opinion/analysis NBN Co, we hardly knew ye. Make no mistake: Tony Abbott’s new Coalition Government does not want to own a national broadband monopoly. The process of selling NBN Co to the private sector has already begun, and will be accelerated over the next several years.
There was a lovely moment at an event held by the National Broadband Network in Sydney several weeks ago which perfectly encapsulated the imminent future of the company.
The occasion was a type of event which NBN Co hadn’t held before, and which government business enterprises are not accustomed to holding: A financial results briefing session. Such events are typically held by public companies such as Telstra, Optus and iiNet at least every six months and often more frequently. A largish conference room in a ritzy Sydney hotel is booked, financial analysts and journalists are invited, coffee and danishes are served and executives drone on about EBITDA and talk about growth before being peppered with questions about how margins will be improved.
NBN Co hasn’t held such events in the past because it hasn’t needed to. It only has one shareholder — the Federal Government — and it has no requirement to disclose its detailed financial information to the public through briefings.
Then too, NBN Co’s financial performance has never been the key benchmark of its success. The only reason the company exists — in the eyes of the previous Labor administration and in the eyes of the public — is to deploy faster broadband around Australia. Its quarterly financial results are not especially relevant to that operational task, as they will necessarily be weighed down by the startup costs of the next decade of infrastructure investment. As such, little insight can be gained by analysing them.
Consequently, at NBN Co’s first financial results briefing at the Westin in Sydney, there was an aura of puzzlement around the room; an unspoken doubt about the event’s fundamental purpose. Analysts from respected firms such as Merrill Lynch and Macquarie listened to the same financial rhetoric from NBN Co’s finance chief Robin Payne as they would hear from other telco CFOs, and politely asked the same analytical questions about return on investment and market share, but with an aura of uncertainty as to whether the answers actually meant anything.
At the end of the briefing, its quizzical nature was put into words by one wag, who asked NBN Co executive chairman that his only question was: “When’s the float?” — referring to a public listing of NBN Co’s shares on the Australian Stock Exchange. The nervous laughter which greeted the question revealed many in the audience had been thinking precisely the same thing.
The truth is that NBN Co will not go public any time soon. As was starkly evident during its first financial briefing session, the company’s metrics currently mean little, bedevilled as the company is by a turgid political environment and stung on all sides by the slings and arrows of failed contractual relationships. It’s not quite clear just how much of a traditional “company” NBN Co is at the moment. Often its incessant internal bureaucracy and its necessity of swaying in the political wind makes it seem more like a government department, while its risky rollout approach sometimes reminds one that the four-year-old company is fundamentally still a startup.
Most of all, anyone seeking to invest in NBN Co must be conscious that the company’s ultimate fate can, and will, be changed every three years as a new government comes to power. And the market knows that anything too afflicted by the political sphere represents the ultimate in risky investments — more treacherous than the most hyped-up hedge fund.
However, that doesn’t mean that the Coalition won’t try to sell off chunks of NBN Co to the private sector as soon as possible.
In the Sydney Morning Herald this morning, Malcolm Maiden baldly lays out NBN Co’s future path of privatisation. The veteran commentator’s article is completely unattributed, unsourced and will be labelled ‘speculation’. But reading between the lines, it is easy to see that the piece is likely sourced directly from an off-the-record interview with incoming NBN Co chief executive Bill Morrow, as it contains details which only those close to Morrow would know.
To a finance-focused business analyst, Maiden’s projected path for NBN Co — in which the company’s satellite and wireless networks will be quickly sold off, its greenfields rollout capabilities handed back to the private sector, its staff headcount pared back and Telstra contracted to conduct a pilot Fibre to the Node rollout of some 200 nodes — will not be controversial at all, representing legitimate mechanisms of cutting costs and making the company’s business more efficient.
But to those of us who have other concerns in Australia’s telecommunications sector — such as the public interest or technical worries — these measures are nothing short of disturbing.
NBN Co was set up by the previous Labor administration as a wholesale-only national telco monopolist for one very simple reason: The need to remove the inherent and very damaging conflict of interest that resulted when previous governments failed to split the wholesale and retail operations of Australia’s national incumbent telco Telstra.
The only obvious candidates to buy NBN Co’s satellites and wireless networks are existing telcos like Telstra and Optus, which make most of their money from their retail businesses. They will not be incentivised to allow rivals such as iiNet and TPG equitable terms to use the same infrastructure.
Then too, although it is demonstrably necessary to get Telstra more involved in the NBN rollout from a construction point of view due to the failure of NBN Co’s existing model, warning alerts should be raised over any attempt by Telstra to convert its participation in early trials of FTTN deployments on its copper network into ownership or operation of that infrastructure down the track. Telstra must not be allowed to remain a vertically integrated incumbent telco in the next generation of fixed-line networks in Australia.
The idea of handing greenfields rollouts back to the private sector is also a dangerous one. The previous Labor Government handed responsibility for broadband rollouts in greenfields estates to NBN Co several years ago for the precise reason that the private sector was proving itself unable to handle the situation. Reversing that move just a couple of years down the track would cause chaos and, more to the point, may not actually work.
Nobody should be surprised that the Abbott administration doesn’t want to own NBN Co; I almost feel as though I will throw up if I hear Communications Minister Malcolm Turnbull trot out his analogy one more time about a traveller lost in Ireland on the way to Dublin as his reasoning for not having cancelled the whole shebang already.
Neither should we be surprised that the Government has already worked closely with Morrow on an exit strategy for large portions of the NBN; or that NBN Co’s finances are clearly being prepared for privatisation, or even that the public is being softly prepared for all this through background briefings with supportive Fairfax journalists. I am sure the next step will involve a more explicit explanation of the plan in The Australian newspaper.
However, we should be concerned.
Not only is the partial or full privatisation of NBN Co right now a bad idea, due both to competition issues as well as the company’s inherent immaturity, but the public doesn’t want it.
A survey taken just two months ago by Essential Media (was this a coincidence?) concluded that a total of 58 percent of Australians oppose privatising the National Broadband Network Company, around the same level as those opposing government-owned media groups the ABC and SBS.
These results weren’t a surprise — Australians have already been burnt by the privatisation of Telstra and the stagnation caused by its vertically integrated hold over the national telecommunications industry. Right now, Australians just want better broadband and they want it sooner. Most people probably view NBN Co like they view other trusted government organisations such as Australia Post, the ABC and SBS: As an essential public body which provides universal services that the private sector won’t.
But, of course it’s also true that the Abbott Government would love to offload the ABC and SBS to the private sector. The privatisation of Australia Post, along with others such as Medibank Private, is already being publicly canvassed, and Treasurer Joe Hockey has even reportedly made some Federal funding of State Governments contingent on privatisation there too.
We shouldn’t be surprised by the first hints of government plans to privatise NBN Co. It’s not the right thing to do, and now’s not the right time to do it. But it’s coming regardless.
The Abbott Government has gotten a lot right in some industries during its first few months in power, refusing to continue to subsidise unsustainable sectors such as car manufacturing and food processing. But you can’t take the same ideological approach to every market and expect the same results. Australia’s telecommunications sector needs a very ‘hands-on’ approach from the Federal Government right now — because the ‘hands-off’ approach has failed continuously for the past decade.