NBN a dud and Telstra may end up buying it for a song, by Alan Kohler.
It turns out the NBN is a dud and will cost taxpayers a fortune in writedowns if, or rather when, it is sold. According to the NBN corporate plan, which the latest half-yearly result confirmed it was on track to meet, in 2020 revenue will be $5 billion and it will be still be bleeding $2.5bn a year cash.
Total equity from the government will be $29.5bn. Return on equity will never be more than 3 per cent. For a social enterprise funded by cheap sovereign debt that’s not OK, but a private buyer would need three or four times that return, which means the equity has to be brought down to a third of that level at most.
That means the NBN is only worth about $10bn, and at some point in the next few years the commonwealth will have to book a writedown of $20bn. …
And who would be the likely buyer of a national broadband network straight off the showroom floor, low kilometres, for a snip at $10bn? Telstra of course.
That’s because, we learned this week that the government is committed to paying Telstra $1bn a year for 35 years, indexed, in “duct rent”. Cancelling that cash stream could probably represent most, if not all, of the consideration. What’s more, that liability would be a prohibitive barrier to someone else buying the NBN.
We also learned that Telstra is facing a less than fabulous future as just an NBN reseller; how much better to go back to owning the network instead of just reselling it.
Except it’s required by law to be structurally separated, no longer an integrated wholesale/retail operator. That means Telstra would have to buy the NBN and immediately deterge it: shareholders would get back their monopoly, but in two bits.
And life would return to the comfortable certainties of the past: US content cartels distributing their stuff through a local monopoly, and everybody getting rich except us.
The NBN was always a dud. The initial idea of spending $50 billion for fast internet was always stupid. It works out at $5,000 per household. What household would voluntarily pay $5,000 for fast Internet a few years in the future? No one, which is why no one does it out of their own money.
Internet providers gradually provide better service, from the ongoing revenue of $100/month — which is what the NBN costs anyway. Well the future is here and our Internet provider is fast — somewhat over 100 megabits per second, as fast as the NBN, at the same cost, but no $5,000 up front fee. Viola! The $5,000 per household was unnecessary — the market did it anyway, more efficiently. And the NBN is still not available where we live.
Meanwhile wireless is making the NBN obsolete for many, before it is even half rolled out.
So why did Rudd and co. do it? Because they are always trying to find ways to inject government and socialism into the economy, of making government relevant, with big schemes. It excites them. Too bad they are clueless about how the world actually works, and fail to listen to advice — it was pointed out at the time what a waste of time the NBN was. They probably didn’t even understand.
Here’s a clue it was dopey: paying Telstra billions not to compete with it. Good ideas don’t need massive government protection and buying off the competition.