Citi prices Turnbull broadband plan at $17b

Summary:Although Shadow Communications Minister Malcolm Turnbull has been mum on definite costs, Citigroup Global Markets estimates that the coalition's broadband plan would set Australian taxpayers back approximately $16.7 billion, and could be completed by the end of 2018.

Although Shadow Communications Minister Malcolm Turnbull has been mum on definite costs, Citigroup Global Markets estimates that the coalition's broadband plan would set Australian taxpayers back approximately $16.7 billion, and could be completed by the end of 2018.

In August, Turnbull revealed that should the coalition form government, it would halt construction of the National Broadband Network (NBN) and conduct a cost-benefit analysis to determine the best broadband model for Australia. This would likely lead to a policy of fibre to the node (FTTN) in many areas; fibre to the home in Greenfields sites, utilising Telstra and Optus' hybrid fibre-coaxial cables; and subsidising the costs of broadband in rural and remote areas. Telstra's wholesale and retail arms would also be structurally separated, creating a new "Network Co" that would be the wholesaler for FTTN network.

Since the announcement, Turnbull has yet to disclose how much he expects this policy would cost by comparison to the Federal Government's $35.9 billion NBN project. However, international financial organisation Citigroup has this week released an equity analyst report on Telstra, assessing merits of the coalition policy and the likely financial impact on Telstra, and putting the cost at $16.7 billion.

The report, provided to ZDNet Australia, explains that based on the coalition estimation that the urban FTTN roll-out and HFC upgrades would cost $10 billion, the costs of deploying adequate broadband to regional areas would bring the total cost of the project to $16.7 billion, $19 billion less in capital expenditure than the NBN.

This was broken down into $6.1 billion for FTTN, $3.3 billion for fixed wireless in regional areas, $4.7 billion for greenfields FTTH and $2.7 billion in overheads. Following the six-month cost-benefit analysis after the 2013 election, Citigroup estimates that it would take two years to the end of 2015 for the coalition to renegotiate the definitive agreement with Telstra, negotiate a new separation deal and renegotiate the HFC deals with both Telstra and Optus. After this, it expects that the structural separation of Telstra would take three years, to the end of 2018.

While Turnbull could just contact NBN Co CEO Mike Quigley "and then just turn off the funding", there would be a number of hurdles to overcome to "shut down the NBN", Citigroup said, including:

  • Terminating contracts and facing the associated penalties
  • Selling the NBN fibre assets that are fragmented across the country
  • Cancelling planned roll-out locations and facing the potential backlash from residents in those areas
  • Re-writing Telstra structural separation legislation so that it is no longer tied to the NBN
  • Dealing with a hostile Senate controlled by the Greens.

The policy would also return the industry to tiered fixed-broadband pricing between regional areas and metropolitan areas of Australia, with companies favouring metro infrastructure roll-outs over regional roll-outs in order to make a return on investment. While Citi acknowledged that the coalition policy provided for subsidies for regional areas, it said it is concerned that the private sector would "continue to limit broadband development in regional areas".

The office for the shadow communications minister told ZDNet Australia that Citigroup had not consulted the coalition at all in the production of the report, and declined to comment.

Topics: NBN, Broadband, Telcos, Telstra

About

Armed with a degree in Computer Science and a Masters in Journalism, Josh keeps a close eye on the telecommunications industry, the National Broadband Network, and all the goings on in government IT.

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