Mathias Cormann cooks the NBN books

The Morrison Government is facing increasing pressure to write-down the value of the National Broadband Network (NBN) in order to lower wholesale costs for both downstream telecommunications retailers and Australian consumers.

Only last week, the head of the Australian Competition and Consumer Commission (ACCC), Rod Sims, stated that the government “must ignore those who worry about the value of assets that are sunk, and focus on how the NBN can best contribute to Australia”, which follows previously aired concerns that “prices of low-speed NBN plans offered to new customers… are at least $10 per month higher than what consumers paid for equivalent plans on the ADSL network”.

The major barrier to lowering wholesale prices and writing-down the value of the network is that it would slug Australian taxpayers up to $20 billion. However, Australia’s finance minister, Mathias Cormann, yesterday played down the impact on the federal budget, insisting that it would not place the surplus at risk:

“A write-down would not impact surplus goal. NBN equity investment was classified as such when it was made,” Cormann tweeted on Monday morning.

“A write-down would not cause retrospective re-classification into a grant.”

Cormann added that a write-down is the responsibility of the NBN board, and such action would shift the cost on taxpayers instead of customers.

“Those pushing for a political decision to write-down the value of NBN to facilitate lower prices and higher margins for other businesses are arguing that the taxpayer rather than customers should carry more of the cost burden of services provided by NBN and accessed by NBN customers,” Cormann said.

It is irrelevant whether a write-down shifts the costs to taxpayers instead of customers, since they are one and the same. The NBN is a natural monopoly technology and an essential service. If priced correctly, it would be used by almost every taxpayer in the country. Therefore, taxpayers will pay one way or another – either through higher user charges or via their taxes.

What is most important here is ensuring both efficiency and access. Wholesale prices for the NBN must not be set so exorbitantly high that it forces some users off the system and/or onto less efficient alternatives such as 5g. Given the NBN investment is sunk, pricing must be lowered to maximise usage of the asset.

Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

  1. prices of low-speed NBN plans offered to new customers… are at least $10 per month higher than what consumers paid for equivalent plans on the ADSL network

    Another spectacular failure from the ALP. Conroy never did a product launch for the NBN like Elon did with the Powerwall (which included a price reveal). Conroy should have said “the retail price will be no more than $30/month” and cut negative gearing subsidies by $30/month per negatively geared house.

    Why not put a $10/month tax on Netflix 4K instead?

    That is clogging up the NBN and Netflix pays no tax. The poorest Aussies can not afford Netflix nor a 4K television set.

    • Because the final retail price is set by the ISPs. NBN is wholesale only.

      If we could go back in time, the Telstra market cap pre-NBN was about $30b, whereas the NBN will cost $50b. We should have just renationalised Telstra and instructed them to spend billions on expanding their existing dark-fiber business-grade networks to the general public ie. FTTH. The whole operation would have been immediately profitable.

  2. “NBN equity investment was classified as such when it was made. A write-down would not cause retrospective re-classification into a grant.”

    Kevin 07 put the books in the oven on this originally. If the NBN was an equity investment why did it lay fibre in tasmania, and armidale (Tony Windsor’s marginal seat) and other nowhere places first? It should have laid cables in Sydney and Melbourne first, then thought about Brisvegas etc etc. It has ALWAYS been a grant.

    That said, if you believe it is an equity investment then Cormann is correct the return on that investment won’t impact the budget surplus – but again – the main issue the main stream media have is worrying about a budget surplus – the budget isn’t Australia – it’s just an accounting result for a fictional entity called the Federal Government. We should list the Feds and get some short seller research on it like the stuff just out on RFF – good times.

  3. Timeline:
    2004: Mark Latham preferences Family First ahead of The Greens, thereby causing two additional conservative Senators to be elected
    2005: Saul Trujillo appointed CEO of Telstra
    2006: Government uses Senate majority to sell controlling interest in Telstra
    2007: Telstra refuses to cooperate with NBN, so Rudd chooses FTTH option (and plays political games with rollout)
    2013: Tony Abbott sabotages NBN, with Turnbull doing the dirty work
    In other words, Latham’s childish jab at The Greens led indirectly, through a series of bizarre events, to the wastage of tens of billions of taxpayer dollars.

  4. DrBob127MEMBER

    Just imagine if the full fibre rollout had happened. It would still be happening, but people would actually be excited about getting it

  5. They’ll also be writing down the value of Snowy Hydro 2.0 should a gas reservation policy be implemented.
    The business case assumes high gas prices!