Coalition readies for massive NBN write down

In March, the Parliamentary Budget Office reported that the “fair value” (or saleable value) of the National Broadband Network (NBN) was only $8.7 billion – less than one-third the federal government’s equity investment.

This suggested the NBN required a $21 billion write down.

Now, the Morrison Government has put the NBN’s valuation under review, suggesting a write down is pending prior to privatisation:

Consulting firm Ernst & Young has been appointed to examine how the network is valued as the NBN Co enters a new phase of ongoing maintenance and upgrades ahead of an eventual sale…

Telecommunications industry figures and credit ratings agency S&P have said a write-down of the network’s value is inevitable…

Telecommunications consultant Paul Budde said… “The government has so far refused to write down the NBN based on previous valuations so it would love to see higher valuations as that would make it easier for them to offload the NBN. At the moment the future of the NBN is in limbo with no government directions. The valuation will play a key role in changing this situation”…

Under terms agreed by the former Labor Government, Telstra was paid $9 billion in instalments for its fixed line customers to transfer over to the NBN.

These payments were designed, in part, to fix the structural mess created by the Howard Government when it privatised Telstra in the late-1990s. This gave Telstra control of both the wholesale and retail networks, thereby creating a dominant integrated vertical monopoly.

In a tale of ‘back to the future’, the NBN is being readied to be gobbled up by Telstra’s infrastructure arm, thus returning to it control of both wholesale and retail networks:

Communications Minister Paul Fletcher has left the door open for Telstra’s infrastructure arm to acquire the National Broadband Network in future…

His comments will prick the ears of Telstra CEO Andy Penn, who has long harboured plans to try and buy back the wholesale revenues lost to the NBN…

Mr Fletcher has previously downplayed the possibility of Telstra acquiring the NBN, due to legislation forbidding the owner of the wholesale network from also being a retailer…

Mr Fletcher now suggested it could be possible, when asked about InfraCo being spun off by Telstra as a separately listed company…

Thus, after already paying Telstra $9 billion to hand its fixed line network to NBN Co, Telstra now looks set to buy back the NBN’s wholesale network on the cheap.

Telstra is positioned to emerge as the big winner from the NBN debacle. As usual, Australian taxpayers are the losers.

Unconventional Economist
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Comments

  1. GeordieMEMBER

    If any private entity gets it hands on NBN Co we can say goodbye to Australia’s tech future.

    • Headline prediction from 2022:
      “Communications Minister Paul Fletcher resigns to take up board position at Telstra NBN”

    • Australia never had a tech future, with or without the NBN. I’m in the industry (software) and have observed first hand that day rates for contractors and full-time salaries have stayed the same (i.e., gone down in real terms) for the past 6+ years. Salaries in real terms for software and hardware engineers in the US are at least double what they are in Australia.

      • GeordieMEMBER

        I hear you, mate. I find it f’n depressing. Very glad I never made the move to the US five years back, but given where the world is headed, being in a smarts-crippled isolated puddle of “She’ll be right, mate!” is sure looking like a bad gig if you are in any way progressive and driven.

        • Don’t worry mate – there’s always property speculating to fall back on. Oh wait ….

  2. Pfh007.MEMBER

    It would be completely idiotic to write down the value of the NBN and then sell it off to a single retail ISP.

    Which means it is a dead certainty.

    They should write down the value and then continue to operate it as a publicly owned wholesale supplier OR if they really don’t think they can competently operate it float it with the following restrictions.

    1. The government continues to own 51%
    2. Retails ISPs can own up to 24%
    3. Retail investors can own up to 25%

  3. and Scumo sets the stage for another boost in his popularity.. the bigger the fck up the higher he ranks with the average punter.

  4. Write down makes sense. The business case was only ever an accounting charade so the ALP wouldn’t have to put the cost “on Budget”.

    It could be sold post write down,with legislated maximum access charges, do an infrastructure fund owned by a bunch of local super funds. At least then the value will remain with Australians to some extent.

    • GeordieMEMBER

      If you give an inch you might as well go all the way immediately as the outcome is a given thereafter.

  5. > In March, the Parliamentary Budget Office reported that the “fair value” (or saleable value) of the National Broadband Network (NBN) was only $8.7 billion – less than one-third the federal government’s equity investment.

    That doesn’t make any sense. It pulls in nearly 3bn/year – and that was before it was finished and Rona.

    • That’s probably revenue, not profit. In normal times most businesses would be lucky to trade on 1.5x revenues

  6. I think the $21bn is money well spent.
    The NBN has saved Australia is this pandemic as everyone can continue working from home.
    Kevin Rudd really was a visionary.

  7. Well with JobKeeper/Seeker/Saver/Maker/ etc, this year is the biggest budget spend year of all time. In that context a 10 billion write down occurring this year hides better in the wash than in other years. Given NBN has been declared completed (I disagree furiously but ….) then selling the asset to something like super funds’ infrastructure portfolios would recycle the public monies (so Libs choose the next public asset built with those proceeds instead of ALP).

    • This.
      With Covid dominating the news, now is the time to kitchen-sink all the bad news.

      Look, a distraction!

  8. would this not be the time to buy Telstra stock?
    We are, after all, just wanting to make money…

  9. A writedown makes sense. The Coalition have wasted huge amounts of money – we knew that anything based on upgrading the existing copper couldn’t be worth anywhere near what it cost by the time it was finished.

    But selling the NBN would be one of the craziest, stupidest, most foolish things that this Government could do. Sad to say, but if it happened I’d prefer them to do it because of gross corruption than to actually honestly think it was a good course of action, because that would mean they’re even more braindead stupid and even worse economic managers than I thought. The sale of Telstra as a monopoly (and the breakup and re-merging of the US telcos even if it’s not a monopoly) shows what will happen, and Telstra’s abuse of market power was the very reason the NBN had to exist! It would be one of those “fool me once” kind of situations. Idiots…