ANALYSIS of how the NBN plan was to roll out fibre to almost every premise in the country … but what has been built is a slower, far more complex network
… perhaps the first mistake was HOWARD government’s decision to privatise TELSTRA
…under the ABBOTT government the deal with Telstra was renegotiated to $11Bn to include older technologies incl. hybrid fibre coaxial cable … it will need to be upgraded to a finished standard …
AND the SCOMO Govt ought carry the can and write down the value of the NBN by some $20Bn!
NBN fix involves a $20 billion write-down of the project that would hurt Morrison Government surplus goal
By business editor Ian Verrender
5 AUGUS 2019
John Howard spawned the idea, Kevin Rudd forced it into existence, Tony Abbott wanted to throttle it, Malcolm Turnbull saved it from almost certain death and now Scott Morrison will have to carry the can for it.
As a cautionary tale of the potentially caustic brew that can result from the intersection of government and investment, politicians and infrastructure, the National Broadband Network has it all.
What should have been a landmark project that projected Australian telecommunications into the modern era has turned into a decade-long debacle, marked by political infighting and cheap point-scoring.
After a series of roll-out miscalculations, what will be delivered on completion next year will be an expensive, sub-standard product incorporating a mix of retrograde technologies with higher running costs that, ultimately, will require a great deal more investment.
It also should sound a warning to those increasingly urgent calls for government to quickly ramp up infrastructure projects; to soak up workers as the residential construction boom rapidly comes to an end.
Without independent oversight and bipartisan political support, even the best-intentioned projects can end up a compromised, overpriced mess.
Is there a fix for the NBN?
*There is. But it involves a write-down of the project of up to $20 billion. Politically, that’s an unpalatable solution and one that would blow a massive hole in the Morrison Government’s surplus ambitions.
It would add to national debt and be counted in the budget’s headline position.
While it wouldn’t affect the underlying cash balance — the commonly reported budget measure — a loss of that magnitude couldn’t be ignored. Hence the Government’s determination to resist any such move.
Telstra’s role in the mess
Telstra boss Andy Penn has stepped up the pressure on the NBN in the past fortnight, accusing the carrier of offering one of the most expensive fixed-line broadband services in the world, a claim rejected by his NBN counterpart Stephen Rue.
You don’t need an accounting degree to figure who’s correct. Anyone who has signed up to the NBN — even those with fibre-to-the-kerb (or curb as the NBN ironically calls it) — can quickly identify its two distinctive features.
It’s more expensive than the old ADSL service it replaced, and, at least in the experience of your columnist, it’s often no faster.
But it’s disingenuous for Mr Penn to sheet the blame home to the NBN, especially given Telstra’s role in this sad and sorry tale.
Under American expat Sol Trujillo, Telstra spent years actively undermining both the Howard and Rudd governments’ plans for a fibre optic cable rollout.
*Perhaps the first mistake was the Howard government’s decision to privatise Telstra but leave it in control of the fixed line telephone network, which competitors had to rent at wholesale prices.
That wasn’t an issue until Mr Trujillo’s arrival. Telstra seized upon its monopoly position, to the point where more than half of all Federal Court cases were disputes between Telstra, its commercial rivals and the competition regulator.
The company even launched legal action against former communications minister Helen Coonan and thwarted every effort from the Howard and then Rudd government — which went to the 2007 election with a national broadband policy — to build a new network.
*In frustration, Mr Rudd and his then-communications minister Stephen Conroy delivered an ultimatum; co-operate or have the fixed line network confiscated.
From that moment on, the NBN became a political football as the Opposition trained its sights on the project.
Telstra backed down and a humiliated Mr Trujillo headed home. Ultimately, however, the government still had to deal with Telstra given it owned the ducts, pipes and connections essential for the new cable.
*In 2011, Mr Trujillo’s replacement, David Thodey, struck an incredible deal; $9 billion that would be paid in instalments as Telstra’s fixed line customers migrated across to the NBN.
*Three years later, under the Abbott government, it was renegotiated to $11 billion to include older technologies such as hybrid fibre coaxial cable.
*That massive transfer from taxpayers to Telstra shareholders — agreed to by management and voted upon by shareholders — for a century-old network in terminal decline has turbocharged the company’s earnings and lucrative dividend stream ever since. It’s also a factor behind the exorbitant price tag for the rollout and why NBN Co’s business model is broken.
Now, as customers are being switched across to the NBN, the cash deluge is drying up. That hasn’t stopped Telstra management complaining. And little wonder. At the half year result, it slashed the interim dividend as earnings plunged 27 per cent.
*According to Mr Penn, because the NBN is committed to delivering a commercial return to the Federal Government on the massive outlay, it is charging way too much to retailers who then are passing on the costs to consumers.
In that regard, he’s absolutely right.
Who pays for the mistakes?
To get the deal across the line without blowing the budget, the Rudd government came up with a novel idea. It decided to treat the project as a commercial investment rather than a budgetary outlay.
In accountant speak, the NBN is “off balance sheet”. To do this, the Government has tipped in $29.5 billion in equity and handed out a further $19.5 billion as a loan. The incredible shrinking Telstra
Telstra will have shed about half its workforce in just over a decade, but can it shrink its way to greatness?
*The idea was that the money would all be repaid with interest, and perhaps even a profit, as once the thing was up and running, it would be sold to the highest bidder.
*And therein lies the problem. Given it is an investment, the NBN has to earn a commercial return and since the costs have blown out, it has to charge retailers like a wounded bull. They, in turn, pass on those costs to you and me.
*There is almost no debate now about how to fix the problem. Everyone from ratings agency S&P to the telcos themselves are demanding the Government write down the value of the NBN by around $20 billion.
*If it did this, the NBN wouldn’t need to charge as much and everyone would be better off.
*There’s just one problem. Given it represents a loss, that $20 billion write-off would be very much on-budget, which essentially means taxpayers rather than NBN users would foot the bill.
*It also would hit the budget bottom line, which explains why the Morrison Government, already facing a slowing economy, will be reluctant to do anything that endangers its promised surplus.
That’s not all
*Mr Rudd estimated the NBN would cost $41 billion. Mr Turnbull, having convinced Mr Abbott it could be built cheaper and quicker, then estimated the Rudd plan would come in at $72 billion.
**The solution? Cut the spend and use a mixture of technologies, some of which had been in place for years.
It’s now projected the total cost will be $51 billion.
*The comparisons, however, are useless because they are for different products. The original plan was to roll out fibre to almost every premises in the country. What’s been built is a slower, far more complex network.
As a result, it is more expensive to run and requires more maintenance, which delivers a lower return. Some premises have fibre running down the street. Some have the new cable ending at the node, the little units on some street corners. Still others use the ageing hybrid coaxial cable.
So, at some stage, it will need to be upgraded, to be built to a finished standard at a substantially higher cost.
In the meantime, it remains a high-cost monument to the pitfalls of government-run infrastructure projects.