Tuesday, 24 May 2016

NBN and the missing superfast customers

Australia’s national broadband network (NBN) is the Kim Kardashian of government broadband plans – bigger, bolder and more exposed than any other. (Though to be fair, it has left ‘breaking the internet’ to Telstra)

The NBN represents a renationalisation of the access network, as well as a significant upgrade to fibre - initially FTTP, now mixed technology. Whether or not government ownership is a good idea, it does at least bring a degree of openness on operational detail. This is very handy for broadband watchers around the world.

For instance, NBN publishes the mix of speeds its customers take, which are as follows:

Source: Various NBN co publications
Note: Excludes plans above 100/40, with trivial take-up

The most popular speed tier is 25 Mbps down, 5 Mbps up. At the end of March, 46% of customers were on this plan. Certainly such speeds would be beyond an ADSL connection, so NBN has provided some benefit.

However, a moderate uplift vs ADSL was never the goal for the NBN. When it was announced in 2009, its primary ambition was to offer “up to 100 Megabits per second”. In this regard, consumers seem to have been less impressed. Only 15% of those on FTTP are taking the 100/40 product, a percentage that has been steadily falling since 2012. Despite the fact that the premium for moving from 25/5 to 100/40 is just £10/US$14, the great majority of consumers simply aren’t willing to pay the extra. (The premium from 12/1 to 25/5 is half this).

Based on the European 30 Mbps threshold, just 19% of NBN FTTP customers (or 155,000) are on superfast. The original NBN plan expected roughly double this percentage (and a far higher absolute number).

One consequence of this change in speed mix is that the average capacity  of an NBN line is actually falling over time – from 36 to 34 Mbps between June 2014 and December 2015, for example. However, traffic per line has grown appreciably in the same period – yet more evidence that traffic and bandwidth growth are two very different things.

Source: Author's analysis of data from various NBN co publications

Oh, and demand for speeds beyond 100 Mbps, striving into a gigabit future? Just 65 customers have taken them – 40 on 250/100, 3 on 500/200 and 22 on 1000/400. Clearly Australians are not bitten by the gigabit bug.

So what does this mean for policy makers? I’d suggest:

  • Don’t overestimate willingness-to-pay for higher speeds
  • Leave room for price differentiation of fibre products – lots of customers are happy at the low end, and you need to enable appropriately low prices for them
  • Report equivalent data, so the debate about demand for bandwidth can be anchored in reality

(Note that all the above figures are unconnected with the change of the NBN plan to a mixed technology model. They are for customers who are on the FTTP portion of the network).