news The Opposition has turned allegations of cost blowouts in the National Broadband Network project back on the Government, stating that the project’s continually falling financial return problem should be laid at Malcolm Turnbull’s door for his controversial Multi-Technology Mix.
Late last week, The Australian newspaper relied on a set of leaked documents from inside the Department of Finance to report that a switch back to a Fibre to the Premises model for the NBN would cost the Federal Government an extra $8.5 billion and potentially cause a wider Federal Budget black hole.
The newspaper reported (we recommend you click here for the full article) that it had obtained a set of internal documents put together by the Department of Finance that showed that the NBN was at risk under a revised Labor NBN strategy of seeing its Internal Rate of Return drop below 2.5 percent.
This could mean that some or all of the cost of the NBN would be placed back on the Federal Budget as an expense, rather than as a capital investment, as the NBN currently sits on the Budget. The Australian put the cost at $8.5 billion, but without publishing its calculations on the issue.
Regardless of what policy either Labor or the Coalition takes to the Federal Election, however, last week’s Budget also revealed that the NBN was in funding trouble either way, with the falling IRR making it unclear whether the project could successfully seek funding from the private sector to complete its rollout.
The Coalition has blamed the issues on Labor, but in a statement issued late last week, Shadow Communications Minister Jason Clare pushed the issue back the Government’s way.
In the statement, Clare pointed out that the NBN company had warned the Government in 2013 that switching to a Fibre to the Node model for the NBN would reduce revenue and the NBN project’s ultimate rate of return, in its incoming brief after the 2013 Election:
“As the FTTN Network provides lower speed and reliability of services, customers will be less likely to migrate to faster services and will likely not be able to migrate beyond the highest tier, best efforts service … this will likely result in lower Access Virtual Circuit (AVC) revenues, and reduce Connectivity Virtual Circuit (CVC) revenues as data volume growth may be reduced. The lower ARPU growth and resulting lower revenues may be the most significant financial consideration in generating the required financial return in NBN Co implementing the Coalition’s plan.”
Last week, Clare said Turnbull’s “arrogance and incompetence” in persisting with the ‘Multi-Technology Mix’ for the NBN, which includes FTTN, had cost taxpayers billions of dollars in returns on the NBN investment.
“Malcolm Turnbull recklessly ignored advice in 2013 that switching to his second rate copper NBN would damage the rate of return of this critical infrastructure project,” said Clare.
“Under Malcolm Turnbull’s disastrous stewardship of the NBN, the return to taxpayers on their investment has crashed from 7.1 to as low as 2.7 percent.”
“Malcolm Turnbull recklessly ignored [the NBN company’s] advice and went ahead with his second-rate NBN. Sure enough, evidence to the Senate Estimates Committee on Thursday night confirmed that the [average revenue per user] and revenue from FTTN is lower than from FTTP and the IRR for the project has now dropped to as low as 2.7 per cent.”
“As if this wasn’t enough, in only two years as Communications Minister Malcolm Turnbull almost doubled the cost and more than doubled the timeframe for rolling out his second rate NBN.”
“Malcolm Turnbull said he could build his second rate NBN for $29.5 billion and get it to all Australians by 2016. We now know it will cost up to $56 billion and take until 2020 to roll out,” said Clare.
“These cost blowouts and delays have compounded the lower returns to 2040 that result from Malcolm Turnbull’s second rate copper NBN. It will take a Labor Government to fix the mess Malcolm Turnbull has made of the NBN and improve the return to taxpayers.”
Opinion/analysis to follow.
Image credit: Parliamentary Broadcasting