Value Management: Innovation 2.0: Where are we at with the NBN?

It has been nine months, since we passed the target build completion date for the NBN. In the half-yearly report, NBN generated a $0.4B positive EBITDA (effectively cashflow from operations), largely due to declining Subscriber Costs (down $0.6B), and increasing revenue (up $0.4B), while CAPEX is also close to half the previous year, declining from $2.5B to $1.4B for the half-year.

NBN also commenced a post-build investment of $4.5B, announced in the Sept Corporate Plan, with headlines of enabling 75% of the fixed line network to reach gigabit speeds (the highest offered). This will enable all the FTTP, HFC and FTTC (and maybe FTTB) to reach the fastest speeds, and a proportion of the FTTN to be upgraded to enable an FTTP overbuild. There is $700M for regional business fibre hubs, and $300M for co-investment with rural and regional communities.

On the demand side in 2020/21, there has been a significant slowdown of brownfield's new signups (See Figure 1; 2021 Avg 206k/Qtr, 2020 Avg 393k/Qtr, 2019 336k/Qtr, 2018 355k/Qtr):

Q1 20 - 325,000 additions
Q2 20 - 250,000 additions
Q3 20 - 130,000 additions
Q4 20 (budget) - 120,000 additions. Around 1% of 10M ready to connect premises.

Figure 1 - NBN Consumer adoption (2016 - 21); Source NBN Weekly Summary. Data: Google Sheet.

Figure 1a. - NBN Brownfield Additions 2021 - significantly slowing. Source/Data: per Figure 1.

NBN retailers (RSPs) are being consulted about NBN's proposed pricing, looking forward for two years, and continue to complain about CVC variable costs, which put pressure on RSP margins, if consumers are not increasing their plan speeds and prices. Both Senate and large RSPs are keenly interested in the potential for NBN to reduce reliance and exposure to rising CVC costs due to increased consumer data demand.

NBN revenue is nearing a $5B annual rate, with more boost from business usage (inc new fibre zones), and demand for consumer speed increases. NBN #FocusOnFast is the 2021 plan to lift subscribers from 50Mbps to 100Mbps and above, through a six month discount of $20-30 on the most expensive plans; reducing gigabit retail prices from $149 to $119, and 250Mbps from $129 to $99, and 100Mbps from $99 to $89 per month. These plans are mostly for unlimited data, so can incur greater CVC costs, though NBN bundles more CVC with the fastest plans to encourage higher plan usage.

Current NBN penetration, given slowing additions, are at the following rates (see Figure 2):

Brownfields - 71% and slowly rising (2020 - 64%)
Greenfields - 66% and steady (2020 - 64%)
Wireless - 57%, jumped from 2019, but now slowly rising (2020 - 53%, 2019 - 43%)
Satellite - 26%, very slowly rising (2020 - 23%, 2019 - 21%)

Figure 2 - NBN adoption by Technology (2016 - 21); Data NBN Weekly Summary: Google Sheet

So NBN is reaching a revenue headwind period, where revenue growth will become more challenging, (and expensive) and come from:

- new additions; new homes in Greenfield sites, or 1% organic growth in Brownfield sites, plus some potential for growth in Satellite and Wireless usage

- lifting consumers to higher speed plans (increasing ARPU); with discounts to entice usage of faster speeds (#FocusOnFast); which will also be impacted by levels of NBN satisfaction

- engaging more businesses on to the NBN (increasing overall ARPU); but which will require investment in a Business Sales force.

A lesser opportunity for growth is through CVC, where rising consumer data usage incurs increasing CVC, which can either squeeze RSP margins, if prices are inflexible, or create price inflation, which could reduce demand and/or decrease satisfaction.

Figure 3 - Sales and NBN Users - Corporate Plans (2016 - 24). Data: Observable

Other issues:

- NBN is refinancing its $20B debt with the Commonwealth, with private debt by mid-2024, and has also raised $10B private debt at low rates, enabling the post-build investment, and retiring of some Commonwealth debt.

- NBN faces increasing competition from both 5G in slower FTTN suburbs, and more rural wireless sites, and LEOs in the Satellite footprint, but the $140 per month LEO pricing will be more attractive to higher end consumers or businesses.

- ABAC: The Minister, Paul Fletcher has appointed an Advisory Council to provide guidance around broadband generally and ABAC released its first report, Riding the Digital Wave. The Council will focus on specific industries eg Agriculture and Health, plus Digital Inclusion, Digital skills and small/medium businesses. (p.3)

- In global competitiveness, Australia still compares poorly (Data: Figshare) against our top ten trading partners in average national speeds (per Speedtest Global), though Feb 2021 saw a 20% increase in Australian national average download speed (from 59Mbps to 71Mbps; which looks like a year's growth in two months), perhaps from more gigabit services coming online. The speed jump would equate to about 1% takeup of gigabit plus 1% superfast (250Mbps) services; significantly higher (8X) than the 25,000 over 100Mbps services the ACCC reported at Dec 2020. ACCC's March report (expected late May) will provide takeup information for over 100Mbps services.

Comparing Broadband Speed with Trading Partners

Speedtest has made its data available globally (in anonymised 600m^2 blocks), so it is possible to see distributions of speed across the country. This enables our cities to compare with our Top Ten Trading Partners eg Shanghai, Bangkok and Los Angeles. Melbourne, for instance, has far slower distribution of broadband services compared to these overseas cities.

Figure 3. Comparing Speedtest results of Australian and Top Ten Partner cities, Q3 2020 (Data; Figshare | Pic: Twitter thread).

Further work - Broadband performance data (Speedtest) vs NBN Technology

An activity to compare NBN technology maps (see https://www.data.gov.au/dataset/national-broadband-network-connections-by-technology-type) (showing regions of FTTP, HFC, FTTC, FTTB, FTTN etc) and average Speedtest results is underway. This will produce maps of Australia cities, showing distribution of speeds, and eventually average speed by NBN technology. There is also a plan to compare broadband speeds with SEIFA index, the socio-economic index of areas, to see if broadband speeds vary by wealth of neighbourhoods.

Figure 4. Speedtest results across Melbourne Q2 2020; colour coded by speed (Data Figshare; Source: Twitter).

The results show speeds vary across the city, with patches of faster broadband, north of Geelong, and in outer west, and in wealthy inner-east suburbs and slower on the fringes of the city, but across the suburbs, your mileage will vary. See Twitter thread for more images and analysis. This data is also loaded to the AURIN geospatial workbench, where Australian researchers can access the data online (Figure 5).