NBN divided and conquered by Telstra

The ABC’s business editor, Ian Verrender, reports that the National Broadband Network (NBN) has been plagued by cost over-runs and delays in its rollout. This is due primarily to the decision to use a mix of fibre-optic and copper cables, alongside the generous $11 billion deal struck by the Gillard Government to compensate Telstra for customers migrating across from its fixed-line service.

These factors, according to Verrender, have resulted in many Australians missing out on high-speed internet access, alongside paying premium prices.

With the NBN rollout nearing completion, the federal government will be keen to offload it. However, there are likely to be few buyers and they will not be prepared to pay anywhere near the cost of building it. As such, Telstra is shaping up to gain control of the NBN at a peppercorn price and, thus, could ultimately play a major role in the future of the network:

The NBN is on the books with a $51 billion valuation tag, but the Parliamentary Budget Office in June last year calculated its fair value at just $8.7 billion.

Of the $51 billion total, the Federal Government has an equity stake of just under $30 billion with most of the remainder debt held by the NBN.

If and when the project is sold, that debt will travel with the NBN to its new owners. So it is the equity stake, the value of the shares, that is the sensitive issue for us as taxpayers…

There’s also some dodgy accounting practices that render it slow and expensive.

To keep the NBN “off the books” and not part of the federal budget, the Rudd government classified the project as an “investment” rather than just government spending. That facade has been maintained by the Coalition.

As an investment, however, the NBN has to deliver a commercial return. That means it needs to cover its costs, plus a bit on the top. And so, given the cost blowout, it’s had to charge the telco companies an arm and a leg to achieve that goal.

They, in turn, have to offer a decent priced service to customers, and the only way they can do that is by skimping on the speeds.

The end result? We pay a fortune for a sub-standard service.

So how do we fix it?

The only solution to this is for the Federal Government to write down the value of the project and take the financial hit.

If it wrote down that $30 billion equity stake to just $8.7 billion, that would crystallise a $21 billion loss, which would hit the Federal Budget and our national debt…

It may seem like a rerun of an old horror movie but Telstra, the company that did everything it could to thwart a fibre-optic cable rollout in order to profit handsomely from it, may end up playing a key role in the NBN’s future…

The Gillard government struck an $11 billion deal with Telstra in a desperate attempt to get the project to fruition…

Ironically, a big reason the NBN is so expensive is the overly generous deal the Gillard government struck with the company back in 2012…

Whatever the outcome, it’s highly likely Telstra shareholders will end up reaping most of the benefits of the NBN at the expense of taxpayers.

Telstra is shaping up as the nation’s biggest winner from the NBN debacle.

In 2011, the Gillard Government agreed to pay Telstra $11 billion in instalments for its fixed line customers to migrate to the NBN, which have lined Telstra’s pockets ever since:

This decision to pay installments was made, in part, to fix the structural mess made when the Howard Government privatised Telstra in the late-1990s, which gave Telstra control of both the wholesale and retail fixed line networks, thus creating a vertical integrated monopoly.

While it has received billions of dollars in annual installments, Telstra has also worked actively to undermine the NBN by demanding deep price cuts to its wholesale charges, as well as by pledging to steal market share via Telstra’s 5G mobile broadband rollout.

Now we’ve got Telstra’s infrastructure arm, InfraCo, lining up to acquire the NBN at a peppercorn price, which would once again hand it control of both the wholesale and retail networks.

History doesn’t repeat but it sure does rhyme.

Unconventional Economist

Comments

  1. I doubt they’d let Telstra own all of it – the industry would go mental.

    I expect they’ll do something like the Telstra floats. Get some of the industry to chip in for shares, and when they run out, float it.

      • Mark HeydonMEMBER

        Me too.
        Who here would be surprised to see the LNP sell the NBN to Telstra?

        Imagine the board positions that could generate for LNP hangers on.
        Plus, these better economic managers would see the sale proceeds come in to sweeten the budget position. And be recycled into more sports rorts and the like.

  2. Achilles Tskakis

    We’ll see what consumers do after September when the NBN price increases kick in.

    Aussie Broadband has already told its customers prices will be going up $10 to $27 a month.

  3. Have been in tech for 20yrs. Many specialists I worked with during the NBN ideation phase were critical of its intent considering we had an opportunity to jump the curve on wireless. There was nothing stopping us investing in R&D for mobile wireless or fibre optic to the street and then wireless transmitters on every pole.

    No house ever needed the full capacity of a fibre optic cable. Businesses yes, homes no. Singapore, HK and South Korea are not realistic comparisons due to population density.

    It was a failed program from the start and the write down was written in at its conception.

    • Ronin8317MEMBER

      From memory, the wireless option was considered, but the councils wanted so much money it was cheaper to go FTTH.

    • Been in technology for 35 years – help start up carsales.com.au along with plenty of others, and you are talking straight up LNP talking points which expose that you have literally no idea.

      Your claims of wireless are laughable at best, while “population density” is just so outrageously misinformed its barely worth commenting on – however since almost the entire world is now fiber, and 95% of Australia’s population lies within a geographic area smaller than either of your examples it goes without saying you have no idea.

      Lets put it like this – the broadband speeds we have now with the upgrades to HFC far outstrip “wireless” already – this is 100mb, however the power of the internet is not in what you can access and download – this has been Luddites and LNP “country folk” like yourself – the power of the internet is UPLOAD speeds.

      We are already well and truly past the point of the best possible speeds 5G can even offer. 4k, 8k and even 16k are all in the works and 4k is now standard around the world almost – Australians can not even get it. Australia does not even have access to a plethora of internet services the rest of the world, including some African and eastern European backwaters have – including cloud based gaming and application services for Google – our internet is not up to it. We are TEN YEARS behind these countries with a NEW network.

      But as I mentioned uploads are what matters. And wireless simply can not handle that – no chance. Zero.

      It just pains me listening to the arguments people were trotting out ten years ago. Its like listening to global warming denialists who still think its “the sun spots” or “they changed the measurements” – its just painful in just how little understanding you have – not even the basics – yet you preface your comment with that ridiculous 25 years waffle as though anyone with even the ability to code css would believe you.

      Please – trot on.

      • Fibre is like having a conversation between 2 people in an other wise empty room….

        Wireless is like having multiple conversations going on at the same time between heaps of people and 1 person in the room is involved in all of those conversations, trying to keep track of all of them….

        Add to that the fact they can now run 44Tbps ( 44 Terrabits, or 44000 Gigabits bps ) down a single fibre and Gigabit/ps over distances exceeding 1000klm while we cant even roll 5g in small numbers without infecting the entire planet with mind controlling COVID beams….. and it only has Gbps shared over distances of 500M….

        Yeah wireless was never the smart choice.

      • Hi (Austin Tacious) Greg and/or Wal,

        Congratulations on the success of Carsales.

        This is obviously a passionate topic for you and I appreciate your perspectives but am confused why you seem upset at the comments. Regardless, the personal insults and assumptions about my knowledge, political slant and location “country folk” are incorrect and not necessary.

        To summarise a response;

        -The project has blown out in costs (on a reduced scope). It would have blown out further on original scope.
        -The project plan did not account for changes in the political landscape (which was arrogant) and was delivered not based on need but based on political slant.
        -The project failed to deliver the promised customer benefits on speed, connection times and cost.
        -The project was poorly targeted in idealising FTTP connections when at the time many could not or would not ever use that systems potential. I note above that I have called out businesses being an exception.
        -The project failed to account for the exponential trends in mobile growth – most people conduct their online lives through an IOS or android device these days. Knowledge workers are the primary target for your “uploads matter” comment and thus targeting their use case would have made more sense.
        -The project has failed to deliver value for those taxpayers in remote areas due to limited coverage and poor satellite speeds.

        You have been successful in business. If this was your project within a PMO function, how would you summarise its success?

        The view of the specialists I worked with at the time (Network Engineers within Telstra, Juniper, Nokia Siemens Networks (now Ericsson) was that fibre to the curb made sense followed by localised wireless delivery mechanisms to account for the dynamic nature of mobile connections. In doing so you potentially get rid of the in home router and the need to dig up every street multiple times to install the fibre optic. Giving someone 1GB to the home is great (if they need it) but unless they know how to setup that final 10m properly the connection will be wasted. All of the companies listed above made fortunes out of the project so they could pitch whatever made the most sense. I sold a tonne of core routers and associated fibre modules into and for these companies at the time and I am recounting what their professional opinion was.

        All the best with your next endeavour.

        • I wouldn’t be quite that harsh on it.

          One simple point worth considering:
          It’s 2010, the NBN has 4 active services in April.
          Corona happens on exactly the same timeline.

          How screwed is Australia’s working from home?

        • For others reading and doubting their sanity, Gareth is exactly spot on, but he’s run into some kind of troll army.

          Either that or perhaps people have taken this as a technology question rather than a commercial one, but it’s safely a question about what people will buy, and what they will use, and which technology will be best for that purpose.

          We have known the answer to that question for a while. Gary McLaren (who was the CTO of NBN, and a very smart guy) has described wireless broadband as NBNs “biggest threat”. There are stories from zdnet with direct quotes if people want to google them, and they are not exactly recent – the central issue is the substitution of wireless for NBN in many use cases. The issue is ongoing.

          The trajectory of that was well known more than a decade ago. Nobody with any real knowledge of the area talks in terms of peak connection speed, it just comes down to whether the customer can do what they want to do with the service, and increasingly the answer is that wireless is enough.

          As an aside, I genuinely hope that the level of condescension in the comments above came from a place of learning-to-troll rather than being a serious reply.

          • Trolls, nah.

            If you want to spout uninformed rubbish expect to get someone to point out the issues. Calling someone a troll because they dont agree with you without addressing the issues raised just shows you have nothing but ‘faith’ to back up your position.

            Gareth is not correct on his assertion that wireless was the solution.

            Wireless is a limited bandwidth shared medium. Anyone who actually works in the communications industry knows this. Its only good use case is in mobile telecommunications. Even Gareth acknowledges that fibre is superior in his last comment regarding FTTC and last 10m wireless, but even that shows his limited understanding of technology.

            This is not meant as a criticism of him, but if you want to say that people who actually work in the industry who are making statements are just trolls then pointing out the limited understanding of those making statements is now apropos.

            As for Gareths other statements.
            -The project has blown out in costs (on a reduced scope). It would have blown out further on original scope.
            Yes, it blew out in costs, as to whether it would have blown out further if the original path had been maintained is pure speculation, and I can only assume based on the claims made by the LNP about how blown out the budget already was.. which they increased every time they mentioned a figure and then revised back down once they took power.

            -The project plan did not account for changes in the political landscape (which was arrogant) and was delivered not based on need but based on political slant.
            Why should a major infrastructure project be developed around a potential change in political landscape? that sounds like the path to compromise and failure to me. What if the Sydney Harbour bridge was proposed with the idea that they may have to change direction half way through if there was a change of government?

            You only think you know what your need is based on what you accepted yesterday, its clear to see how WFH as a change in corporate culture benefits from high bandwidth supply. A year ago I didnt know I would need to WFH as the majority of my work week, but I could see how having the bandwidth would enable me to do so.

            -The project failed to deliver the promised customer benefits on speed, connection times and cost.
            Yeah, the Mixed mode was always going to have this issue, there were some crazy ideas put into the original design as well that appeared to be about excluding new and smaller players from the NBN market. Ironically it was the large incumbents who complained the most about these design requirements and charged the highest prices…

            -The project was poorly targeted in idealising FTTP connections when at the time many could not or would not ever use that systems potential. I note above that I have called out businesses being an exception.
            if you built a road based on the level of traffic you see on the road today you will be rebuilding it tomorrow….

            Just because you think no one needed or would use all of the potential bandwidth available does not mean you should not build for the potential of tomorrow… also this conflicts with the statement about speed delivery. They focused on bandwidth that was not needed yet failed to deliver on speed…. the speed issues most people complain about in the NBN are due to the ADSL based connections, limited bandwidth bought by the ISP between them and the NBN and poor infrastructure in the ISP. Telstra have run their connections to the NBN at 350%+ potential utilisation, this just means their customers will regularly see issues in performance, and They then blame the NBN…. would not have anything to gain from doing this would they?

            -The project failed to account for the exponential trends in mobile growth – most people conduct their online lives through an IOS or android device these days. Knowledge workers are the primary target for your “uploads matter” comment and thus targeting their use case would have made more sense.
            Did it? All my devices connect to my WiFi setup when at home, My monthly data usage on mobile is less than 5% of what it uses on wifi. Despite what you may think the majority of peoples data usage happens within range of their home. Even people who go to cafes to work ( a really over blown market and not that big a market segment in Oz ) use the cafe WiFi when possible.

            -The project has failed to deliver value for those taxpayers in remote areas due to limited coverage and poor satellite speeds.
            Satellite speeds are not the issue, data limits are. I pay for my fathers connection and its as fast as my unlimited VDSL connection ( non NBN ) but it only takes a few days to consume all the allocated data so he hardly uses it.
            Wireless in the majority of rural areas that have reasonable levels of population density also suffer from geography issues. The majority of the population live within 50 – 100k of the coast, but this is also the most structurally problematic area for a direct line of site which is required. My Fathers property has very limited 4g connectivity and the NBN Wifi is no where to be seen. If the weather changes 4g disappears all together… ironically laying fibre in these areas is extremely cheap as no footpaths etc need to be dug up, there are limited utilities underground to interfere. A bulldozer can install up to 4klm of fibre a day, unlike in the urban areas where 100m a day is more likely.

      • +1. Glad you said it. Gareth, you have zero idea about the basics of tech and the physics which it operates within, if you think wireless compares to a fixed line fibre optic network.

    • macrofishMEMBER

      Anyone who talks about using radio has no idea, its a great PHY only when everything else is not possible.

      You want a low population, low density high speed network? go look at NZ.

    • The difference between FTTP and FTTC is insignificant compared to the difference between either of them and the load of sh!te MTM FTTN we got. You cannot use the technology debacle that the NBN was turned into as a reason why FTTP was a bad idea.

    • I’ve been in tech since 2001. Engineering and infra solution architecture.

      Anyone claiming wireless is a replacement for fibre doesn’t know what they’re talking about.

      • LOL….You will have to share with the group how we can plugin our mobile phone into this wonderous fibre optic connection you speak of?

        Not everyone is running a server with fibre optic modules under their desk. Most homes have a wifi modem stashed behind their TV sending highly interrupted signals across their suburb.

        For clarity I am not arguing for cellular. My comment (if you can read) was clear on FTTC and then using a professionally shared wireless infrastructure for the final hop.

        However you cut it….99% of people cannot use the full capability of FTTP because the final hop is being degraded by the wireless signal in the home.

        • You are talking semantics around last-mile connectivity to argue why the all-fibre NBN was a bad idea ?!

          Talk about missing the forest for the trees…

          • There’s little point debating this sort of thing with people who wilfully misunderstand the issues for political ends.

          • Not even last mile: his “argument” has now changed to “FTTP won’t work because lots of people have Wi-Fi in their house and it will interfere”.

            The mind boggles.

          • I think the argument is ‘wifi is slower than fibre therefore there is no point have fibre to the house when it’s just going to be distributed via wifi – so just use wifi for the last mile rather than fibre’.

            Which isn’t entirely wrong, but completely misses the point I made above that the difference between FTTP and FTTC is minimal compared to either of them and the MTM NBN we got because it’d be sooner and cheaper. Also ignores the difference between wifi distribution at a home vs neighbourhood scale.

  4. happy valleyMEMBER

    Well, there you go – a combo f.ck up by Lab/LNP. $11bn p.ssed up against a wall by Lab and then the Malcolm OzEmail (I made my first fortune on that) LNP promising us a hotch-potch NBN sooner, faster and cheaper (not). We can’t do defence asset procurement on a timely or cost-effective basis (think F35, subs etc etc etc) nor technology rollout (NBN) but we can build very, very expensive toll roads, light rail, heavy rail and energy projects operated by the private sector because like the LNP (and Lab with the NDIS) we all know the private sector are the best-ever operators. How good is Straya.

  5. Having screwed up … what now? I would say right now is a great time to write down carrying value by 20bn only because it is dwarfed by jobkeeper. In other years it would stick out but you could sweep 20bn under the carpet right now and hardly notice.

  6. Telstra is one of the worst companies in Australia – disorganized, scornful of its customers, grossly overcharging, overstaffed, all the hallmarks of the monopoly it has been for far too long. I wish it would just go away. It has caused me many headaches and arguments over the years, and much anger.

    I can’t believe this abortion of a company will get the nbn. ffs.

    • okradovicMEMBER

      Did you realise that NBN is staffed by a large percentage of former Telstra staff (overpaid rejects). People say it is like a mini Telstra in the way it is run and operated (not particularly well).
      As for Telstra itself, if only you knew how fu$k€d up and dysfunctional it is on the inside and what parasitic, clueless s$$holes are in management and executive positions.