North coast ISP to close down, blames NBN

By Hans Lovejoy

Internet service provider (ISP) Linknet will close shop on January 31 next year, owing to what its director says is NBN Co offering a better product from last June.

Additionally the company claims that around 400 customers may be affected.

The National Broadband Network (NBN Co) is a government-owned corporation (Govcorp) tasked with rolling out fast broadband across Australia.

Director Richard Hughes told Echonetdaily that as a result, ‘Our small but loyal staff will be without jobs and approximately $500,000 per annum that Linknet generated will not be cycled through our community any more.’

‘Essentially NBN Co has overbuilt Linknet’s wireless footprint, and by doing so has made available to our customers cheaper and faster offerings by other competitors.’

As for Linknet becoming an NBN provider, he says that would mean setting up a different business model, and would require large capital to restructure.

‘Linknet would have to compete against the monster telcos on price and bundle selling. The financial outcome of that business model is not one I would choose to invest in.‘

That question still does not provide an answer for the problem that, as customers leave Linknet’s network, it becomes uneconomic to operate.

And how do we survive during the transition period, when NBN Co services are not available to all customers in our region?’

Mr Hughes says Linknet founders Peter and Helen Bundy first provided dial-up services 13 years ago from its Mullumbimby offices and from there the company built a fixed wireless network in the area, ‘because the larger telcos did not consider it economic to do so.’

‘The federal government provided a number of funding programs to help with the cost of providing the infrastructure, so as to make sure the region had some reasonable levels of internet coverage.
Built own network

‘In a way, the government and Linknet partnered to help provide coverage to the NSW northern rivers region.’

This arrangement, according to Mr Hughes, meant that Linknet had to build its own network infrastructure to provide the internet services to its customers.

‘Linknet built its own train track and put its own train on the track to its customers’ premises,’ he says.

‘The larger telcos did not think it was economically viable to compete in our region, so we had our own little monopoly.

‘Then along comes NBN, which builds its infrastructure directly over the top of our network so that our customers can be offered services by the big guys without the big guys having to pay to build the infrastructure themselves.

‘Linknet is left competing against the $43,000 million infrastructure cost, as well as against the marketing budget of the likes of Telstra, Optus, iiNet and TPG to retain our customers.

This is called an “open access market policy” yet is funded by the public purse.’

As for why another ISP can’t take on Linknet’s existing customers when it closes, he replies, ‘The simple answer is that in some parts of our service areas, no other provider has coverage because they have not built the train or the track.’ He adds that there is no capacity on the ADSL line copper lines in some areas of regional Australia.

400 affected customers

He accuses the government of being unwilling ‘to accept that there could be a negative affect from its NBN policy’ and that they have declared ‘no responsibility to help solve the problem.’

Mr Hughes fears that around 400 of his existing customers will be affected by Linknet’s closing owing to the NBN Co’s rollout.

‘At least 200 customers maybe without internet until 2018, as they are designated as being in a Fibre to the Node location (FTN). Even though wireless is available for them in some cases, the rollout is designed so that customers will have to wait for FTN. The other 200 will find it difficult and/or costly to provide alternative services.’

Great thing for Australia

Despite the issues, Mr Hughes says his company always thought that the NBN was a great thing for Australia, if it delivered faster, cheaper services, especially for regional Australia.

‘But only if it remains 100 per cent government owned, ie never sold.’

He says the government previously intervened in a private marketplace and privatised Telstra.

‘With NBN Co’s budget of $43,000 million, it should be able to achieve delivering faster internet services, but if it is sold off then the promise of cheaper services may not be what the Australian community experiences.

‘For example, one of our customers who swapped over to the NBN Co fixed wireless service has now been without internet for seven days after the recent storms and has been told by his retail supplier that the delay in rectifying his service is because NBN Co does not have the manpower available to fix his service in this area.

‘Is this the future you can expect from the government business enterprise with $43,000 million of taxpayers funds to play with?’

No compensation

Mr Hughes says, ‘As the plan became clearer, the government and NBN Co made it known that there will be no compensation paid to smaller players that may suffer through the delivery of the largest infrastructure project in Australia’s history.’

‘This seemed to be a rather different approach from past government interventions in the private marketplace, such as the dairy industry restructure, where there was a path available to small players that wished to leave the industry.

‘Also the insulation program, when stopped by the federal government, offered some compensation to some players. Why would the government not offer to settle any negative outcomes from the intervention in the market place?

‘I asked this question of the chief of staff for federal minister Stephen Conroy (Labor), and his reply was: “There is no compensation”.

‘I again asked this same question two years later of the secretary for the minister of communications, and his reply was: “If they supported Linknet, they may have to do the same for others negatively affected by their policy”.

‘From that answer, I can only assume that the government had a legal and ethical responsibility to address the negative affect for small telcos, but thought it might save a few dollars by sidestepping its responsibility.

‘So Linknet gave up on seeking compensation for the destruction of the value of its network and loss of its customers as it could not afford a lobbyist, having to fund its own cost of beating down the doors of inaccessible politicians.

‘NBN Co did come to visit our office once, five years ago, with three nice fellows who showed us our wonderful future with NBN Co and paid for our lunch at the Mullumbimby Middle Pub. It appeared they had a NBN Co corporate credit card.

‘Linknet battled on, reduced its costs of operating and continued to try to grow its business in a marketplace that is capital intensive and requires a payback period of at least two and half years.

‘The payback period is a break-even point for the investment, and does not include a return on the investment, ie a profit. It was hard to justify spending more capital, and impossible to raise the capital from investors or banks, but we soldiered on.

‘Linknet’s sole mission then became one of trying to survive until the NBN Co-backed services became available to our customers and they could have a smooth transition without service interruption.

‘I am sorry that we have just failed to do this, only by a whisker.

‘We have tried to petition government to understand that there would be a short window when we would have to close before our customers could avail of the new NBN Co services.

‘We have tried to seek a solution but the government has failed to hear us, failing to support small business serving regional Australia.’

According to www.nbnco.com.au, the two shareholders of NBN Co are the finance and communications ministers. Currently they are Liberal MPs Mathias Cormann and Mitch Fifield.

Letters from the current communications minister Mitch Fifield provided to Echonetdaily are dismissive of Mr Hughes’s claims and instead say, ‘the government has no authority to endorse, support or intercede in the business practice of a provider.’

Echonetdaily sought comment from NBN Co and Mr Fifield’s office.

Lost all faith

‘I have lost all faith in government,’ says Mr Hughes. ‘Over the last five years, I went through many frustrating circumstances and now tell my children that I find it hard to believe that our government is fair and will support its constituents as it carries out its duty to govern this country for the benefit of the Australian population.

‘There is an easy solution, and yes it will cost some money, and yes, it will require government to accept that there are some negative outcomes of providing the NBN Co-designed monopoly wholesale internet service infrastructure.’

Mr Hughes fears his staff may have to register for Newstart and undergo retraining to find jobs.

‘What is the true economic cost of their becoming long-term unemployed, as what telco will employ them here in the northern rivers?’