News, Telecommunications - Written by Renai LeMay on Thursday, October 4, 2012 9:51 - 127 Comments
NBN could cost $100bn, claims Hockey
news Shadow Treasurer Joe Hockey has claimed the National Broadband Network could cost as much as $100 billion to build, despite the company’s own estimates showing that it will require around $37 billion of capital injection from the Government and eventually make a return, paying back the investment with some profit on top.
In an interview with ABC Radio’s AM program yesterday, Hockey attacked the Government’s financial measures in a range of areas, and particularly with respect to its spending. “… we can’t trust the numbers that the Government is putting in the budget papers,” Hockey said. “Last year they said there was going to be a $22 billion deficit, it turned out to be a $44 billion deficit. There is not one contractor in Australia that believes the Government is going to roll out its National Broadband Network for $32 billion. Expectations are as high as $60 billion, $70 billion or even $100 billion for the National Broadband Network.”
Hockey’s claim is the second time in the past month that the Coalition has claimed that the NBN project could see a substantial blowout in its costs. In an article published on his website and on business media outlet Business Spectator, Shadow Communications Minister Malcolm Turnbull wrote on September 6 that he could not provide precise financial figures regarding the difference between the Coalition’s rival NBN policy and the Government’s existing project:
“I have been careful not to nominate a particular sum of money as the difference between what we would do and Labor’s current plan. For a start there is enormous scepticism that the NBN Co project can be completed within the cost and timeframe of their business plan. Several very experienced civil contractors and engineers have said to us recently that they think the actual build cost is likely to be $80 to $100 billion for example.”
Additionally, Turnbull pointed out that telecommunications consultant Cliff Gibson had estimated a similar amount industry newsletter Communications Day in May 2011, saying: “I do know that the two partner organisations that we work with would have put tens of millions of dollars worth of work in to put the bid together and our experience on this exercise, and the costing involved, would lead me to think that the cost of roll- ing out the optic fibre to 93% of the homes around Australia is going to cost between 60-80 billion.”
However, based on current evidence, it currently appears as if both Turnbull and Hockey are incorrect in their claims that the NBN project could end up costing up to $100 billion in total. NBN Co’s most recent corporate plan shows that the project will require overall capital expenditure of $37.4 billion in total, in the years until the network is scheduled to be completed in 2021. In that period, the organisation is projecting further operating expenditure of $26.4 billion, which will be largely offset by projected revenues of $23.1 billion.
NBN Co has already locked in construction contracts for much of the next half-decade in states and territories around Australia, as well as network equipment and other related contracts, giving it significant forward visibility in terms of its costs. In addition, the company has finalised its $11 billion agreement with Telstra and its $900 million deal with Optus, and it is also seeing more Australians take up higher-value NBN plans than it had been estimating, meaning that its revenue estimates may be conservative. Over a thirty year period, the company is planning to make a return of 7.1 percent to the Government on its capital needs – meaning it will make a long-term profit for the Government.
In comparison, the Coalition has consistently declined to provide detailed financial information relating to its own policy, which is currently based on fibre to the node technology, as opposed to the NBN’s fibre to the home rollout. Turnbull initially stated in mid-August that the Coalition had a fully-costed policy “ready” to be released, but later rescinded the statement, telling the ABC that the Coalition was not in a position to be able to fully cost its policy before the next Federal Election.
In a statement released yesterday, Communications Minister Stephen Conroy called on the two Coalition politicians to “stop misleading the Australian public” about the cost of the NBN. “The Government released the 2012-2015 NBN Co Corporate Plan provided by the NBN Co Board on 8 August. That plan stated the capital cost of the NBN will be $37.4 billion,” Conroy said. “Since then both Mr Hockey and Mr Turnbull have claimed that the cost could be as high as $100 billion. This is false and inaccurate.”
“The NBN Co Corporate Plan is informed by the agreement with Telstra and signed construction contracts. The Corporate Plan was prepared by the experienced executives of NBN Co, and was approved by the highly qualified independent NBN Co Board. Mr Hockey’s and Mr Turnbull’s outrageous claims effectively accuse the NBN Co executive and board of being negligent in their duty.”
“This is a disgraceful slur on NBN Co. They should apologise immediately and stop misleading the Australian public.”
The Opposition has made a number of other inaccurate statements about the NBN over the past few years which have been picked up by various segments of the media. Several months ago, speaking on Channel Ten’s Meet the Press program, Nationals Leader Warren Truss made a number of major factually inaccurate statements about the project, as detailed in this article by Delimiter at the time. In addition, Truss had previously made a number of inaccurate statements about the NBN over the past several months.
In June, for example, Shadow Treasurer Joe Hockey inaccurately claimed that 4G mobile broadband had the potential to be “far superior” to the fibre technology of the NBN. In mid-May, Opposition Leader Tony Abbott misrepresented the cost of connecting to the NBN, in comments which the Government claimed represented a deliberate attempt to mislead the Australian public on the issue. Turnbull similarly made a number of factually incorrect statements on the NBN throughout March, and in January Abbott got quite a few facts about the NBN wrong in a radio interview.
Conroy himself has from time to time made inaccurate statements about other projects in his portfolio. In February, for example, the Minister appeared to consciously tell a factual inaccuracy with respect to the current implementation status of Labor’s controversial Internet filtering project, stating that Telstra and Optus had implemented the mandatory filtering system, when they have only implemented a drastically reduced voluntary version.
There’s not really much to analyse here. NBN Co and Conroy have provided clear financial estimates for the NBN based on actual contracts which have been signed and actual customer take-up. In comparison, the Coalition has declined to provide the working for its own financial estimates. There just isn’t any evidence right now that what Turnbull and Hockey are saying is correct.
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