Earlier this month, the Parliamentary Budget Office (PBO) presented research estimating that the National Broadband Network’s (NBN) fair value is only $8.7 billion, roughly one-third the federal government’s initial equity investment of $29.5 billion:
On top of this equity investment, NBN Co has also received a $19.5 billion loan that it is required to eventually refinance.
With this background in mind, there is a strong case for the federal government to include the NBN as part of its economic stimulus package. This could be achieved in two tranches, namely:
- Immediately writing down the value of NBN Co by at least $20 billion, thereby lowering the required rate of return and slashing wholesale broadband prices; and
- Once the coronavirus crisis has passed, launching a publicly funded capital works program to replace failing FTTN, FTTC and HFC connections with fibre-to-the-premises (FTTP).
It is worth pointing out that the ACCC has already endorsed the first measure – writing down the value of the NBN:
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…
Crucially, a write-down would give NBN Co breathing space to reduce its access and bandwidth charges to retail telcos…
Ratings giant, S&P, has also endorsed an NBN write down in order to lower Australian broadband costs.
Writing down the NBN would result in lower broadband charges, thus having a similar impact on household budgets as direct cash handouts.
Given a write down is inevitable anyway, why not do it now as part of the government’s stimulus package?
The second measure – upgrading NBN infrastructure to FTTP – is a longer-term stimulus measure aimed at supporting ‘jobs and growth’ once the crisis has passed during the economic rebuilding phase. It also offers the longer-term benefit of boosting Australia’s broadband reliability and speeds, thereby bringing them up towards world’s best practice.
The biggest barrier to these stimulus measures is that they would require the Coalition to admit that it got its NBN policy wrong and that it should have stuck with Labor’s policy.
This, in turn, means that such measures are unlikely to even be considered, regardless of their economic merit.
