Why a Broadband Tax may not raise Prices

Impact of controversial proposal is hard to quantify.

The government is proposing to fund upgrades to regional broadband until 2040 with a new tax on “superfast” broadband users, but it’s unclear whether that will drive prices up.

This week, the Department of Communications began consulting on plans to neutralise competition to the National Broadband Network and to fund future wireless and satellite upgrades over the next 30 years.

NBN Co is locked in a fierce battle with TPG, which has been exploiting regulatory loopholes to compete with the government-backed network builder for connections in metropolitan areas. If the government gets its way, these loopholes will closed.

By itself, that won’t help NBN Co, according to the government. In city buildings where both TPG and NBN Co’s “superfast” services are available, TPG’s services can cost up to $30 a month less.

One option would be for NBN Co to drop its prices in metro areas, but the government argues this would damage its financial structure.

Since the beginning, NBN Co’s model was to use revenue from the metro areas to subsidise losses in rural and remote parts of Australia. That model fails, however, when NBN Co finds itself priced out of the most lucrative parts of the metropolitan markets.

If NBN Co didn’t have to cross-subsidise regional and rural broadband, it could better compete on price with TPG, the government argues.

Enter the Regional Broadband Scheme – a way to fund the almost $10 billion in net costs expected to be incurred by the wireless and satellite networks to 2040, and to “level the playing field” in metro areas.

The scheme proposes a new tax on internet services that are capable of 25Mbps or more. The tax - starting at $7.10 and indexed to CPI - is expected to be passed on to consumers, hence a rash of articles this week that broadband prices will rise.

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