News, Telecommunications - Written by Renai LeMay on Friday, January 25, 2013 14:09 - 141 Comments
Turnbull loose with facts on NBN finances
news Shadow Communications Minister Malcolm Turnbull has inaccurately claimed that the Federal Government is wasting tens of billions of dollars building its National Broadband Network project, despite the fact that the organisation’s business plan shows it will actually make a modest return on investment for the Government.
In an interview with ABC 702 radio this morning (the transcript is available on Turnbull’s site), Turnbull stated that the Federal Government was “spending a stupendous amount of money” on building the NBN. The NBN infrastructure will primarily be composed of fibre to the premises cables to most of the population, but a small percentage of Australians will connect using satellite or wireless solutions.
“… the subsidies there run into the tens of billions of dollars – the value of the network once completed will be a fraction of what the government is spending on it,” Turnbull told host Linda Mottram. “So they’re spending tens of billions of dollars on subsidising fixed line broadband to your home”.
The refrain that the Government is over-spending on the NBN is one that Turnbull and other members of the Opposition have made repeatedly over the past several years, with Turnbull in particular favouring a more modest network construction build based on Fibre to the Node technology, rather than the fully-fledged Fibre to the Premise model of the NBN. However, there is substantial evidence that Turnbull is incorrect in his assertion that the government is throwing money away when it comes to the NBN.
This is because the NBN project is currently projected to actually make a long-term financial return on the Government’s investment in the project over the long term through the year 2033. In its 2010 corporate plan (PDF), NBN Co forecast this amount to be between 5.3 percent and 8.8 percent — from $1.93 billion in the worst case to $3.92 billion in the best case. This means that eventually the NBN will make money for the Government rather than cost it — including returning its original investment.
In NBN Co’s most recent corporate plan released in August 2012, NBN Co firmed that figure at 7.1 percent. The project as a whole is slated to cost $37.4 billion in capital expenditure to construct, with an additional $26.4 billion to be spent on operating expenditure through to the year 2021 when the project is slated to be completed construction. However, NBN Co is also projecting revenues of $23.1 billion over that period, and through the decade after that period it is projecting that it will recoup the Government’s investment in the project and make a return on the investment of 7.1 percent.
After that period, NBN Co as a whole will also remain as a positive asset on the government’s books. It is expected that the Government will eventually sell off at least part of the company in a similar fashion as it did Telstra, which was also a former government-owned telecommunications monopoly. It’s unclear how much NBN Co would be worth at that point, but at a certain point in the next several decades, the company should have repaid its obligations to the Government and be making substantial revenues and profits of its own.
Turnbull also appeared to be somewhat misleading in another portion of the interview with the ABC, in which he stated that the Coalition would “complete the NBN” if elected, and “complete it much sooner than the Government would and at much less cost”.
Under the Coalition’s current telecommunications policy as publicised through several speeches and media releases Turnbull has made over the past several years, the Coalition would retain much of the structure of the current NBN project, but focus on using fibre to node technology rather than fibre to the premise.
Because this model differs markedly from Labor’s FTTP NBN build, there exists significant debate in the telecommunications industry as to whether the Coalition could be said to be “completing” the NBN, as it uses a completely different technology than under the Labor plan. It is possible that the Coalition’s FTTN build could be upgraded later to support FTTP infrastructure, but Turnbull has not committed to this kind of upgrade.
In addition, the Coalition has not yet released the financial details of its own rival NBN policy. An analysis by Citigroup published in November 2011 found that the Coalition’s policy would cost $16.7 billion. In addition, unlike the Government’s NBN plan, the Citigroup report didn’t mention what financial return, if any, the Coalition’s proposal was slated to bring in on its own investment, meaning that there is a possibility it may not make a profit and may instead cost the Government money.
We’ve been through this before. Current analysis shows that the NBN will not cost the Government money; it will make the Government money in the long term. Current NBN uptake shows higher than expected demand for the NBN and for higher speeds on the NBN, meaning that the NBN will very likely pay for itself sooner than expected.
In comparison, the Coalition has not released any financial details of its own proposal; not what it will cost, whether it will make a return on investment or how the Government’s current NBN project would be modified under a Coalition Government. Turnbull’s statements are just not verifiable at this point.
Malcolm Turnbull may hold the opinion that the Government’s financial analysis of NBN Co’s economics and future return on investment is flawed. He wouldn’t be the only one, although it’s not the mainstream opinion. But if so, the onus is on the Shadow Communications Minister to provide evidence that this is the case; and not just sound bites. We’re talking about a national telecommunications policy which will guide Australia’s broadband needs for the next half-century. We need more than pithy quotes from the Member for Wentworth in order to make decisions about the future of that project; we need hard data. The Government and NBN Co has provided that hard data (with a few exceptions). Let Turnbull and the Coalition do the same.
Image credit: Office of Malcolm Turnbull
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