In my original post about the NBN I put forward the open ended question as to whether or not the country could afford this particular network at this moment in time. That post generated more debate and comments than I ever imagined it would. There were some very interesting points of view on both sides of the debate and I’m glad that I posted it during the election because I think that’s a great time for voters to feverishly debate the big issues.
In a post after the election I tried to make some sense of where things stood. I do firmly believe that the majority of Australians want some form of National Broadband Network and I used that to try and formulate some kind of middle ground strategy that took some of the cost away from government and allowed the private sector and the users to underwrite much of the cash outlay. The response to this post didn’t really surprise me, people who thought it was rational said nothing and those who just want government handouts continued to press for a heavily government funded network.
Now that we have a government and the backroom deals are starting to come to light, its time to revisit the NBN. After listening to Tony Windsor, Rob Oakeshott, Julia Gillard and Stephen Conroy all speak about the future of the NBN, I now believe the country has a big problem on its hands. For me, there are three specific points that concern me:
- First of all, each of the aforementioned parties seem to agree that what’s been negotiated is a situation where the network will be rolled-out first to regional areas of Australia;
- The second red flag came from Stephen Conroy who said that the government would now need to sit down with the NBN Co and work out a new roll-out plan and schedule; and,
- Thirdly, wholesale price parity has been agreed to.
All along, the Labor government has been completely unwilling to deliver to the anyone a proper business plan for the NBN. It has said that the network would make a return on investment in a relatively short period of time and that it has provisioned enough in the budgets to deliver the network. The problem with this new deal is that no matter how you look at it, the core fundamental business plan has now been significantly altered for the NBN to the point where an entirely new business plan must be created.
The original plan obviously had the NBN Co rolling out fibre to the major metropolitan areas first because that’s the cheapest and easiest element of the project. By rolling out to the major metropolitan areas first, you get considerably more revenue quicker which would then be used to partially offset the capital cost of the continued roll-out.
We now have a situation where the more expensive parts of the roll-out, the regional areas with a blend of wireless, satellite and fibre (much of which hasn’t yet been designed) is going to be pushed forward. So as a result, more of the cost will be front-end loaded into the project and much of the cheap, urban revenue is being pushed back. You don’t need an MBA to work out that this can’t be good for the bottom line of the NBN Co as a business. Simply put, the government will need to borrow more money up front to pay for this part of the project.
The other side of the cost coin is revenue. By delaying the urban deployments the NBN Co is also going to be forgoing its cheapest (and therefore most lucrative) revenue. This is compounded by the fact that the government seems to have decided that the NBN Co will operate a flat rate wholesale model between the country areas and the city areas. This means one of two things: one, revenue will be EVEN lower in the rural areas (compounding the cost vs revenue problem) than budgeted originally, or two, the rural areas will pay what they were originally going to be charged and urban users will simply pay more.
The financial net result of this deal with Windsor and Oakeshott not only must impact the bottom line of the NBN Co, but the country as a whole. You can’t simply borrow more money and take less in and it not have an impact, especially when we’re talking about tens of billions of dollars per year. While I appreciate and concur with the view of Phil Sykes of NextGen that the NBN will come in cheaper than budgeted, it still doesn’t change the overall economics of the delivery.
Having talked about the revenue hole, the front-loaded costs and the wholesale pricing, the last piece of this thing that concerns me is something Senator Conroy said. The Senator said that the government was going to have to now sit down with the NBN Co and work out a new roll-out schedule to suit the new rural prioritisation. This just flat out is a worry. Mike Quigley was put in the role of CEO of NBN Co without much diligence because he was “the best person”. Quigley went out and hired a crack team of people to design and run this NBN project and now, you’re going to have a bunch of politicians overruling them because of back room deals? If these people are THAT good, they simply won’t accept being the puppets of the government and will no doubt stand by their work to date as the best plan for the overall network. Furthermore, how open has this now become to politics? You can bet your bottom dollar that Lyne and New England electorates get their NBN rollouts before any LNP seats do.
Rob Oakeshott ran around for 17 days spouting off about transparency. In his long-winded speech about backing Labor he dropped the bombshell that as part of this whole process he’s been offered an “executive role” in government. Which means more money for him personally and his office (which makes it easier to get re-elected). He wouldn’t then tell us what role he was offered. Clearly there’s been a deal done with the people over the NBN, if Oakeshott and Windsor are men of their word, then before any further NBN work is done, a completely re-costed business plan (including design and roll-out plans) should be made publicly available.
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