Pipe Networks founder Bevan Slattery today delivered a ringing slap in the face to Communications Minister Stephen Conroy, predicting most of the promises around his flagship National Broadband Network initiative would fall flat, with the project to end up being a liability to Australia’s taxpayers.

Slattery has a great deal of expertise in laying out the fibre infrastructure that will be at the heart of the NBN — with partner Steve Baxter he founded fibre player Pipe Networks in 2001 and built it into a major, predominantly wholesale player, before selling the company to ISP TPG last year.

He told the Communications Day Summit in Sydney today there was one major issue with why the project would fail — what he described as the fact that you couldn’t get a commercial return on investment for a project building a wholesale-only broadband network that would reach 90 percent of the population.

“I firmly believe you can’t get a commercial return on this infrastructure,” he said. “Don’t play cute, don’t spin, don’t bullshit.”

Slattery highlighted recent comments by NBN Co chief Mike Quigley that the NBN wouldn’t make a commercial return for 30 years — comments Quigley himself attempted to clarify in an earlier speech this morning.

“Trying to draw out a 30 year investment — that’s not a commercial return,” said Slattery, challenging the government to prove that it could make a better return from the NBN over the time period than it could by simply putting the $43 billion in the bank and collecting interest. This in turn meant the private sector would not invest in the project.

Slattery predicted many of the Government’s key promises about the NBN would not be met.

For example, he pointed out the cost of extending the NBN from 60 to 70 percent of the population (in the cities) to the promised 90 percent of the population would be the most expensive part of the rollout due to the final 20ish percent in regional areas — leading to the idea that the 90 percent figure would not be met.

He also pointed out the wholesale-only nature of the NBN — emphasized by by both Conroy and NBN Co chief Mike Quigley this morning — was already being questioned due to provisions in draft NBN legislation that left the door open for the NBN to provide retail services.

And the executive also predicted the Government might remain the 100 percent owner of NBN Co and be forced to stump up the whole amount required to build the NBN due to the lack of a firm investment return for the private sector.

There were three smaller problems that Slattery highlighted with the NBN project apart from the commercial return issue, although he noted all three could be addressed in theory and might even be in the process of being addressed currently.

Firstly, Slattery said, there was no business plan for the project. “If you have no business plan, you cannot go out and market this product — other than as vapour,” he said.

The executive also lambasted the project for what he said was a “massive problem with disclosure” in terms of the information about the project which is being put out to the industry. “The disclosure is woeful,” he said, claiming that the project had been less than forthcoming with information about areas such as end user prices, product sets, internal rate of financial return and what it will cost to maintain the NBN.

Finally, Slattery noted that the NBN project would need access to telecommunications ducts and overhead infrastructure – an issue that could be addressed through the Government and NBN Co’s ongoing negotiations with Telstra about how the telco could move its customers and infrastructure to the NBN platform.

Solutions
Slattery said there were three options that could be taken to redress the NBN’s problems.

The Government could cancel the project, he said, preserving taxpayer funds. “The spending that’s going on, without a business plan and … external oversight would cease. That’s a good thing,” he said. But that path, in reality, was not politically acceptable and would lose the positive momentum for change the NBN project has garnered, he said.

Secondly, Slattery said, the NBN project could continue regardless of its problems. In that case, he said, eventually the Government would be found to have misled the Australian taxpayer about the project not being able to obtain a commercial return.

Slattery labeled this option “economically irresponsible”, saying the reality of “the scale of taxpayer subsidy and burden” would hit “like a tsunami” against the tide of misplaced optimism in the NBN project.

The third option — which Slattery proposed as the best actual solution — was for a modified version of the NBN project to go forward, focusing on building out backbone connections and 3G mobile broadband to areas in regional Australia as a first stage to address those with the most problems currently getting reliable broadband.

Slattery said instead of building fibre to the home in cities, where residents already had access to two cable networks and ADSL2+ infrastructure, the NBN project should focus on what he called the backhaul and distribution networks to locations such as schools and hospitals.

“We definitely need to build to those in need first,” he said.

After this stage, which would have a real impact on end users within one to four years, Slattery said, the NBN focus could turn to fibre to residents’ homes.

“You’ll be surprised how much easier it will be able to negotiate with the incumbent if you build the core and distribution network first,” he said, referring to the Telstra negotiations.

Despite the claimed problems, Slattery acknowledged there were a number of positive aspects to the NBN project as it currently stood — notably the unified support for the project from the Government, community, industry and the “generational opportunity” to create leading communications infrastructure for the next century.

Then too, he acknowledged the technical capability built by NBN Co chief Mike Quigley at the fledgling company of 150 staff, which he referred to as “a bit of a brains trust up there in North Sydney”. Slattery said he hadn’t personally had that many dealings with NBN Co, but “my people tell me the guys at NBN Co have got their you-know-what together”.

“You don’t get that high at Alcatel if you’re a muppet, so he’s obviously a pretty good guy,” he said, referring to Quigley’s history at the French telecommunications vendor.

Image credit: Delimiter

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1. Warren Seen
   Posted 20/04/2010 at 1:10 pm | Permalink | Reply

   A business person’s definition of failure is quite different from that applied by politicians, as we are beginning to see with the NBN. Clearly there is a potential return for the people of Australia beyond recovering the cost of the asset itself.

   Nobody declares the national highway system a “failure” simply because it doesn’t pay for itself, yet it’s indisputably valuable, to the extent that people are calling for more money to be invested in parts of it. When our economy is as reliant on moving gigabytes of data as it is on moving cubic metres of freight, people will wonder what all the fuss was about.

   • Renai LeMay
     Posted 20/04/2010 at 2:25 pm | Permalink | Reply

     hi Warren,

     I take your point, but I think what Bevan was really getting at here was the idea that private investors are unlikely to invest in the NBN as it currently stands, and therefore the Govt will be forced to stump up the whole $43 billion cost.

     Does Australia want to spend $43 billion on building a broadband network, or is it better to proceed with smaller, more targeted broadband investments? That’s the question at the heart of this, for me.