news Pure play satellite company NewSat has made an offer to the buy the National Broadband Network Company’s two satellites before they are even launched, as speculation continues to swirl around the potential privatisation of chunks of NBN Co’s infrastructure under the new Coalition Federal Government.
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.
Simultaneously, while development of its satellite services goes on, NBN Co is also conducting a review of the future of the satellite and fixed wireless portions of its planned network. Yesterday, Sydney Morning Herald journalist Malcolm Maiden reported that new NBN Co chief executive Bill Morrow would seek to sell the networks to the private sector as soon as possible.
In a submission to the Federal Government’s Panel of Experts conducting a cost/benefit analysis of broadband and associated regulation (the Vertigan Review), published this week, existing satellite player NewSat made a bald offer to buy the infrastructure (PDF).
The company bills itself as Australia’s largest pure-play satellite communications company. NewSat specialises in global satellite communications and provides tailored teleport, VSAT and satellite services to 75 percent of the earth’s surface from its two teleports in Adelaide and Perth. The company has established a strong presence in the mining, oil and gas, telecommunications, government and military markets. The company also claims to have a strong relationship with most satellite operators offering services into Australia and our region from the 23 large antennas in the company’s teleports, and is also currently planning to launch two new satellites, Jabiru-1 and Jabiru-2, in the near future.
In its submission, NewSat wrote that it agreed the NBN satellites should be privatised. “To this end, NewSat lodged a proposal with the Government prior to Christmas to purchase the NBN satellites from NBN Co and to operate them as a wholesale service provider to NBN Co,” the company wrote.
“The NewSat proposal envisages the NBN Co paying a fee for the wholesale service for the life of the satellites plus one renewal. The fee must be guaranteed and must enable the purchaser to service debt and return a profit on the service in order for the business case to be sustainable.”
“Because the NBN Co is constrained to offer remotely disadvantaged NBN users a service at a comparable price to urban fibre users, the business case for providing the service is not sustainable based on the expectation of 3% of the user population. Therefore, with or without privatisation, the satellite service will have to be subsidised by NBN Co.”
“NewSat contends that privatisation will benefit the NBN Co by dramatically reducing debt and de-risking the provision of the service by introducing an experienced, efficient quality service provider. It is anticipated that this would also result in a significant reduction in staffing required by NBN Co.
NewSat believes that this type of agreement, subsidising specified services for a defined target population should underpin the sale and operation of the NBN satellite assets and service provision.”
NewSat added in its submission that it believed there was scope for any successful purchaser of NBN Co’s satellites to use the infrastructure to offer services beyond the subsidised services, provided that the provision of the subsidised services at agreed service levels was always the priority. “These should be offered by the purchaser of the satellites as commercial satellite products and should not be subsidised services,” the company said.
If the satellites weren’t sold, NewSat noted that it “strongly opposes” extending the range of satellite services offered by NBN Co to include enterprise users, particularly if the pricing of the services is fixed by a regulator and could benefit from subsidies. “This will run a real danger of negatively impacting the commercial satellite marketplace through artificially fixing prices and through dumping subsidised satellite capacity into an already competitive marketplace,” the company wrote.
Do I think NBN Co’s satellites should be sold before they are even built? No. Let the company build this infrastructure and get it fully operational. Then let NBN Co consider privatising it. Privatisation of partially built infrastructure, with no customers and the associated IT systems not completely set up, would be a recipe for disaster, particularly for end user customers caught in the flotsam of a sale, and would probably not deliver full value for NBN Co. It doesn’t represent standard practice for this kind of sale.
If NBN Co were to privatise its satellites, I think it would be much more likely in any case to sell the infrastructure to Optus, and not NewSat. Optus already manages NBN Co’s interim satellite service and will manage the new birds as well. Plus, there is no doubt that Optus has bigger pockets than NewSat and much more to lose, as it’s currently the dominant player in Australia’s satellite market (you may remember that Optus was actually formed originally from the government-owned AUSSAT group back in the 1980’s).
The only problem with this is that a sale to Optus would make Optus a vertically integrated satellite operator … and NBN Co is supposed to be a wholesale-only player. Decisions, decisions. So many decisions for the new Coalition Government.
Image credit: NBN Co