition’s plan will cost A$5000. It is unclear whether he means this is a typical figure, or a worst case. The comparable figure in the UK is between £700 to £1500 although other sources claim up to £3500. Shadow communications minister Malcolm Turnbull has quoted around A$3000 based on the UK figure for a 500 metre connection from the local node.
But using these UK figures can only give us a ballpark estimate of what it would cost in Australia. The UK and Australian circumstances are different, with different levels of urbanisation and costs of labour.
Whatever the actual figure will be, there seems to be broad agreement that it is thousands of dollars, and this will be a significant barrier to the take-up of optical fibre.
Will regional Australians pay more?
The government’s policy has a set uniform wholesale price – that is the price of access to the NBN that NBN Co sells on to internet service providers. For regional users, it’s more likely that they will be getting a satellite connection rather than fibre to the home. This technology is more expensive to provide but the cost of access would be the same. Effectively, this means the cost of accessing fibre in the city is cross-subsidising the more expensive satellite technology used in the country.
But the Coalition policy is subtly different. It has a cap on its wholesale price, meaning that the price could be lower. If there was more infrastructure competition, particularly if a competitor found a cheaper alternative technology, this could drive lower costs and lower wholesale pricing. To compete effectively NBN Co would then need to lower their own wholesale pricing.
History suggests price competition might occur in affluent parts of Sydney and Melbourne, and to a lesser extent in Brisbane, Perth and possibly Adelaide. But competition is unlikely to appear on a significant scale elsewhere in the country, including regional areas.
Modelling of this competition effect provided by the minister’s office suggests a wholesale price difference under the Coalition’s plan of just 7% by 2019 for a 12 megabits per second service. This is a difference of around $1.40 per month or $17 per year. A stronger example, including at a higher data rate, may have demonstrated a higher price.
But with the government’s current modelling, it hardly compares to the broader cost differences associated with the current city-country divide of private and government delivery of services. It’s important to note that reliable internet access would mean other costs of living in regional areas, particularly transport and education, could be reduced.
Albanese’s claim that it will cost $5000 for a fibre connection to your home under the Coalition’s plan is no more reliable than the Coalition’s estimate of $3000, as there are so many potential cost variables - but clearly the cost will be in the thousands of dollars.
On the second claim about differences in regional and city prices, modelling provided by the minister’s office suggests a wholesale price differentiation of around 7% by 2019.
The article provides a fair analysis. Regional consumers may pay more, but the user-pays principle under the Coalition’s policy also applies to residents in suburbs of the metropolitan cities. The extra user-pays charge for fibre access rather than copper access will dwarf the likely regional difference in retail usage charges over the first several years of usage, for those who want it. So, along with those living in regional areas, those living in more established suburban homes and single-tenant business premises will also be disadvantaged by the Coalition’s policy.
It’s worth noting as well that the final connection price would be affected by how many households or businesses in a given street decide to petition together for a fibre cable to be connected to their houses. Thus the average price for fibre access will likely be much less in high-income suburbs than in low-income suburbs.
On the article’s last point, few people will be using such a low speed as 12 Mbps by 2019. Even rural residents connected to the NBN by radio access will start receiving 25 Mbps by beginning of 2014. On current predictions, by 2019 the normal entry level for fibre to the home services is expected to be 100 Mbps. - Peter Gerrand.