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Turnbull States NBN Was A “Big Mistake” & May Never Make Profit

UPDATE –  Australian Prime Minister, Malcolm Turnbull, states setting up the NBN Co was “big mistake“,  affirming there was always a “reasonable question mark” whether the government-backed company would ever make a profit, and whether taxpayers would ever see a return.

Mr Turnbull has attacked Labor for the “calamitous train wreck of a project”, stating he had to “play the hand of cards” dealt, following former Prime Minister Kevin Rudd’s tenure.

He has attacked the former Labor government’s projection the NBN  would offer annual yields of 6% – 7%:

“It is enough to keep it on the government’s balance sheet, as a government asset, but it certainly is not a commercial return that the stock market would expect”.

Exorbitant Expenses

The NBN Co is seeking government protection from competition, fearing it will never make a profit, following the significant costs associated with the Labor government’s rollout plan.

In order to repay various government loans, and return the government’s investment through dividends, the NBN is required to turn a profit.

Reports state the NBN Co has expended more than $40,000/per house to connect various ‘hard to reach’ properties around the nation – including connection to a single Tasmanian house which has cost taxpayers $91,196.

Under a standard usage equation, the outlay will likely take 146 years to recoup through average user fees.

The data supportS a bid to revert measures back to the Rudd government’s initial target of 93% fibre to premises.

The Australian has released a list of the most costly connections delivered, under the Labor government’s all-fibre NBN policy:

(Source: The Australian – List of the most expensive NBN connections)

The Federal Government states that the NBN would have taken many more years to finish – whilst skyrocketing costs by billions of dollars – had it not changed its strategy to the cheaper, and slower fibre to the ‘node’ approach.

The NBN first began rolling out in regional areas, with reports stating Victoria’s Ballarat is ‘over-represented’ in Australia’s list of the most expensive connections [above].

Residents in Ballarat have since sued the NBN Co for $13 million, following allegations thousands of businesses and homes were damaged during the rollout of the fibre-to-the-premises process.

Critics of Labor’s fibre rollout use Ballarat as an example of the large added costs associated with the ALP’s approach.

By contrast, the ALP has critiqued the FTTN model, stating its connections are slower, whilst affirming that copper wires will need to be replaced some time in the future.

Speed arguments seem to be somewhat irrelevant, as reports state more than 80% of users are choosing to purchase the two slowest NBN speed packages – notching up to 25Mbps, which is notably less than the average 60Mbps delivered by FTTN connections.

Comparative costs are below:

  • fibre-to-the-premises connection = average cost $4403
  • fibre-to-the-node rollout = average cost $2174

The NBN Co is Losing Money – Requires Protection to Turn a Profit

Reports reveal the NBN Co is losing money – the company states unless it is protected from competition by ultrafast mobile broadband it will never stand to make a profit.

[Bill Morrow]

The company’s Chief Executive, Bill Morrow, has revealed that their “bet” could be a problem, ahead of Four Corner’s report on Monday night, detailing the state of affairs:

“We collect about $43 per month from retail service providers for each home they sell into. In order to recover costs we need $52”

“We, NBN and the board, are betting that future applications are going to bring more value into homes, that they are going to need more bandwidth or more data and that the retail service providers will pay us more”

“It’s a bet we’ve taken. If it doesn’t come together, we’ve got a problem”.

Mr Morrow spoke of the competition faced by the NBN Co from new ‘ultrafast’ 5G networks, which are established without connections to houses:

“Forget about 5G for a moment, even the antenna technology using 4G is a viable alternative to NBN where the towers are already up”

“Think about the NBN business model. The only reason we are able to get connections into those 2 million difficult-to-wire homes that are cost prohibitive is because we are taking margin from low-cost city areas. As soon as competitors eat into these margins through enhanced antenna technology, we’ve got a problem”.

In time, fixed-line competitors to the NBN will have to pay a levy of $7.09 a month, to subsidise delivery to these hard to reach households.

Mr Morrow states that the initial levy may not be sufficient, whilst conceding that a levy on mobile broadband could be unpopular:

“Things are going to have to happen. The government has two options: to regulate to protect this model, or to realise that the NBN won’t have the finances it thought and might require some off-budget monies to go in to make it happen”

“The problem is the levy excludes wireless, even where people never take the modem outside of the house,” Mr Morrow said. “It’s a threat that wasn’t envisaged by this government or the last when the business plans were put together”.

Mr Morrow states it is too early to tell how much of a subsidy the NBN Co could require, if it isn’t protected from competition.

In order to repay various government loans, and return the Australian government’s investment through dividends, the NBN is required to make a profit:

“I think government moves are going to be inevitable,” states Mr Morrow, “It all depends on how serious this competitive threat is, but being an old wireless guy I can guarantee you I would have had my team seriously looking at this”.

In April this year, TPG reportedly spent $1.3 billion on wireless spectrum, which was widely speculated to be a move towards mobile data.

Major players such as Telstra, Optus and Vodafone have substantial mobile data networks already.

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