Cellular competition could kill NBN by 2020, says MyNetFone founder

Calls for CVC to be ditched

MyNetFone cofounder and CEO, Rene Sugo, has delivered a stinging attack on the NBN warning that its business model will be unsustainable in the face of competition from cellular and from TPG’s fibre to the basement offering, and that smaller telcos — dependent on the NBN to connect customers – will be driven out of the market.

Addressing journalists at the Tech Leaders forum in the Blue Mountains, Sugo said: “There are now five very large operators at the top of our industry. … At least four of these are NBN-bypass capable [Telstra, Optus, Vodafone and TPG] and because of the way the NBN has been financially structured these players will become significant competitors to the NBN in providing last mile high-speed access.

“I believe the NBN business case as it stands today is under serious threat and could affect the viability of the whole telco industry. Consumers will be worse off.”

He said that, to remedy the situation, the government would need to write off some of its investment in the NBN, the “excessive number” of 121 NBN points of interconnect would need to be greatly reduced, and the present usage-based charging for a connecting virtual circuit (CVC — NBN backhaul from fibre serving nodes to points of interconnect) would have to be abandoned.

Sugo said MyNetFone had analysed the 2016 NBN corporate plan and worked back from its key financial metrics to try to forecast how NBN’s plans would affect mid-sized telcos like MyNetFone.

“We found that the average revenue per user [ARPU] from NBN is budgeted to go from $33 per user in 2016 to $42 per user in 2018,” he said.

“When we extended the analysis to 2020, based on other statements made by NBN, we found the ARPU across the NBN base was set to go to $63 per user by 2020, almost double 2016 levels.

“That is an annual growth rate of 14 percent over five years; much higher than inflation and in an industry that is used to offering consumers increasing value over the last 20 years.”

When reseller’s costs had been added, Sugo said, “the average retail selling price for a typical service from a small to medium telco would go from $49 per month to $82.50 per month for a 12Mbps plan in 2020, and from $59 per month to $95 per month for a 25Mbps plan in 2020.”

He suggested that, based on present trends, cellular broadband would be very competitive by 2020 resulting in many consumers abandoning fixed broadband and going mobile-only.

“We currently have Vodafone and Optus with 10GB SIM-only plans at $49 and $60 per month respectively,” he said.

“My prediction would be that the amount of data they would include at that price can only go up and that by 2020 we could be seeing 100GB plans for $49 per month.

“This is the natural order of things in our industry. And I would predict that those broadband services would deliver peak download speeds well in excess of 12 and 25Mbps; more likely over 100Mbps.”

NBN’s goal is to have 8 million premises connected to its fixed network by 2020.

“We went back to our modelling and looked at NBN only activating 75 percent of those households and still trying to recover the same revenue as previously with no intervention from government and with no changes to its business plan,” Sugo said.

“The only choice it has is to increase price either to push up port costs or recover more from the CVC.

“Either way the effect is the same. They will be forced to increase the per-subscriber ARPU. The effect of that is that the subsequent new retail prices for 12 and 25Mbps plans goes $82.50 or $127 per month in 2020.”

Sugo concluded: “The biggest losers would be regional consumers and mid-sized telcos. They would simply become unviable and priced out of the bigger telcos with NBN bypass solutions.

“I believe we need a change before it is too late for the industry and for consumers. If small and mid-sized players continue to consolidate as they get pushed out of the industry by poor industry strategy there will be serious reduction in innovation and choice.”

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