Building Australia's digital economy with $43b

Phil Harpur/Frost & Sullivan
19 Jun 2009

Australia expects to begin rolling out a national broadband network (NBN) in early 2010, simultaneously in metropolitan, regional and rural areas. The NBN will run in parallel with incumbent Telstra's copper-based local network and will be offering service to internet retailers only and not directly to consumers.

The new network will connect 90% of all Australian homes, schools and workplaces with fiber-to-the-premises, providing broadband services to consumers in urban and regional towns with speeds of 100 Mbps, extending to towns with populations of around 1,000.

The NBN is meant to provide fiber-optic transmission links connecting cities, major regional centers and rural towns, and connect all other premises in Australia using next-generation wireless and satellite technologies that will be able to deliver 12 Mbps or more to people living in more remote parts of rural Australia.

The project is expected to deliver full separation between the infrastructure provider and retail service providers, and directly support an average of up to 25,000 local jobs yearly over its eight-year life.

In April 2008, the Australian government announced the establishment of a new company to build and operate a FTTP NBN that will be built in partnership with the private sector. Up to $43 billion will be invested over eight years.

Telstra will be able to play a role in the new network, but investment by any single telco player will be capped at 15%. Optus has already begun talks with the government regarding swapping existing fiber networks for equity. Players like NextGen and AAPT are likely to do similar deals.

Early analysis estimates that for the government to achieve even a modest return on its investment, the new NBN likely has to charge access prices to the wholesale network that would result in very substantial increases in retail charges on current standard access broadband plans available to households at around $40 monthly.

Another concern is a trend of migration from fixed to wireless broadband access, which began several years ago and is likely to continue accelerating over the next five years. This is seen to significantly reduce the potential subscriber base that a fixed-line based NBN network could target, impacting its overall profitability.

Early analysis also shows that there are questions as to whether the government can initially gain an adequate ROI, but such analysis only considered the ROI gained from providing traditional telco services like broadband and entertainment. Other services such as e-healthcare, e-education and smart grids will also become vital services offered over the network, and will assist in the building of the Australia\'s digital economy.

As the NBN will be an open network, it will be possible to build and deliver the infrastructure as a utility, and thus make services offered over the network more affordable to users. All Australians for example will be able to access healthcare services without having to pay a subscription. Media and service organizations will be able to independently develop their own products and services on top of the network, without having to pay high access charges to the owner of the network.

In another 10 years it is likely that traditional telco services will only account for a small proportion of the total revenue generated via the NBN. The full benefits of the NBN will actually continue to flow for decades beyond the completion of the project. It leapfrogs the original NBN plan of only implementing a fiber-to-the-node, which is only a stepping stone to the ultimate goal of an FTTP network.

Phil Harpur is senior research manager at Frost & Sullivan in Sydney

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