Treasury backs NBN funding cap

Treasury backs NBN funding cap

Summary: Treasury has thrown its support behind the government capping off NBN Co investment at AU$29.5 billion, and opening up the network to infrastructure-based competition.

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The Department of Treasury has given its support to a cap in government investment in the National Broadband Network (NBN) project at AU$29.5 billion, and opening up infrastructure-based competition in competitive areas.

The funding figure was included as part of the Coalition's policy in the lead up to the last election, but speculation has been that NBN Co will require more to invest in the so-called multi-technology model NBN Co suggested as the way forward as part of its strategic review.

In Treasury's submission (PDF) published late last week to the government's cost-benefit analysis panel, the department said that the AU$29.5 billion in equity funding should be regarded as "fixed", and will only remain to be considered equity for NBN Co as long as there is a real return expected over the life of the project.

While Treasury said there should be at least one wholesale-only, open access fixed line provider across Australia, this should not prevent other companies from rolling out their own networks in places where it is cost effective for them to do so.

"It is important to note here that natural monopoly and competition are not mutually exclusive concepts. While it might be less costly for each geographic area to be served by a single network from society's perspective, it may nonetheless be profitable for firms to build duplicate infrastructure in certain low-cost geographies," Treasury said.

Treasury said that the government needs to not only consider the impact introducing infrastructure-based competition might have on the return for the NBN, but also the cost to consumers in low-cost areas where infrastructure-based competition has been banned.

In the event that competition was allowed, Treasury indicated that the result would see NBN Co facing a hit on its rate of return, with fewer customers in highly competitive areas to offset the cost of rolling out the network in high cost areas, meaning the prices for services on the NBN would either need to increase, or the cost of rolling out the network would need to be further subsidised by taxpayers.

But Treasury said that infrastructure-based competition should not be allowed during the building phase of the NBN, and the department encouraged the government to maintain the anti-cherry picking rules in the short term, and then reconsider the rules after the NBN has been completed.

It comes as TPG is moving ahead with plans to roll out fibre-to-the-basement services to 500,000 apartments and offices in the CBDs of Australia's largest capital cities. NBN Co has previously stated that the proposal could undermine the economics of the NBN project, and Communications Minister Malcolm Turnbull has indicated that the government's decision on whether to close the loophole TPG is exploiting will be based, in part, in the cost-benefit analysis panel's report due later this year.

Topics: NBN, Government, Government AU, Australia

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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5 comments
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  • Because it's worked so well in the past.

    Nuff said.
    Ramrunner-5dd3e
  • Given uptake of 50 & 100mbps connections, could self fund buildout

    Given the high uptake in Speeds that are not available on Copper, namely
    the 100 mbps is around 44% in areas, add in the 50 and 25 plans this income could self fund the final
    build out of the NBN. It could well self fund off income that a Copper network could never get.

    Add to that the income from 250,500 and 1000 mbps services and allow the 2488/1244 point to point
    service as soon as a connection is physically available, this network could easily be built from income after a certain point.

    That point is likely under $30 billion.

    So lets get to it and build the infrastructure we need. People are choosing speeds that copper
    does not provide, give the people choice in speeds up to 1000 mbps. If they know they are supporting
    it they will select even higher speeds and the average person may well go for 100 and those that
    want to stand out, will go 250 or higher. Short man syndrome could build the network.
    Munix-71809
  • True

    "It is important to note here that natural monopoly and competition are not mutually exclusive concepts."

    This is true. It's also economically inefficient...

    http://www.investopedia.com/terms/n/natural_monopoly.asp
    Tinman_au
  • If Treasury really means it, I actually agree

    As a vocal critic of the coalition costly and inferior dog's breakfast broadband, upon reading this headline I expected to disagree with Treasury on this.

    But I don't, for two reasons.

    First, the $29.5 billion cash limit. The only way to constrain the required cash injection from government is to build infrastructure that generates high revenues early, bringing forward the date at which the remaining construction can be done with commercial funding. Fibre to premises is the only technology that can generate high revenues, because it supports ALL levels of demand, from VoIP-only, through modest Web use, and offsite backup needs right up to home business two-way video and the lion share of the entertainment spend of large households.

    Only FTTP is able to generate sufficient wholesale revenue to meet a $29.5 billion public funding limit.

    Secondly, Treasury here advocates postponing all infrastructure competition until the public NBN rollout has been completed. This prevents telcos from white-anting the critical wholesale revenue stream from high-paying users in the most attractive geographic areas, and guarantees the cost-recovery and eventual cash-cow status of the NBN for public coffers.

    Treasury therefore mirrors the NBN Senate Committee recommendation of several years ago that any eventual decision to sell off the public fibre should be deferred until the NBN is substantially completed, in order to ensure public comprehension of the nature of what would be lost by privatising a cashflow-positive and customer-focussed piece of public infrastructure.

    So, for a pleasant change, I do support the letter of this Treasury proposal. However, I remain sceptical that there will be any consistent application of the above interpretation by Malcolm Turnbull, who seems determined to drive as much wealth and control as possible to Telstra for his own purposes, whatever they are.
    umbria
  • More than one monopoly

    Was fascinating reading the treasury report - at every opportunity they highlighted that NBN Co did not have to be the only monopoly provider and that different monopoly providers in different areas would be acceptable.

    Do not agree with there "boundaries" of the natural monopoly, and technically they need to be aware that the general consensus for the life of a Fibre network is probably around 30 years, not unlimited as they seem to assume.
    Rossyduck