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Why the government’s new NBN bill is bad policy

06122019_NBN

Why the government’s new NBN bill is bad policy

The Minister for Communications, Paul Fletcher MP, recently reintroduced the Telecommunications (Regional Broadband Scheme) Charge Bill 2019 to Federal parliament. The purpose of the bill is to introduce a levy of $7.10 per month on any home or business that opts not to use the National Broadband Network (NBN) to connect to the internet. For several reasons, I think this is bad public policy.

The stated purpose of the levy is to subsidise the non-economic rural parts of the NBN, primarily fixed wireless and satellite based delivery options. All providers of a fixed line internet connection including the NBN will have to pay this levy. As the NBN was previously cross subsidising this internally, the effect will be that any competitor to NBN will see an increase in their cost of offering an internet service, so the effect of this bill would be a value transfer from NBN’s competitors to NBN.

It can be debated if access to fast internet to people living in areas where it is not economical to offer an un-subsidised service should be subsidised but that is a decision made a long time ago. What should be debated – especially with the widely publicised inefficiencies that exist within NBN and the level of service with average internet speeds ranking at 62nd place in the world –  is what the best way of this subsidisation to take place?

Is introducing a levy on companies trying to compete with the NBN in areas where it is economical to do so putting pressure on NBN to provide its best services to the maximum number of people at the most affordable rate (which free competition should help enforce) and with the tax payers in effect providing the subsidisation through a lower equity value in the NBN or through stifling competition in the areas that provide most benefits to most number of people leading to a lower level of service overall with the negative implications that has for productivity etc.?

To my mind, broadband access should be treated as an essential service (think electricity, water etc.) and all policies should be aimed at what is best for the overall economy. Providing the framework that leads to the best and lowest priced service for the majority of users, should be the main aim of any policy decision. If for some political reason (said without saying if it is right or wrong!), parts of the service need to be subsidised, it should be done in a way that in the most minimal way impacts the majority of users. I cannot see that the proposed levy achieves this and neither can the Productivity Commission who in 2017 recommended against funding any universal service obligations with any levies. To me, this looks like a way to try to shore up the value of the NBN to try to avoid a write-down of the value that is carried on the government’s books rather than a solution that maximises the value to the economy overall. Let’s hope that this proposal will also lapse before it becomes law and is implemented as stifling competition will only make the dismal situation that surrounds NBN even worse!

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Andreas is the joint Portfolio Manager of The Montgomery Fund. Andreas joined from Navigo Partners, a M&A advisory firm in Stockholm, Sweden where he was a Director responsible for origination and execution of Scandinavian projects. Before this, he worked for three years in corporate strategy at Alinta Energy in Sydney.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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