ACCC questions NBN cost recovery arrangements

Non-commercial NBN services should potentially be funded on budget, ACCC says

A draft report on the state of Australian’s communications market calls for the government to consider a number of radical changes to the policy settings governing the rollout of the National Broadband Network.

The Australian Competition and Consumer Commission (ACCC) today released its draft Communications Sector Market Study. The report questions whether NBN can feasibly recover from its customers the costs of rolling out the new network.

Successive governments have treated the network as an investment that is expected to deliver a (relatively low) return on investment. NBN CEO Bill Morrow recently questioned the company’s ability to generate the level of profit required and Prime Minister Malcolm Turnbull has said there is a “reasonable question mark” over whether it can deliver a commercial rate of return.

The need to deliver a return on the investment has implications for NBN’s decisions around pricing, with the company striving for monthly average revenue per user (ARPU) of $52 in order to recover the costs of the rollout.

The ACCC’s draft report states that in the medium term the government should consider whether NBN “should continue to be obliged to recover its full cost of investment through its prices”.

The ACCC and the government should examine possible options that will give the company “greater flexibility regarding its cost recovery objectives” and have a flow-on impact on the prices charged by NBN.

Those measures could debt relief measures or an asset re-evaluation.

“We note that private sector firms that fail to meet rate of return targets regularly write-down the carrying value of their assets,” the draft report states.

One measure raised by the ACCC is changing the funding arrangements for “non-commercial” NBN services: Unprofitable NBN satellite and fixed wireless services delivered in regional and remote areas.

Previously those services have been funded by an internal cross-subsidy; however, the government has moved to slug all “superfast” (25Mbps+) broadband services with a $7.09 monthly levy to help subsidise non-commercial NBN services.

Delivering the services is estimated to add $9.8 billion to the cost of the NBN through to 2040.

The ACCC says that the government should consider direct budget funding for non-commercial services as an alternative to the Regional Broadband Scheme (RBS) subsidy that is currently being considered by parliament.

It also states that it would be a mistake to extend the RBS to wireless broadband services.

The full draft report is available online. The ACCC is accepting submissions on the draft until 8 December.

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