It’s time to write down the NBN

Australian Competition & Consumer Commission (ACCC) chairman Rod Sims says it is probably inevitable that the federal government will privatise the national broadband network (NBN). However, Sims says he does not think it will happen for some years.

The government has invested $50 billion in the NBN, but Sims says that money does not need to be recovered in full when the time comes to sell it. He says governments have a habit of trying to sell infrastructure for as much as possible, which means the entity that buys it pushes up prices to recover their costs.

From The AFR:

“Having spent $50 billion on the NBN, we want to get maximum usage out of it. I think now that the thing is built, it’s a sunk cost. The economy needs maximum use of it at the best possible price without worrying about whether NBN ever recovers its cost of capital”…

“I often hear people say, as soon as you privatise infrastructure, the prices go up. Now that shouldn’t happen. When you’re privatising infrastructure, [you should be] getting it in the hands of people who are going to run it more efficiently. So it should be lower cost”…

“But the way we privatise these things is to maximise the proceeds and that, of course, sees the new owner, who’s paid a massive price, immediately push up the prices. So, unfortunately, infrastructure has been a cash cow. We treat it as a cash cow rather than thinking about how we make it more efficient.”

Rob Sims is right. The NBN’s wholesale pricing has been set so high because the former Rudd Government classified the NBN as an “investment”, which necessarily meant that it has to deliver a commercial rate of return. That is, the NBN must cover its costs as well as earn a margin on top, which forces it to charge ISPs exorbitant wholesale prices that are passed onto Australian customers.

The ultimate solution for the NBN’s high wholesale and retail pricing is for the federal government to write the value of the project down to its true market value.

The Parliamentary Budget Office recently reported the “fair value” (or saleable value) of the NBN of just $8.7 billion, less than one-third of the government’s equity investment. This suggests the NBN requires a write down of around $20 billion.

The federal government must treat the NBN as an essential utility service, rather than a commercial project seeking a commercial rate of return.

Writing down the NBN would reduce the required rate of return and enable NBN Co to lower wholesale prices for ISPs and by extension Australian consumers.

Australians should not be gouged with exorbitant prices for substandard broadband.

Leith van Onselen
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Comments

      • Half of Brisbane is now covered. I’ve had 4G internet before which it defaults back to and it was fast enough for general use and reliable. I’ve had nothing but issues with ADSL and was in one of the last nbn areas.

  1. Yes, it does need to be written down. I think the only reason it was kept off budget was the childish, ideological objection by Abbot and Turnbull. It might have almost worked though – if they had just stuck with the original FTTP that was working, and hadn’t incurred the huge extra costs and the big delays caused by completely changing the rollout – not to mention that operational expenditure and maintenance costs for FTTP are far lower than copper, so they also locked in higher ongoing costs, and now the additional cost of upgrading FTTN areas to FTTP because the copper is just not good enough – exactly what the actual experts predicted would have to eventually happen with this dud model.

    So with the original plan, I reckon it could have worked maybe with a 20% budget funded and 80% investment, but with the dud model we got it’s going to have to be at least written down by 50%, and the sooner the better.

    But one thing is for sure – selling the NBN would be one of the most stupid, brain-dead, idiotic mistakes that a Government could make. The whole reason the NBN exists is because a privatised monopoly (surprise surprise) tends to use its monopoly power to become anticompetitive. It’s what happened last time (Telstra), set Australia back 10 years in broadband compared to a lot of the rest of the world, and was the very reason we needed an NBN. Selling it would just take us back to square one.

  2. Meh.

    The NBN broke my heart when it was turned into a Political Football.

    We had an opportunity to build a next generation tech companies and a real start-up culture for a nation which really does run on small business.

    Still, that dream is done and dusted.

    What I’ll buy will be a Starlink connection from Elon Musk’s Co. which will arrive in the next 2-3 years it may have a premium but it’ll be ubiquitous Broadband with global coverage.

    What, you thought SpaceX was just for satellites and funding for Mars!

    😉

    https://www.starlink.com/

    • You are delusional. Any sane person with half a clue would take a fibre NBN or HFC connection any day of the week over satellite. Looking at the speed tests for Starlink the results are pretty uninspiring if you have the option of a good NBN connection but If you are connected to an NBN service that is steaming garbage then sure Starlink will be great.

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