NBN needs $21 billion write down: PBO

The Parliamentary Budget Office (PBO) has released a report estimating that that the “fair value” (or saleable value) of the National Broadband Network (NBN) is just $8.7 billion – less than one-third the federal government’s equity investment:

The NBN is a very large infrastructure investment project, with NBN Co receiving $29.5 billion in equity over several years in order to build the network.

The historical revisions to the fair value of NBN Co are shown in Figure 3–1. This shows that the fair value of NBN Co has been consistently below the cumulative amount of equity injected into the company…

As shown in the chart above, the total equity that has been invested in NBN Co is $29.5 billion. The most recent fair value estimate of NBN Co, as at 30 June 2019, was $8.7 billion. The $20.8 billion difference between the amount paid and the current fair value is a revaluation. It reflects the extent to which the Commonwealth Government’s balance sheet has directly deteriorated as a result of this investment as at 30 June 2019. By definition, this impact is not captured in the fiscal or underlying cash balances, though it is captured in net financial worth. This value is a point-in-time estimate and may change in the future…

Fair value is defined in Australian accounting standards as the price that would be received from the sale of an asset or the price paid to transfer a liability in an orderly transaction between market participants…

On top of the $29.5 billion equity injection, NBN Co has also received a $19.5 billion loan that it will eventually have to refinance.

Interestingly, JP Morgan last year claimed the value of the NBN needs to be written-down by $20 billion to make the wholesale costs low enough for telcos to remain profitable and to provide customers with competitively priced high-speed internet. On the face of it, this analysis almost perfectly accords with the reported fair value estimate.

S&P Global Ratings and the ACCC have also previously argued that a write-down of the NBN is needed in order to reduce the cost at which it sells broadband capacity to telcos.

Given a write-down of the NBN seems all but inevitable, and low-cost and reliable internet is now an essential service, the Morrison Government should take the budget hit now and enable the NBN to lower its access charges to competitive levels, in addition to opening the NBN to competition in capital city areas where it is not a natural monopoly.

It simply does not make sense for Australians to be slugged some of the highest broadband user fees in the world, subsequently dragging down Australia’s productivity.

Leith van Onselen
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Comments

  1. robert2013MEMBER

    No no no. We don’t need broadband to be competitive. We just need to keep a lid on wages and conditions and keep property prices rising. If it weren’t for the unions everything would be tickety boo.

  2. I was supposed to be connected last June. Then they delayed it to October. Then November. Then they installed the NBN box. Then my ISP told me my service activation was cancelled due to a network issue. I live in Brighton, VIC, 800m from the exchange was getting 1.5Mb on naked ADSL at best many days. Fcken hard to work from home with that!

    End of January an NBN tech knocked on the door to tell me they were replacing the new HCF cable they’d installed in November along the houses in my block. It told him I had 4 green lights on my modem, but no NBN service, asked “what was wrong?”. He told me that was impossible. So he took a look. Gobsmacked. Hooked it up to his testing kit and said I had perfect signal on all channels. So I chased up iinet. No answer at all from iinet since that pointless phone call. They obviously gave up trying to get an answer from NBN. So I went direct, wrote the “you are all cnuts” letter. Has taken me 7 weeks to get an answer from the NBN. They say the line is not functional – the tech report has not been updated since the pit repair work outside my place was done in November and therefore it is impossible that I have NBN or can get NBN as the line is marked as out of service (I still have 4 green lights). They tell me it will not be available until June. But it’s fcken working you dumb cnuts and has been for over 3 months.

    This country really shtts me. Thanks Malcolm, you twat, for spending a fortune to completely bastardise the future. And now we all must work from home cos we might die. My line speed is like being back on dial-up.

    • Coup de Whiskey

      Check out the 4G reception from Optus/Telstra/Vodaphone in your area.

      As long as you’re not streaming it can often easily beat NBN. I’m with an Optus 4G/200GB per month at $60 I average around 30Mbps up and down.

  3. Put these numbers in perspective: The NBN paid Telstra $11 billion for their copper phone network in 2011.

    • Yep, the RBA could buy up the bonds relating to the cost of construction and torch the lot so that NBN could immediately write off the debt.

      But they will not.

      They need to buy up bonds from banks so they have more capacity to make new usurious loans.

      Yesterday the RBA did little beyond support our banking and finance sectors control of the public monetary system.

      And to think that some people applauded the RBA yesterday.

      Dupes!

  4. They can easily sell the write-down as measure to ease household budgets. Wuflu is the perfect cover if they choose to use it.

  5. The NBN will get its biggest test once everyone is made to stay home.
    Majority of people will be well and want to stream and surf.
    Lots wont be out camping, walking, shopping etc.
    I imagine it will fail spectacularly.
    And yes they should write it down, even off ! during the Covid-19 crisis.

    • Funny you should mention it – Netflix has been asked by the EU to reduce traffic to Europe in order to take strain off the network. The combo of people staying at home combined with wfh is creating all manner of issues. Asking punters to please watch movies in standard def, not high etc.

      As for the next few months: Slow speeds ahead it seems

    • JunkyardMEMBER

      Heard yesterday Netflix will be disabling 4k streaming during the work from home period in Australia.

      Also I suspect nbn fixed line network will easily cope. I’d be more worried about your ISPs network. They have all raced each other to the bottom in costs. Including network capacity. Even the once mighty Telstra is now regularly plagued by issues and outages.

      All the ISPs will be twiddling the dials on their DPI boxes, turning down P2P, YouTube/Netflix etc….

      • Telstra laid off Aussies and moved 18,000 jobs to the Philippines call centers, which have now been closed due to the virus.

        Telstra, Qantas, Optus, iPrimus/Dodo all impacted by this so far. some iPrimus customers haven’t been able to reach reps for *weeks*

  6. Riddle me this – how much faster and more reliably will the NBN run following a $21b writedown?

    What about a $25b writedown – what’s the incremental impact on speed and reliability?

    • After the write down they can borrow more to redo the bits that don’t work very well.

      Interestingly, I scored a FTTC connection which was rock solid speed wise until a week ago.

      Now it has dropped to half speed.

      Pretty amusing that even when the link can handle a high speed, Optus can’t supply the data.

    • I don’t even understand why a ‘write down’ is needed. Does the Govt have a balance sheet? Is it a corporate entity? The govt is just a vehicle that spends its time flushing other people’s money down the toilet (or dishing it out to mate$ – paging Angus!)

      • JunkyardMEMBER

        So it can be cheaply flogged off back to some mates in the private sector to gut it and abandon maintenance, offshore all operational staff etc…

        • Precisely. Which is why it should never have come into being in the first place. But, you know what, flog it off – get something in return but don’t force citizens to use it (or charge a levy). I’ll be using a far superior private sector-supplied alternative, thanks

      • Then it doesn’t have to make a minimum return on capital in order to justify not writing it down and taking the budget hit. Write it down and they can charge less to use it.

        Now is the time to do it while the Virus is providing political cover. Ditto with gas reservation. Ditto stopping the population ponzi to ensure no recession.

        The opportunities for this government to actually change the future of this country at the moment are probably unprecedented.

        • Stop the population ponzi and kill the economy or kill the economy by keeping them coming – and collapsing the health service.

          Dilemmas, dilemmas.

  7. factory worker

    The problem as I see it is that Internet connectivity is a function that is worth less than $100/month to most consumers.
    NBN in its original form implicitly assumed that high speed internet was worth upward of $300/month but that was never the case. On top of that they assumed that a 100Mbps connection would enjoy a huge premium with 50Mbps still selling for significantly more than 20Mbps. Lets face it they were wrong on all points.
    Any other business with such a disastrous beginning would have been culled long ago but our NBN was always a Political play thing dressed up in High Tech (or is it High Vis) clothing.

    Stupid Stupid Stupid Oi Oi Oi

    • $100/month is actually a big number for many household budgets.

      I am actually really really surprised that, at this price point there haven’t been any “sharing economy” solutions to defray the cost. Eg, I get a 100mbit connection, then share it with all of my neighbours, who kick in $15/month….

      Just need a plug-in box that facilitates this….

      (Yes I know this would be against the terms of all ISPs)

      • factory worker

        My point is that nobody associated with the NBN (especially not at the management level) was looking for the best way to provide the required service profitably for less than $100/month. This happened despite all the available marketting evidence showing a strong reluctance by the consumer to even spend $100/month on this service. Everything that could be wrong with this was wrong with it.
        At the time the only data delivery segment that enjoyed the sort of premium that NBN wanted was 3G/4G (even that does not exist today) yet the master minds at NBN determined that they’d be in the business of digging trenches as opposed to installing RF towers. Their models all assumed that 50Mbps at a single fixed location was worth more to the average consumer than 50Mbps anywhere anytime. Seriously, who were these geniuses?
        Even Forrest Gump figured this one out : Stupid is as Stupid does.

      • Peachy,

        I am seriously considering organising this in a few places. I have also pondered the possibility of doing it as a business.

        (Yes I know this would be against the terms of all ISPs)

        What is also outrageous is that old people with their old telephone are still being charged $3, $4, $6 per phone call to ring someone interstate or on a mobile.

        • I wouldn’t worry much about t&cs :). UBER was illegal everywhere…. until they had to make it legal.

          I was thinking some of the newer, smarter, wifi devices, like the Unifi stuff or netgear Orbi stuff or perhaps google wifi might make it technically feasible and simple/reliable enough for domestic purposes.

          Then you need some kind of automatic billing/cost sharing solution and you have a business 🙂

          • Go back a few years and hotels and payphones charged extortionate rates for making a simple phone call. There used to be these cards you could buy and ring a reverse charges number to get around that rip-off.

            Fast-forward to now and every 2nd business establishment if offering free WIFI to all and sundry.

            Is it too much of a stretch of the imagination that the next generation of cheap Chinese routers will default to providing a basic free WIFI to the surrounding area. Perhaps every Tesla car will also share data and bandwidth as it drives around.

    • Because they didn’t foresee that Australians would feel entitled to HD streaming Netflix with infrastructure subsidised by the government so they can afford it for $50/month

      Since 90% of internet traffic is streaming video, NOT productive activity

      Can you imagine if the government felt the need to subsidise a Foxtel dish on every roof in the country ?

      Except it’s worse, because Netflix/YouTube etc are foreign companies that don’t even pay tax !
      So we are expected to subsidise infrastructure so that foreign domiciled companies can extract profits

      People with a genuine need for fibre can pay for it

      • factory worker

        The $100/month cap on the value of this service is 100% a function of its use model.
        If we had somehow developed an Internet where people everywhere were developing (AND hosting) content that required 100Mbps download speeds) then without a doubt they could have sold their FTTH product for more than the $300/Month price (implied by the Fibre connection cost)
        But as you say it’s really just a poorly thought out video delivery infrastructure. In reality there are SO many ways to do video delivery better than NBN (even better than FTTH), if you acknowledge that video delivery is the real underlying task.
        Many years ago I considered running for parliament but I was dissuaded when I realized that I couldn’t tell bold faced future of NBN like lies. Sometimes I think back at that decision point and realise that it was only fools and charlatans that welcomed to our Political parties.

      • “So we are expected to subsidise infrastructure so that foreign domiciled companies can extract profits ”

        Right there you have outlined why the Gubmint should never have touched this project with a bargepole – no Govt involvement in the economy means no subsidies for foreign companies. Simple as that.

        • Personally I would not care about this sort of stupidity if it were not for the fact that stupidity like NBN reduces our collective Productivity.
          Lets imagine that we had a time machine and could go back to 2008 when the foundations of this NBN insanity were taking hold in the minds of our Political betters. Now lets assume that all the money that was dumped into digging trenches (10’s of Billions of Dollars) was instead invested in making Australia and Australian’s leaders in the development and deployment of high speed anytime anywhere video delivery systems and services.
          $10Billion dollars wisely invested at that point in time would be easily worth $100B today. And that’s on the financial side, we’d also have the smartest most knowledgeable video distribution work force in the world.
          Instead we invested in digging machines, horizontal drills and High Vis work attire
          The one path was Productivity enchaining while the other just gave us a bad case of NBN (there was a time when I would have called it a subset of the disease Political Interference, but these days I think it is fair to call NBN a separate disease because they’ve so under-performed, that it would be insulting to not recognize this by creating a separate category)

          • But that’s what our economy is all about – we dig ditches, pour cement and build simple buildings. We could be leading the charge in satellite technology or something ground breaking but, nah, gimme a farcking hammer and a chisel and a large pile of credit. Setting course for the stone-age.

          • Now lets assume that all the money that was dumped into digging trenches (10’s of Billions of Dollars)

            That is ridiculous. No ditch-digger was every paid a lot of money. Elites may have somehow collected billions. Do you know who and how?

  8. Ronin8317MEMBER

    The writedown amount is calculated on the business case of private equity borrowing 100% to buy the NBN, then double their money in 2 years. With the credit market frozen, nobody will be buying it now.

    • But PE won’t touch it without a Govt guarantee i.e. the mandatory levy on all domestic households. If the infrastructure is that poor, other competitors would destroy it in a heartbeat.

      The NBN’s future (with a further write-down) is as a low cost option for low usage households i.e the oldies market