Government report finds wireless networks will threaten NBN, but experts say fixed connections still crucial

The increased popularity of mobile and wireless networks will threaten the take-up rate of the National Broadband Network, a new independent report released by the Government has revealed.

The finding comes on the back of an announcement from Telstra that it will upgrade its mobile network to include support for much faster and more sophisticated 4G networks.

Telco experts say while the take-up rate of wireless networks will grow as mobile devices become more popular and replace PCs for some users the take-up of internet-based home entertainment services will rely on fixed broadband connections.

“I think if people want those types of services it’s going to be very difficult to provide them on a wireless connection,” Telsyte director of research consulting Chris Coughlan says.

Ovum research director David Kennedy points to the consultancy’s work for the NBN corporate plan, which states that 10.8% of homes are now wireless-only. He agrees with Coughlan that “the competitive advantage is in the household market”.

The Greenhill Caliburn report was released by the Department of Communications yesterday in order to show that its business plan was up to scratch. The report stated that the Government’s plan provides “the level of detail and analytical framework that would be expected from a large listed entity”.

However the report identified several risks, specifically that the National Broadband Network won’t be able to reach its projected take-up rate of 70% by 2025. The NBN business plan also suggests that 16.3% of homes will be wireless only.

Specifically, the Greenhill report says that “uptake of services on the NBN will be largely driven by consumer assessment of the value proposition”.

“Trends towards ‘mobile centric’ broadband networks could also have significant long-term implications for NBN Co’s fibre offerings, to the extent that some consumers may be will to sacrifice higher speed fibre transmissions for the convenience of mobile platforms,” the report says.

That point is what the Federal Opposition has been using as the backbone of its broadband plan – it claims internet users will become more mobile and as a result a cheaper wireless solution forged by the private market would be more appropriate.

Coughlan says there is definitely risk here, especially with regards to pricing.

“I think the NBN pricing is more the immediate risk here. I think the benchmarking is optimistic and if you look at the business plan the prices are quite high. I think $56 for a basic plan for the speeds being offered is not necessarily competitive,” he says.

“Even if you look at Telstra’s bundles, so you put together Foxtel packages and a home phone or whatever, you’re paying incrementally. That is where the more immediate risk is for people moving to wireless.”

The NBN estimates that while 13% of households are wireless only now, that will jump to 16.3% in 14 years. But that comes alongside comments Telstra chief executive David Thodey made yesterday that state the company now has 12% wireless-only households and that could reach 24% “fairly quickly”.

Coughlan believes the 13% figure may be “understated”.

“I think it’s probably on the low side. And if you see companies such as Vivid Wireless entering the market then that is going to rise,” he says.

Kennedy says while the number of wireless-only homes is set to rise, the actual consumption of high-quality data, such as video, is not going to drop any time soon.

“Obviously mobile is preferred for personal services and so on. But that household market is quite heavy data users,” he says.”

Many ISPs are beginning to offer services through fixed-line broadband connections such as IPTV and movie rental services. Kennedy says “there is no suggestion that video will stop growing on fixed networks”.

And Coughlan says the telcos won’t compete by creating widespread wireless networks.

“Doing that would mean putting up base stations everywhere and you’d have to pretty much create another NBN to do so. I think they will keep their capital expenditure limited and rely on the pricing more,” he says.

Conroy said yesterday the Government recognises that the report shows “there are always risks, contingencies and external factors” when building such a large infrastructure project.

Those risks came to light yesterday when Telstra simultaneously revealed it will upgrade its wireless networks together with Ericsson to bring 4G speeds to its mobile customers – 500,000 of which were added in the last six months.

Theoretically that new network could deliver speeds of up to 42Mpbs.

 “The new network will provide Australians with faster data speeds, high-quality video conferencing and faster response times when using mobile applications or accessing the internet,” Thodey said.

“It will also help Telstra meet future demand for mobile data, which is doubling every year as customers move to adopt data-hungry smartphones, mobile modems and tablets.”

The announcement prompted opposition communications spokesman Malcolm Turnbull to tell ABC Radio that wireless will make the NBN less relevant.

“This is going to be a real competitive force,” Turnbull said. “”The problem, of course, is that wireless broadband is improving as well.”

“The significance of the wireless revolution, and its threat to fixed-line networks, is not lost on the telecommunications sector any more than it is lost on President Obama, who is making 4G wireless broadband his key broadband priority.”