The NBN's D-Day: Dunkirk or Normandy?

Whether Malcolm Turnbull presses ahead with building the national broadband network he promised, or scales it back further to save money, the government must put an end to the confusion.

Today the review of the national broadband network will be published to the sound of happy outrage from the communications minister, who will try to keep a straight face as he solemnly declares it to be an official debacle.

And so it is. I don't know what the new official cost of building the NBN will be, but it will be a stupidly big number, which Malcolm Turnbull will attempt to tattoo on the forehead of his predecessor and his party. Stephen Conroy, meanwhile, will fervently dispute it, saying it is a political figment. But it will be a real number alright, calculated by the NBN itself, with help from Boston Consulting Group and KordaMentha.

Today's document might also outline the cost of a cutdown version recommended by the NBN Co itself, which will be interesting to compare with the Turnbull cutdown version that he took to the election. Will it also properly cost the Turnbull NBN? Perhaps not. They wouldn't want to embarrass him, and rain on the parade.

Presumably the various higher-cost options to be revealed today will all result in a lower return on investment than the meagre 7 per cent upon which the project was based and approved. Presumably, also, this return does not include the minister's desire, stated in the Coalition's election policy, to allow competition against the NBN, because that policy hasn't yet been implemented. Competition, if Turnbull goes ahead with allowing it, will further reduce the NBN Company's profitability.

As you read reports of today's NBN review, and the dust settles over the next few days, put yourself in Malcolm's shoes and think about his options. Here are the six options, as I see it:

1. Press on with the project as it is.

Least likely. The cost to be revealed today of the existing project will almost certainly be a very silly number. Also, about 260,000 houses have now been passed and the current run rate is between 4000 and 5000 houses passed per week. At this rate it will take 42 years, with no holidays, to meet the target of 93 per cent of homes passed by fibre. To meet a viable timetable it needs to get the rate to about 25,000 per week, a stupendous rate, and everything needs to go right – that is, no problems with councils, no Queensland householders guarding the porch with a loaded shotgun, and no mistakes. It can't go on.

2. Abandon the whole thing and sell what's been built so far on eBay.

Very tempting. This would be a political and legal nightmare, given that contracts have been signed and election promises made about continuing the rollout. Of course it could be pronounced a non-core promise (like manufacturing policy and education funding) and legal contracts can always be bought out, but apart from anything else, reports that Bill Morrow of Vodafone Australia is to be appointed NBN Co’s chief executive would suggest that it's not going to be abandoned.

3. Sell it to Telstra.

Even more tempting, except Telstra wouldn't touch it unless it was paid to, and even then… Also, one of the government's promises was to continue with the structural separation of Telstra by means of the NBN acquiring its wholesale business. Telstra would only take on the NBN if it could remain structurally unseparated, which would be greeted with howls, and possibly litigation, by the industry.

4. NBN Co buys the entire network and wholesale division of Telstra and offers a national ADSL 2 service.

Very sensible, but far too sensible to actually happen. NBN Co could start out with national wholesale ADSL, with staff and a billing system, and gradually replace it with fibre as it becomes commercially viable to do so. Trouble is it would amount to re-nationalising a privatised business, which would probably be indigestible for a conservative party, and it would cost a lot, so unlikely. Unless… the acquisition could be accompanied by a timetable to refloat it.

5. Change the NBN to fibre to the exchange (which is what the network is now) but use the current deal with Telstra.

Also sensible, and much more doable. It would simply be a national ADSL 2 network owned and operated by NBN Co instead of Telstra, which is paid under the existing deal to close it down. Clearly a viable option, and given the fact that the government baulked at coughing up a few hundred million to keep the car industry going, must be seen as very likely, if only to save money. 

6. Stick with fibre to the node and copper to the house, as described in the policy, even if it costs more than expected.

Still probably most likely, but only just (over scenario 5, above). Why? Because the NBN is a very seductive idea – a big hairy infrastructure project that would make a real difference to the nation. How many politicians get to leave that sort of thing behind? Stephen Conroy was certainly seduced by it, and Malcolm Turnbull managed to get Tony Abbott a little bit aroused by it too.

Today's review will detail what went wrong with the NBN, but it might not explain why. So I will have a go at it (bearing in mind that I have always been a paid-up, banner-holding member of the NBN cheer squad, and still am).

The NBN is neither a fully social infrastructure nor a fully commercial one. It is a bit of both, with neither function made fully transparent. As a result, it is a mess.

If it was built as government infrastructure for purely social good and/or market failure – as the original copper network was and the roads, public hospitals and state schools still are – then we might argue about the priorities (such as putting it ahead of more schools and hospitals, say), but it would be a basic political decision, and as such would be one of the things we get to vote on every three years. In that case the cost would be expensed and the resulting deficit funded by debt.

But of course that's not what happened. It was a social project made to look commercial so it could be funded away from the already red-coloured budget with a combination of equity and debt. The ROI of 7 per cent – less than half what would be required for a privately-funded project – was calculated as a commercial outcome and justified by the fact that it would also be a social good, without spelling out exactly what that was, and what it was worth.

The result, I suspect, is that the NBN Company has been confused. Is it a telecommunications business chasing maximum profit, or is it an arm of government building a national highway? Er, just shut up and get on with it, and don't even think about using anything but fibre.

And if there's one thing that's anathema to both good business and good politics, it's confusion.

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