Published on the 14/03/2016 | Written by Beverley Head

Listed telecommunications business MyNetFone has warned that the economic foundations of the NBN will crumble without significant reform…

Rene Sugo, the company’s CEO and co-founder, said that the MyNetFone had analysed the NBN’s business case which suggested that its success relies on the monthly average revenue per user (ARPU) rising to $42 by 2018 and $63 by 2020 – a compound annual growth rate of 14 percent over five years.

That was the only way the Government could recoup the cost of the network according to Sugo.

The actual cost to the consumer would be considerably higher, he warned, given the costs that retail service providers would incur. Sugo noted that the cost for even an entry-level monthly plan could be over $80 a month, which he said “sounds like expensive broadband”.

That, however, was based on NBN expectations that eight million households would use the NBN by 2020. If only 75 percent actually signed up, the NBN ARPU would need to rise to $127 a month by 2020.

Without substantial reform, the; “NBN could affect the whole viability of the market,” according to Sugo during a presentation at the 2016 Tech Leaders conference in the Blue Mountains on Sunday. He said that faced with those sorts of prices there could be a flight to mobile services, and that small and medium telecommunications services players would be pushed out of the market reducing competition.

“If the NBN costs go up like we predicted and people take on alternatives – the government isn’t going to get payback for the NBN. It should be proactive and do it ahead of time.

“We need a change before it’s too late for the industry … small and mid players continue to get pushed out of the industry. The NBN model should be more viable for second tier players.”

Sugo said small players should not be required to reach all 121 points of interconnect (POI), which is generally achieved by buying backhaul off larger telcos and hence impacting margins, that the NBN’s connectivity virtual circuit (CVC) costs should be reformed, and the Government should write off part of the network build cost.

NBN boss Bill Morrow has already indicated that the POI issue was a challenge for smaller telcos and that he was looking at ways to ease the problem Meanwhile a trial that reduces the CVC the more bandwidth an ISP buys is already underway.

Sugo seemed intent yesterday on giving the NBN a bit of a hurry up as he said it was the only way to achieve; “a fair model to allow mid players to compete in the market,” and limit further telco consolidation, which could impact competition in the sector.

The NBN had skewed the rules as all telecommunications companies had to “drink from the NBN trough”. While that secured the success of the sector’s five largest players it was damaging to the rest of the industry he warned.

The author attended Tech Leaders as a guest of Media Connect.