Oh right he doesn't want to come here
But nonetheless seems to know much of what does.
I was wrong on NBN: It’s a turkey
The Australian
October 15, 2016
Alan Kohler
Editor-at-large, The Australian Business Review
Unhappily, Australia’s national broadband network is a white elephant and, to mix metaphors, an albatross around the nation’s neck.
I say this by way of mea culpa: your correspondent was an enthusiastic supporter of it in the early days. I thought the fibre-to-the-home plan was a piece of courageous and visionary policymaking all too rare in Australia, and booed what I thought was the Coalition’s penny-pinching, politically motivated decision to cut it back to fibre-to-the-node.
It’s now clear that my colleague Stephen Bartholomeusz was right all along: the thing is a dud, a donkey, a pasty pachyderm, and it would have been much worse if the original FTTH plan had gone ahead.
Bevan Slattery, a serial builder of fibre networks (PIPE Networks, which he sold to TPG Telecom, and now Superloop) threw a metaphorical glass of water in my face recently, when he said the NBN was “like watching a car crash in slow motion”.
“It’s going to be to the most expensive and least utilised broadband network in the developed world.”
TPG’s share price crashed from $12 to $8.50 after its results came out last month, and has since kept falling to below $8, because it has now dawned on the market for the first time how much more the NBN will cost in wholesale access charges than Telstra’s ADSL.
The numbers are simple, and inescapable.
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.
Is Slattery right that it will be the most expensive network in the developed world?
Not even close. According to a cost-of-living database published by a website called Numbeo, the most expensive broadband is in Ethiopia — $US197.71 per month.
Australia’s monthly price on this list is $US52.85, and based on the today’s NBN access price of $43 ($US32.25), it could still be that price with the NBN as network wholesaler — as long as it is only earning an ROE of 4 per cent.
The problem comes if, or rather when, the NBN has to earn a commercial return. To make an ROE of 10 per cent, the NBN Co would need to charge $73 per month, or $US55.
A reseller margin of 40 per cent would take the Australian retail broadband price to $US77, which is more than Cuba’s $US72.50, but less than Bolivia’s $US81. And it’s an awful lot more than Britain’s $US25.95, where broadband network construction has been left to (the private) British Telecom.
That’s why TPG’s share price is down 30 per cent: it will be lucky to get a margin of 10 per cent, and even then it will be vulnerable to competition from wireless.
What’s to be done? Nothing. As an NBN insider told me with a rueful shrug this week: “We are where we are.”
Sorry about that.
