news Communications Minister Malcolm Turnbull and his Parliamentary Secretary Paul Fletcher have, in the space of less than three months, given directly contradictory statements on whether the Federal Government may sell off NBN Co’s nascent satellite infrastructure in the near future.
NBN Co is currently building two major, brand new satellites with the assistance of Space Systems/Loral under a contract worth some $620 million. The company plans to launch the satellites in 2015 to provide high-speed broadband coverage to about three per cent of premises that fall outside the reach of the NBN’s planned fixed-line and fixed-wireless services. The locations include outback areas and Australia’s external territories such as Norfolk Island, Christmas Island, Macquarie Island and the Cocos Islands.
NBN Co’s contract forms part of a total investment of approximately $2 billion required to deliver the NBN Long Term Satellite Service (LTSS). Under the terms of the contract, SS/L will also provide associated telemetry, tracking and command systems for NBN Co’s LTSS. NBN Co also signed a separate contract with Optus in February this year for the company to provide tracking, telemetry and control services to the satellites.
The launch of the satellites is widely anticipated in Australia’s rural communities. Currently, many residents and businesses in those communities are being served by either existing satellite services from other companies, or through NBN Co’s existing satellite services, which it operates through renting capacity on existing Optus satellites. However, the interim NBN satellite service has already reached its capacity cap of 48,000-odd customers, meaning many other rural customers will need to wait until 2015 to get upgraded services.
In March, it was revealed that pure play satellite company NewSat had made an offer to buy NBN Co’s two satellites before they were even launched, as speculation swirled at that time about the potential privatisation of chunks of NBN Co’s infrastructure under the new Coalition Federal Government.
However, in a speech to the Communications Day Summit that month, Turnbull personally played down the potential to sell off the satellite infrastructure.
“The second important lesson is that the satellite and fixed wireless networks will likely be drags on the operating budget of the NBN Co, even after the initial capital expenditure period,” the Minister said at the time. “Although the NBN Co is exploring the possible feasibility of joint ventures – if, for instance, there are third-party assets which can assist in the build or management of the networks – there is virtually no possibility that the company will be able to offload any under-performing assets to the private sector.”
In early May, the Government further played down the potential for any sale as it released a review conducted by NBN Co into its satellite and wireless rollouts.
“While noting there was limited benefit to NBN Co pursuing any change to ownership arrangements, and increased risks to the programs in making such changes at the present stage of roll-out, the Review noted there were opportunities for discussion with industry regarding partnerships in the future,” said Turnbull at the time.
However, speaking to the Australasia Satellite Forum this week, Fletcher appeared to take an approach directly counter to Turnbull’s. Fletcher’s speech is available in full online in PDF format.
“The Coalition has consistently said that we will consider opportunities to realise value from the satellite contract by seeking private operators or owners for the NBN satellite service, if this enables price and service levels for regional consumers to be improved,” Fletcher said.
“The Review considered this approach – but did not recommend it at this point, although it said NBN Co should remain prepared to evaluate acquisition or partnership proposals from private industry on their merits. It also pointed out some other options including ways to commercialise any spare capacity on undersubscribed beams.”
“Of course the Review is giving the views of NBN Co. From a government perspective, we continue to be interested in the possibilities on this front if the issues raised in the Review can be overcome. One is that at this stage any potential purchaser would be taking on the launch risk, and would probably require a significant price discount to compensate.”
“While a successful launch would cure that problem, another problem is that the NBN satellite service loses money. Hence any private sector appetite is likely to depend on how much transponder capacity is not being used to serve the NBN customers, and hence could be monetised by a private sector operator.”
However, it is not clear that all of Fletcher’s statements regarding the potential sale of NBN Co’s satellite infrastructure are correct. As demonstrated in this article, the Coalition Government has not publicly canvassed selling off NBN Co’s satellite infrastructure, with Minister Turnbull actually taking the approach of playing down any potential sale.
The only party which has openly canvassed a sale is NewSat. In terms of the additional transponder capacity which Fletcher mentioned, the only party to have publicly discussed using NBN Co’s satellites for purposes not related to NBN Co’s services is NewSat.
In general, Fletcher used his speech to the forum to heavily criticise Labor’s history regulating the satellite sector, including problems with NBN Co’s interim satellite service which were well-documented in the company’s review. However, the Liberal MP did not explicitly acknowledge the fact that the Coalition’s pre-election stance on satellite broadband in Australia was largely inaccurate.
Throughout 2012, for instance, as Shadow Communications Minister, Turnbull strongly criticised Labor’s policy decision to service a small portion of Australia’s population through launching several new satellites. At the time, Turnbull claimed NBN Co could obtain sufficient satellite coverage through leasing space on existing commercial satellites. However, Turnbull was shortly proven incorrect, with NBN Co’s Interim Satellite Service, which uses existing commercial satellites, quickly running out of capacity.
Turnbull’s claims that the satellite project had inappropriately gone ahead with plans to launch two satellites over Australia without securing the necessary orbital slots first were also knocked back by the organisation responsible for adjudicating satellite positioning issues, United Nations agency the International Telecommunications Union.
What an incredible situation we have here. A sitting Communications Minister is actively playing down, in public, the possibility of NBN Co privatising its satellites. At the same time, we have his Parliamentary Secretary actively playing up the possibility, also in public. As I’ve mentioned before, the Coalition’s current approach to running NBN Co is incredibly chaotic.
I will say this loud and clear so that the politicians can understand: As NBN Co’s Satellite and Wireless Review found, NBN Co’s satellites are not yet good candidates for privatisation.
Typically governments would get a benefit from privatising infrastructure where that infrastructure has been built and has been fully operational for a while. This process allows governments to see where inefficiencies lie in assets that they own; inefficiencies that could be remediated under private sector ownership. Having infrastructure operational for a while also allows governments to get a solid idea of the financials of that infrastructure. You don’t want to privatise a company which will end up making its new owners a loss. Or, more correctly, as Turnbull already pointed out regarding NBN Co’s satellite infrastructure: Nobody would buy it.
I suspect what the actual situation is here is that the Coalition would love to offload NBN Co’s satellite infrastructure, and that Fletcher has been personally included in some discussions with NewSat at least and potentially others (hence his transponder mention — straight from NewSat’s playbook), but that wiser heads have prevailed and pointed out that any such sale would not have any demonstrably good result.
It should be obvious to everyone that selling off satellites which haven’t even been launched yet would not deliver the Government good value for money. And, most importantly, it would not serve the public interest of getting better broadband to rural Australia as quickly and cost-effectively as possible. All it would do, as anyone but the bumbling Fletcher is aware, is muddy the NBN waters pointlessly.
Image credit: Office of Malcolm Turnbull