NBN debacle worthy of its own Royal Commission

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By Leith van Onselen

With a veritable conga-line of analysts calling on the federal government to write-down the value of the National Broadband Network (NBN) by $20 billion in order to make the wholesale costs low enough for telcos to remain profitable and to provide customers with competitively priced high-speed internet, ACCC head Rod Sims has thrown a spanner in the works, arguing it may not benefit consumers. From The Canberra Times:

“You have no idea whether it will flow to consumers. Listening to telcos, they want to keep a decent chunk of that … I suspect some would flow through to consumers but it would be a mix of the two,” he said.

“But I can’t tell you what that mix would be. The telcos, they want to make more money. And that’s perfectly legitimate. I’m not criticising them for that.”

How much benefits from any write-down flows to consumers depends on the degree of market power among telcos. The likely outcome is that the gains would be shared.

Meanwhile, Stephen Bartholomeusz has argued that the government doesn’t have $20 billion of equity in the NBN to write-down:

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Because the NBN is still in its build phase – this is the peak year for the roll-out – it has made very large losses over the near-decade since it was established. At the end of last financial year it had accumulated losses of $17.3 billion, reducing its equity base to $12.2 billion.

While the losses will reduce once the NBN is essentially completed in 2019-20, it probably won’t be generating meaningful profits and generating equity until closer to the middle of the next decade, by which point it might have less than $10 billion of equity.

It is self-evident that you can’t write $20 billion off a $10 billion (or less) equity base.

I’ve got no idea what the answer is, but delivering Australians a competitive and reliable internet service is a must. We shouldn’t be charged some of the highest user fees in the world for a sub-standard service.

Add the NBN to the long list of policy failures worthy of a Royal Commission!

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.