Broadband network great for the economy, but will it make a profit?

The Federal Government’s national broadband network will create long-term infrastructure and economic benefits but will face difficulties in earning good returns on investment, research firm Frost & Sullivan has predicted.

The company maintains in a new report that the network will face challenges in securing private sector investment and that the Government must explain its plans for providing competitive pricing.

“Early analysis estimates that for the Government to achieve even a modest return on its investment, the new NBN is likely to have to charge access prices to the wholesale network that would result in substantial increases in retail charges on current standard access broadband plans,” the report says.

The report points to countries including Japan and Singapore, where fibre-to-the-home networks are cheaper because of more manageable geography. It suggests the Government will need to keep in mind the number of users on wireless access.

“This is expected to continue over the next five years and Frost & Sullivan predicts that by 2013 approximately 30% of all broadband users will be reliant on wireless access services,” it says.

“This is likely to dramatically reduce the potential subscriber base for the NBN and could impact on the overall profitability of the project.”

But the report notes several advantages of the network, including improvements to health and education products, and equality in internet access for rural areas.

It also notes that the NBN will change the telecommunications sector and that it will allow companies such as Optus, AAPT and Primus to compete against Telstra without purchasing wholesale access.

Phil Harpur, ANZ senior research manager at Frost & Sullivan, said in a statement that although the network will not deliver high returns on investment by itself, the services that will be made possible as a result of the network will be cost-effective.   

“The full benefits will come from the services supplied via the network, and these will continue to flow for a number of decades beyond the completion of the project.  Perhaps the best way to look at the NGN (next-generation-network) is to consider it a stepping stone to the ultimate goal of a (fibre-to-the-premises) network.”

See SmartCompany’s coverage of the national broadband network here.