National Bankruptcy Network

broadband

Some define bipartisanship as a situation where both the major parties team up to screw you. On that basis the National Broadband Network is the biggest example of bipartisanship in Australian history. It is also the biggest and the whitest of white elephants, so white that it’s blinding and blindingly obvious what an ill-thought out idea this is. And yet, it has emerged as one of the great brain-farts of the Rudd/Gillard era (together with “school halls” and “computers in schools”, and many others), the great “nation building” – or rather nation ruining – project, and worse still, it has been subsequently adopted by the Abbott/Turnbull team, where it continues into over-spend and eventual irrelevance.

Take, for example, this morning’s news:

Telstra has tested the world’s first Gigabit LTE mobile network capable of unprecedented mobile broadband speeds.

The new LTE technology — which stands for “Long Term Evolution” and is a term used to denote improvements in mobile broadband — means Telstra’s network will soon be capable of download speeds of up to one gigabit per second.At such speeds users could download a high definition movie on their phone in just a few minutes.In partnership with Netgear, chip maker Qualcomm and infrastructure provider Ericsson, the Telstra network will allow its customers to receive downloads speeds of up to 1Gpbs and upload speeds of 150Mbps over its 4G network.By comparison, the top home broadband packages currently offered by the NBN reach speeds of up to 100Mbps, about one tenth of the peak speeds Telstra says its new mobile network can achieve.

Sure, it’s early days and a 5G network will not be available for some time yet, but it’s yet more evidence to support what I’ve been saying all along for years now, namely that the NBN will be a dinosaur way before it’s even finished.

I’m old enough to remember when through the opposition years, 2007-13, we opposed the NBN before we supported it, and for all the right reasons that are still relevant today, such as:

  • what on Earth is a government doing being in the business of constructing, owning and managing telecommunication infrastructure in the 21st century?
  • it is too expensive to start with, and it will invariably run over-budget (do you remember that Kevin Rudd’s original NBN was supposed to cost “only” $5 billion? I do)
  • being a government project it will run way behind schedule
  • it will lock us today (2008-09) into a technology that will by the time of its completion (2020? if we’re lucky) be if not obsolete then certainly superseded by the fast-moving technological development in the field.

Not that I enjoy saying “I told you so” – OK, I do, a bit – but I told you so. Due to an accounting trick, the giant dinosaur that feeds on taxpayers’ money has actually been kept off the government books, since it was expected to eventually deliver a return. But it has already consumed tens of billions of dollars: “In 2013, the Coalition argued that Labor’s original all-fibre to the premises (FTTP) network could cost as much as A$94 billion. In the 2016 NBN Corporate plan the figure was revised down to A$74 billion to A$84 billion, while NBN Co’s multi technology mix (MTM), incorporating fibre to the node (FTTN) and upgraded hybrid fibre coax (HFC) was less costly, with a price tag of A$46 billion to A$56 billion.” Part of it is government outlays, part borrowing.

As Alan Kohler wrote last year in his mea culpa for initially supporting the project:

The NBN will end up costing $50 billion, of which $30bn is government equity and $20bn will be debt, still to be raised.

After about 2020, it will have eight million customers. At the moment the average access charge is $43 per month (versus Telstra’s $15 a month for ADSL, which is why TPG’s share price crashed).

By 2020, that $43 can perhaps be got up to $50, so $600 a year. Total revenue, therefore, of $4.8bn.

Telstra has to be paid about $2bn a year in rent for its pipes and ducts, and the cost of running the NBN and maintaining the network is expected to be about $1bn a year. Assuming interest on the debt of $800m (at 4 per cent), that leaves a net profit of $1.2bn, or 4 per cent return on equity of $30bn.

To sell the network, as it intends, the government would probably need to write it down by $20bn so the ROE is 10 per cent.

And even then it will be a hard sell because of the high wholesale access price that would have to be charged, and the likely competition by then from 5G wireless.

The business of government is not business. There are others out there who do it much better – and with their own money. I wish that all governments – both Labor and Liberal got that simple fact through their head. The dinosaur is still only half evolved but the asteroid is already streaking through the sky.

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