How to pay for FTTP and fix NBN’s revenue issue.

NBN’s latest financials show that they are going to struggle to meet their revenue targets because few people are taking the top speed tiers (probably because of the limited technology available to them).

One of the things that has always struck me as outrageous with NBN is how they not only double dip, but triple dip into the process for consumer requested upgrades from FTTx to FTTP. This could give us an alternate way to fund this upgrade.

If you get put on FTTN, but you are a business and Gigabit NBN is available in your area (as it is in Tas), then upgrading to FTTP becomes quite attractive. NBN will give you a quote for the upgrade of around $5k-$10k. So you pay it and get the upgrade, and get a gigabit service from someone like Launtel.

But here’s the catch, they not only charge for that upgrade (once) they then get to charge your RSP $150 per month, as opposed to the $38 for a 100/40 they would have got and you will likely generate more traffic, so they get to charge your RSP more bandwidth (CVC) too (twice). Finally in years to come, NBN will be sold and they will have a higher value because you have been upgraded – it’s part of their network now (thrice).

However this gives an avenue for getting an FTTP upgrade effectively for free. Suppose if following an upgrade, your RSP still just paid $38 for the connection (instead of $150). This could be done as a discount or as a rebate, which is passed onto you. That’s $112 a month. If you used that money to pay for the interest on a loan at (say) 10%, that would mean that you (or your RSP) could take on a loan of $13440 – easily enough to pay for most FTTN upgrades.

NBN would then continue to pay that rebate until at some point they buy back your upgrade cost (i.e. give you your money back), which could well happen when NBN is sold. Don’t forget this costs NBN nothing in revenue, if you’re on FTTN, there’s no way they could get anything above the $38 for your connection anyway. Indeed they are likely to get extra revenue from the CVC charges with being on a gigabit, which they get to keep.

Those of you in the financial industry will recognise this as a bond. And here’s the trick, there are many organisations (superannuation funds) who are looking to exchange capital (pay for your upgrade) for a reliable income stream.

Of course this throws into stark relief what a stupid idea, financially, it was to switch from FTTP in the first place. You don’t judge an investment primarily on how much money you need to put in, but on what the expected financial returns are. It’s like deciding to buy a rickshaw instead of a taxi because of it’s original cost, regardless that your customers will pay way more for a taxi ride.

Must give Mr Morrow a call…