Last month, Prime Minister Malcolm Turnbull warned that the $49 billion National Broadband Network (NBN) may never earn a profit, which was followed by warnings that the NBN could punch a big hole in the Budget because the federal government is required to adjust its Budget treatment of the NBN if its commercial return declines to under 2.5%, which may soon be reached.
Around the same time, former Keating Government competition advisor, Fred Hilmer, predicted that the NBN would likely “be sold at a bargain price with the commonwealth taking a hit and blaming its predecessors”, costing taxpayers potentially tens-of-billions of dollars.
Now, the Australian Competition & Consumer Commission’s (ACCC) draft report on the communications sector has called for the Federal Government to write down the value of the NBN in order to narrow the gap between the amount NBN Co receives from retail ISPs each month and the actual cost incurred by NBN Co. From The AFR:
The competition regulator has urged the federal government to rescue NBN Co, by either writing down its value so it can charge lower prices, offering relief on its debt repayments, or paying for hard-to-connect households directly through budget handouts…
NBN Co currently collects an average $43 a month from retail service providers for each home they sell in to, but needs $52 just to recover costs, let alone fulfil the government’s expectations of a 3 per cent annualised return on its $50 billion investment in the network…
The ACCC’s report flags three options for bridging that gap: direct budget funding arrangements for non-commercial services, relief from having to repay debt provided by the government, or an asset write-down…
Crucially, a write-down would give NBN Co breathing space to reduce its access and bandwidth charges to retail telcos, which the ACCC partly blames for the 159 per cent rise in complaints against the NBN lodged by the telco ombudsman in 2016-17.
The regulator’s interviews with consumers revealed many felt their internet speeds were slower than the ADSL or cable broadband connections that the NBN had forced them off, even where they were paying higher monthly charges.
The Greens, too, are pushing for the NBN to be written down, arguing that it should be treated as a utility rather than a profit-seeking venture. From The AFR:
The Greens are pursuing legal options to have Parliament write-down the National Broadband Network and ease the pressure on the government-owned business to make returns on the $49.5 billion infrastructure project…
“Rolling out the NBN has put too much pressure on recovering NBNCo’s costs rather than providing an essential service to Australians,” Greens communications spokesperson Senator Sarah Hanson-Young said.
“We need to stop thinking of the internet as a profit-making endeavour and start treating it as an important utility like water or electricity”…
“The business model was wrong from the beginning, contributing to ballooning debt for a service Australians are losing faith in. Neither the ALP, or the LNP Government, are willing to acknowledge they stuffed up and the debt needs to be written down. Australians deserve better,” Hanson-Young said.
Meanwhile, the Turnbull Government refuses to budge, so far ruling out writing down the value of the NBN. From The AFR:
..the government is unmoved by calls to spend any more taxpayer money on the NBN since it lent it a further $19.5 billion last November, which was meant to cover completion of the rollout and be repaid in 2020-21.
Treasurer Scott Morrison on Monday played down fears the government could suffer a budget hit if the NBN wrote down its valuation, saying the network’s earnings have “actually improved over the last two years; it’s not got worse”.
Challenged on whether the government could expect the returns from NBN it had been anticipating, Mr Morrison told Sky News Business it had not received advice to the contrary.
On whether there might need to be a write-down, Mr Morrison said the decision would be one for the company and not the government.
“That is a decision that is actually taken by the NBN in terms of how they’re looking forward and the assumptions they’re making. There is no suggestion at the moment that there would be any change to that.”
I’m with the ACCC and The Greens on this one. The government might as well take the Budget hit now – which seems inevitable anyway – and allow the NBN to lower its access charges, as well as open the NBN to competition in capital city areas (where it is not a natural monopoly).
Low cost and reliable internet is now an essential service, just like electricity, water and gas. So it makes little sense for Australians to be charged some of the highest user fees in the world, in turn dragging on Australia’s productivity.
