A Simple NBN Maths Lesson

Amid all the bickering, postering, bleating and prognosticating over Australia’s National Broadband Network (NBN), there has been one thing missing from a lot of the arguing.

A simple and clearly defined explanation of where it will make its money back.

Many claim it could never justify its cost, including the federal opposition who said the government should just take the money and build some freeways.

The problem with freeways, is they cost billions of dollars, and the money spent never comes back – (unless it’s a toll road) – though of course their mere existence provides economic benefit, presuming they were needed and done the right way.

The NBN too, is a freeway – (or that terribly clich├ęd “information superhighway”) – the mere existence of which will also provide economic benefit to Australia. The main difference is that the NBN will make money, because it will be a “toll road”.

People will pay money to use it – so therefore all of the money will eventually be recouped. The question will be how long will that take?

Difficult to answer, and the jury is still out.

For basic internet services, NBN Co will be charging ISPs for two components – the “AVC” and the “CVC”. CVC pricing is contentious, and difficult to model since different ISPs will invest in this part of the service in different proportions to others.

But the basic AVC wholesale price is $24.00 per month for a 12Mbps/1Mbps service. We know this, and this is the exact per user price as it stands right now.

The NBN will eventually cover approximately 12,000,000 premises, so lets do some really simple maths – and presume that only 50% of all premises take up a service, and they all take up only the basic service:

To explain the graphic above:

  • 12,000,000 premises, with 50% uptake.
  • ISPs are charged $24.00pcm for 6,000,000 premises with active services.
  • From this, per month, NBN Co is receiving revenue of $144,000,000 from the ISPs.
  • In a 12 month period, this equates to $1,728,000,000 of revenue.

Yes. That is 1.728 BILLION dollars of revenue. In a year. If 50% of people take up a basic service. Before we add in CVC pricing.

Of course, NBN Co has to spend some of the money maintaining the network, and paying its employees – (so it’s not “profit”) – but $1.728b is a lot of money.

Throw in the revenue from CVC, and people buying more than the basic service – (or for that matter, more than one service) – and the numbers look pretty rosy.

As well, given that the copper network will be decommissioned as the NBN rolls out, leaving no fixed line alternative, an uptake of only 50% will be extremely conservative.

That’s where the money is coming from folks!

And it will come a lot quicker than many would have you believe.