NBN Buzz is a weekly wrap up of everything that's going on with Australia's largest infrastructure project. For previous editions visit our NBN Buzz page.
The federal opposition had a bit to crow about this week with Tony Abbott promising to hamstring the NBN and shadow communications minister Malcolm Turnbull calling for an updated business plan from NBN Co. However, apart from the bluster there was very little in the way of an alternative, other than Abbott promising to take money out of fibre and put it into roads. The main flashpoint that revived the coalition’s nitpicking was the first significant public clash between Telstra and NBN Co since they signed the dotted line on their $11 billion deal. While it’s interesting to see the telco sing the same tune as its rivals with regards to NBN Co’s special access undertaking (SAU), what we have here is a whole lot of posturing by the telcos as the push to squeeze every last ounce of advantage before the NBN Co’s primacy is bedded down for good.
From fibre to road
Tony Abbott’s promise to turn back the clock on the NBN was part of a speech delivered at the National Press Club in Canberra, which outlined his vision for building a stronger economy and a stronger Australia. That plan involves cutting government spending and that includes rolling back a number of Labor initiatives like the computers in schools program and naturally, the NBN. According to Abbott, a "good government" wouldn't spend more than “$50 billion on the National Broadband Network that people don’t need and don’t want to pay more for.” This sound bite perfectly encapsulates Abbott’s understanding of the network, it’s too expensive and the money would be better spent tackling other pressing problems like traffic gridlock in our metros. The fact that he doesn’t see the NBN as a critical piece of nation building infrastructure, coupled with his argument that scuttling the NBN will free up the budget just compounds the blinkered view of the opposition.
As Delimiter’s Renai Lemay points out in his comprehensive piece, the coalition’s belief that the NBN, which is actively costing the government money on an ongoing basis, should be expensed as such just doesn’t hold up, simply because the NBN is expected to make a return on investment. According to NBN Co’s business case, the network will cost between $36.5 billion and $44.6 billion to build over the next ten years and is expected to make a return on investment (ROI) of between 5.3 per cent and 8.8 per cent. The federal government’s accounting on the NBN so far has received support and leaving the number crunching aside, the bottom line is that the government is pumping in real money into the network with the expectation of a return. Given the fact that NBN Co will be a wholesale monopoly and the deals with Telstra and Optus will deliver millions of customers there is a good chance of that. On top of that let’s not forget to factor in the potential benefits the network will deliver to existing and new businesses. Lemay also rightly points out that even if NBN Co makes a loss in the long term, that loss would not be anywhere near the billions that will be spent. It’s too early to tell how things will pan out and the opposition’s problem is that all we know its alternative will cost around $16.7 billion but there’s no word on any financial return on investment.
If the coalition is really serious about a better broadband and economic future for Australia it needs to remedy the kill at all costs approach because there is a way it can make the most of the current situation. The federal government’s NBN message has increasingly shifted towards selling the network as a critical piece of nation building, in other words NBN Co isn’t just a wholesale telecom services provider but also an infrastructure provider. While that’s not going to see the government revise NBN Co’s business plan it’s something the opposition could pay some attention to. A future coalition government could easily use the existing framework of the NBN to gain political mileage but the emphasis will need to shift from how much money it’s going cost to the benefits its going deliver. I suspect that elements within the coalition understand this but Abbott’s clearly not one of them.
Telstra’s public criticism of NBN Co’s pricing strategy and its financial targets generated quite a few headlines this week and for once the telco and its rivals seemed to be on the same side. The telco’s strongly worded response to NBN Co’s special access undertaking (SAU) highlighted concerns about NBN Co having too much control over pricing for new products and the fact that these price controls will be set in place for the next 30 years is also a problem. Telstra also argued that NBN Co's stated cost of capital of 8.6 per cent will lead to higher retail prices. The concerns are echoed by its rivals and the cost of capital argument, which is based on NBN Co’s promise to generate a seven per cent rate of return for the federal government, highlighting the balancing act that NBN Co and the government are engaged in.
The submission from Telstra and the other telcos is unlikely to make a lot of difference in how the ACCC rules on the SAU, because what we have here is some serious posturing from the telcos which are trying to extract the best possible deal on prices. It’s the sort of regulatory brinkmanship that is quite common in the telco game and it’s not surprising to see all the telcos indulging in it because even a small amendment can end up delivering hundreds of thousands of dollars in revenue or cost savings.
The telcos (iiNet, Internode) that have so far been under the shadow of Telstra are obviously not in a mood to enter a NBN Co monopoly without getting the best possible deal and in this case the same applies to Telstra. The good news for the telcos is that NBN Co is actually quite receptive to compromises and it's likely the telco will make good use of that as the NBN is rolled out. As for the junior telcos, their window of opportunity to extract the best possible advantage is slowly but surely coming to a close.
An expensive fibre upgrade
Moving to another more urgent problem for the NBN Co, ITNews reports that NBN co is refusing to reveal the details of the trial of a user-pays upgrade process initiated in Tasmania not that long ago. According to ITNews, eight Tasmanian residents set to receive wireless or satellite connections under the NBN requested quotes from NBN Co to be upgraded to a fibre line. Of those, only one resident accepted the quote, which is payable in four installments. What’s interesting is that NBN Co has knocked back ITNews’ request to find out just how expensive those instalments are, citing that the information could undermine future tender processes, reveal NBN Co's business model and commercial strategy and violate commercial confidentiality. In other words the four instalments are costing that one sole Tasmanian resident a pretty packet.
We got a hint of this from Mike Quigley last month when he told those protesting against the wireless towers in Victoria that it was going to be wireless or nothing. But iTNews raises some good points here, especially that NBN Co hasn’t developed any formal documentation for the way it generated the quotes given to the eight Tasmanian residents.
NBN truck springs a leak
Finally, communications minister Stephen Conroy is out and about spreading the NBN message to the public but the wet weather in Tasmania has proved a bit too much for the NBN truck to handle. The 23-tonne NBN Co truck began its trek around the Apple Isle in November and after visiting 23 communities has been halted in its tracks because of a manufacturing defect which is letting water seep into the interior. Given the electronics on board, taking the bus off the road was probably the right decision. But fear not , NBN Co has told ZDNet that it should be up and running by the end of this month.