Building Australia’s white elephant – cheap buy for white knight Telstra

Tony Abbott gave Malcolm Turnbull instructions to undermine the NBN. As Minister for Communications it is apparent that that is what Turnbull did. As Prime Minister he could have reversed the damage to NBN. But he chose not to. In the following blog published by Paul Budde, he points out that both Infrastructure Australia and PwC  express major concerns about the value of the investment in the NBN if at some time in the future the Australian government decides to sell it. 

See comments by Paul Budde below.

John Menadue.

 

Both Infrastructure Australia and PriceWaterhouseCoopers (PwC) have now weighed into the NBN debate.

They have looked at the value of the NBN in relation to the future sale of the company.

The eventual privatisation of the NBN is one of the few areas on which both sides of politics agree. That being the case then it would be prudent to build an NBN that maintains its value and will fetch a good price. Let’s say that it should at least cover the costs of the project at the time a sale is being considered. Because of the national interest it could be argued that simply covering the cost would be sufficient.

However building a potential white elephant in the form of the multi-technology mix is certainly not going to deliver on this. There is global consensus that eventually the majority of the national fixed telecoms networks will need to be based on FttH. In Australia the NBN company is not building such a future-proof network – quite the reverse – it is using out-of-date technologies with no plan as to how to move on from this version to a robust network fit for Australia’s interconnected economy. Those who eventually might buy the NBN will have to make a massive investment in getting rid of the MtM and replacing it with FttH, not something many potential buyers will be interested in.

In a recent assessment of the NBN, Infrastructure Australia also addressed, among other things, the potential sale of the NBN; and in order to prepare themselves for such a sale they stated: ‘To prepare for a future sale, it will be important that NBN Co does not “enmesh” different technologies in a way that cannot be separated later.’

But that is exactly what the NBN company is building – a mesh NBN, even named by the government as such, a multi-technolgy mix (MtM).

Neither the NBN company nor the government have revealed any plans on how they envisage moving the NBN beyond this technology mesh (or mess).

When the original NBN was developed all of the elements that made up the plan made sense: a superior FttH network, Telstra moving out of the infrastructure business, wholesale-only structure and so on.

With a superior FttH in place, all parties involved would benefit. Consumers and businesses would get superior services, telcos and ISPs would not have to invest in duplicating or overbuilding infrastructure (if you skip to a superior technology duplication would not be economically viable) and the government would build a good foundation for the Australian economy and society – a true national interest infrastructure for healthcare, education, government services, business, entertainment and so on.

Since Tony Abbott’s plans to demolish the NBN, and Malcolm Turnbull’s subsequent second-rate proposal, we have warned that if you start to change the key principles of the NBN the whole venture will collapse like a house of cards.

We are now getting a second-rate network and the first signs from customers, as we heard in a recent Senate Hearing, are not good. This is in line with our assessment. An MtM network, by its very nature a mesh network, will not be able to deliver consistently good quality services to all customers. Telcos and ISPs are not happy with the second-rate system and want to bypass the NBN with their own fibre and mobile services. And there has been dead silence from the government on the potential economic role the NBN has in relation to innovation, healthcare, education and so on. Belatedly the NBN company is now arguing that the NBN debate should move from politics and focus on what we, as a nation, want from it.

From 2005 onwards I have time and again stated to both sides of government that before you technically design the NBN you will first of all need to have a plan for what you want to achieve with it. Only then can engineers come up with the right technical solutions.

The white elephant scenario that the government is now pursuing will see the NBN fail, as it is not future-proof and consumers and businesses will want a better network. In other words, large parts of the $50 billion+ investment in the NBN will not be valued by the market at the time of sale – that is if the government relentlessly and single-mindedly pursues its MtM NBN.

This is where the report from PwC kicks in, they stated that the value of the NBN, once ready somewhere around 2025, will not be worth more than $27 billion.

We believe that there will be only one potential buyer for the mesh/mess NBN and that will be Telstra, one of the most successful and richest national telcos in the world. They will never pay the full price for the NBN and because of the NBN mesh it is highly unlikely that any other company will pay such a price for the infrastructure. It is even questionable if they will be willing to pay the price of around the $27 billion price tag.

So it will end up in a fire sale and because of its wealthy and powerful position Telstra will be the white knight. It might pay a bit above the fire sale price and incorporate whatever it can use into an FttH network that it will then proceed to build for Australia.

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