Why NBN Co Is Wrong About Gigabit Broadband

Last week, NBN Co CEO Bill Morrow took a beating for claiming Australians won’t use a gigabit broadband service, even if it was offered for free. He hit back at his detractors with a lengthy opinion piece, explaining his position. We take a look at some of the arguments he made and breakdown why they are flawed.

It’s not the first time Morrow has said that there’s currently very little demand for gigabit services. Here’s what he said last year at NBN Co’s full year results presentation:

“The thing I want to point out is that we did some research of companies overseas — Google, Comcast, AT&T and so on — to ask about their Gigabit per second services and asked whether there was a lot of uptake. The answer was no, but they offer them as a market competitive element.”

He echoed this sentiment again at this year’s NBN Co Half-Year Results event… and put his foot in it when he uttered this statement:

“Even if we offered it for free, we see the evidence around the world that they wouldn’t use it anyway … we know there are things on the horizon that are going to increase the need for further demand.

Naturally, people got angry, hence Morrow’s opinion piece response. Here is a list of his key arguments and why they fall short.

Argument #1: People Don’t NEED a 1Gbps Connection

Now, you can’t dismiss some of his claims, especially the one about how 83% of people on the NBN are opting on broadband services based on the lower wholesale speed tiers. That’s just a fact. He also pointed to meetings with global operators offering 1Gbps services that said end-users aren’t really taking full advantage of them.

“Even in a heavy usage household right now it’s likely you’d struggle to generate the need for anything close to a 1Gbps – if you had five 4K TVs streaming 4K movies simultaneously then that’s only around 100Mbps being consumed – leaving 900Mbps idle,” Morrow said. “Given that the vast majority of current online video viewing is in SD or HD – requiring only 2Mbps-5Mbps then a 1Gbps pipe would be enough to stream 200 HD streams simultaneously – way, way beyond the requirements of a normal household.”

Again, he is right. But there’s no denying there is definitely a future need for 1Gbps connections. As IT analyst firm Deloitte notes in a 2016 report:

“A Gbit/s Internet connection might appear frivolous, but a decade ago some commentators may have questioned the need for a touchscreen-based device capable of transmitting data at 150Mbit/s, with storage for tens of thousands of HD photos, video quality sufficient for broadcast…, secure fingerprint reader, and billions of transistors within a 64-bit eigh core processor. Yet modern smartphones with this specifications are likely to sell in the hundreds of millions of units this year. While a Gbit/s connection for a single device or a single application may be overkill, consumers are likely to continue accumulating connected devices in the long term.”

Morrow had said NBN Co will look to accommodate for applications that demand higher speeds than what is currently being offered on the NBN. But the NBN in its current form has long been criticised for being challenging to upgrade in the future. NBN Co’s adoption of FTTdp in some rollout areas is encouraging, but the company is still predominantly working with inferior FTTN technology.

Also, even if 1Gbps is a bit of an overkill for the average consumer, a readily accessible superfast broadband connection like that would be a boon for small and medium businesses. It would enable them to launch digital services and compete at a global scale more easily.

Argument #2 A 1Gbps Service Would Cost Too Much

Morrow said that while city states like Singapore and Hong Kong can afford to offer 1Gbps connections for as low as $49 per month, such prices are impossible in Australia since the capital cost of building the NBN is much higher.

“The NBN network is costing around $49 billion to build – and we need to recoup that cost – given that our business model is split between driving revenues from access and consumption charges, we simply cannot match the kind of 1Gbps pricing on offer in markets like Singapore and Hong Kong.

Morrow also noted that NBN Co already offers a wholesale 1Gbps product to internet service providers (ISPs) that can be made available to more than 1.5 million homes. So far no ISP offers 1Gbps product to the public.

“This is, in our opinion, because there is still minimal consumer demand for these ultra-fast speeds – especially at the prices retailers would have to charge for them,” he said.

What Morrow failed to address is that the way NBN Co charges ISPs for NBN services is based on consumption through what is called a connectivity Virtual Circuit (CVC) charge. This makes it cost prohibitive for ISPs to offer faster broadband speeds.

As for Morrow’s statements about how the high capital costs of building the NBN and needing to recoup the money, the fact is the company is building a network with short-term goals. It’s already splashing out a lot of money on a predominantly FTTN network that is likely to become obsolete in the near future. Then more capital costs will be incurred when the network will need to be upgraded. Why not just do and it once and do it right? Because, politics.

Argument #3 We Can’t Compare Ourselves with Other Markets

“For a variety of reasons, our broadband upgrade in Australia started much later, so we cannot judge ourselves against markets like these; they are much further along on their journey and you just can’t compare Australia to Singapore or Hong Kong for obvious reasons including those stated above,” according to Morrow.

Well, can we at least try to catch up with those markets more rapidly? We are currently moving at a snail’s pace on the broadband front.

Customers on NBN’s FTTP footprint may enjoy up to significantly better download speeds but those in FTTN areas have been complaining for ages that they’re getting ADSL2+ equivalent performance from their connections.

Even NBN Co’s own advertisements shows a futuristic Minority Report-esque version of Australia, but that’s unlikely to become a reality with our mediocre broadband connection speeds.

What do you think about NBN Co CEO Bill Morrow’s justification for why we don’t have 1Gbps broadband yet? Let us know in the comments.