NBN could repeat Aussat failure

NBN could repeat Aussat failure

Summary: Analysis from the Royal Bank of Scotland has likened the investment in the National Broadband Network to a satellite network the government invested in during the 80s, which former Prime Minister Paul Keating once described as a billion dollar piece of "space junk".

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Analysis from the Royal Bank of Scotland has likened the investment in the National Broadband Network to a satellite network the government invested in during the 80s, which former Prime Minister Paul Keating once described as a billion dollar piece of "space junk".

Aussat

(We Get Signal image by Thristian, CC2.0)

RBS analyst Ian Martin detailed similarities between the satellite investment Aussat and the National Broadband Network: both had a national roll-out plan; both saw government money invested and were presented as inspirational investments; both serviced high growth markets and paving the way for change; both had high start-up costs.

Like the National Broadband Network, considerations of protection also came into play with Aussat, and the government fully expected it to become a commercial, tax-paying enterprise, Martin said.

Yet by 1990/91, the company had cumulative losses of $152 million by late 1991 when it was sold, Martin said. The main issue according to Martin was debt financing, which had reached $800 million by 1991 as interest rates were hitting record highs. All up, by the time it had sold the project to Optus, the government had lost around $1 billion in debt and equity from its investment, Martin said.

Martin put the loss down to misplaced optimism around a game changing technology. The industry which was supposed to have sprung up around the network did not, something he considered all together possible for the National Broadband Network.

The high start-up costs, high financing costs, disappointing revenue costs and restrictions around the network's allowable commercial activities which dogged Aussat would all also be risks for the new broadband network, he considered.

Optus general manager of regulatory Andrew Sheridan said that the argument was an interesting intellectual exercise, but that the circumstances were very, very different. Broadband was a very different prospect than the broadcast services, he believed, pointing to its growth and that it wasn't a project unique to Australia, as other nations tackled a broadband network too.

IDC telecommunications analyst David Cannon also said Aussat and the National Broadband Network were technically very different. Yet he agreed that it was possible the National Broadband Network could also become a loss leader which the network builder would want to get rid of as soon as possible.

He believed the business case was key: the builder needed to offer a service equal to that on Telstra's HFC (Hybrid Fibre Coaxial) network but for a lower price.

"In order to protect the business model you've got to make legislative changes," he said. "Those legislative changes will be fairly extreme." They would go against democratic and capitalist values, he said.

Martin had detailed which changes he thought were necessary, including legislation for protection of the NBN builder's investment; possible legislation to separate Telstra; a declaration by the ACCC for shared duct and trench access; legislation to override state, territory and council regulations over planning and heritage; as well as legislative change to allow sub-loop unbundling of all lines at the pillar. He believed Telstra could claim compensation for some of the changes.

It wasn't going to be easy, Cannon agreed, with Telstra likely to fight tooth and nail, but he believed broadband was a social issue, and that the network had to be attempted if it wasn't going to be held for ransom as it was when Telstra delayed turning on its ADSL2+ enabled exchanges.

"There are risks understandably as with any investment," Optus' Sheridan said.

Topics: Broadband, Government AU, NBN

Suzanne Tindal

About Suzanne Tindal

Suzanne Tindal cut her teeth at ZDNet.com.au as the site's telecommunications reporter, a role that saw her break some of the biggest stories associated with the National Broadband Network process. She then turned her attention to all matters in government and corporate ICT circles. Now she's taking on the whole gamut as news editor for the site.

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16 comments
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  • NBN

    This is some very strong regulation being talked about and from Conroy's comments It looks as though this is the sort of path they want to go down. Tthey will win at both ends, They sold Telstra and made 40 billion dollars in the process and now they can further undermine Telstra by effectively removing the assets Telstra bought for the 40 billion dollars.
    anonymous
  • Royal Bank of Scotland? More like Royal Joke

    I'm sorry, but I just can't take seriously any analysis from a bank that recently reported a 24 BILLION pound loss. Surely the mob at RBS need to spend a little more time analysing the mess they're in right now?

    Yes, the NBN is a risky and costly enterprise. But it is one that can yield great benefits to the Australian economy and is one of vital national importance. The government isn't undermining Telstra, Telstra is already doing a mighty fine job of undermining themselves. Telstra had the audacity to try and dictate terms to the government, and the government rightfully told them where to go. The government is building the NBN in the national interest, and I think it was rather astute of them to snub a company that couldn't give two stuffs about the national interest.
    anonymous
  • National passtime, blame Telstra

    Cabel, how right you are.

    In most parts of Australian suburbia, there is a lack of free ports and the remedy is to rip up streets and instal more copper pairs. As soon as that happens, you can bet your bottom dollar, 'competitors' will pounce and get free rides courtesy ACCC's regulatory regime.

    The Howard & Rudd Governments have been sitting on their hands since 2005. Telstra proposed to roll out FTTN way back in 2005 but both governments have been, and still are, dithering and nothing has, or will, be done until our 'illustrious' communications minister wakes up to the fact that regulations must be made to support investment incentives as well as competition NOT the other way around. Investment, of course, costs money!

    To buy the network, T1, T2 & T3 cost us $4.77, per average share price. It is now priced @ $3.03!!!!! per share. Our investment has been dormant of under water ever since inception and all Rudd and Conroy are blabbing about now is more punitive regulations for the bunny - Telstra.
    anonymous
  • Wake up, Anonymous to the real world

    If you believe Telstra couldn't give two stuffs about the national interest. You believe in fairy tales.

    If you log on to:

    http://www.nowwearetalking.com.au/news-and-features

    and, scroll down Telstra's memory lane of national achievements exclusively for Australia's National Interest you will, unless you have ulterior motives, be very thankful for what Telstra did and continue doing for Australia.
    anonymous
  • Wow

    @ Vasso, I just wanna sit here all day and press F5 over and over, just to see what people have to say about your comment.

    It'll be something like nowwearetalking is a Telstra-run propaganda site that basically tries to make everyone but itself look bad.
    anonymous
  • The facts

    In 2005, Telstra offered the then Howard Government an open access NBN at no cost to the taxpayer. What they wanted in return was an undertaking that having built it, the government and ACCC would just swipe it and sell it to its competitors for a song. The Howard Government refused.

    Prior to the close date for the current NBN, Telstra had a 5,000 page submission prepared and ready to roll. What they wanted in return was an undertaking that the company would not be carved up so the government and ACCC would just swipe it and sell it to its competitors for a song. They also wanted the confidentiality of their commercially sensitive material respected. The government refused, so they got the infamous 13 page letter instead.

    Just because a company does not wish to commit commercial suicide does not mean that it is acting against the national interest. I can't recall Optus offering access to it's HFC cable to its competitors "in the national interest". I don't know why, though. They are getting access to Telstra's lines so cheaply, it is far cheaper for them to sponge off Telstra than use their own infrastructure, so there should be plenty of capacity on their HFC cable left unused.
    anonymous
  • @wow

    Agreed, nwat isn't the best place to source your info. But to be fair, neither is whirlpool.

    Before the whirlpool faithful, intelligentsia start on me, just check the links.

    http://www.zdnet.com.au/blogs/fullduplex/soa/From-show-pony-to-dead-horse/0,139033349,339295218,00.htm#320126273

    http://forums.whirlpool.net.au/forum-replies.cfm?t=1164986
    anonymous
  • Not only one bank's opinion

    Just think, the successful bidder will need to source $10B+ from somewhere and if banks have this opinion of the venture's probable success then the funding will not come resulting in ultimate failure.

    I see this not so much as a prediction but as a self fulfilling prophecy.
    anonymous
  • Need Government for Infrastructure

    A country the size and with the population density of Australia needs satellites. Space being a risky business you need a Government to drive it. Just as would with laying cable ( yes even copper ) to every house in Australia.

    The A & B series satellites had strategic value to Australia which included MobileSat, Defence, Air services and Ingenious TV. This is besides the Satellite TV, feed for TV stations and PAYTV. National broadcasting, especially for SBS was certainly enabled by the four Aussat birds.

    Pre-Fibre there was Pre-satellite era. The reason Don Lane was on late was they used the phone network for the video signal!

    Perhaps a better example would be the Coax networks of Telstra and Optus. Accessible by only a small number of Australian's. It looks like crap ( especially when two cables run down the same street ) and has often not delivered any of the services touted.

    Optus Vision almost didn't build their coax network as they where arguing with regulators abut exclusive access. They built it anyway and then went broke.
    anonymous
  • Which Bank?

    Is this really a bank to trust with any advice. Why don't they sort out their backyard - I'm sure the people in their area of interest would like to see them focus on their own major issues
    anonymous
  • Erm...not the Royal

    That was the Bank of Scotland that lost all the money - it's different from the ROYAL Bank of Scotland.

    That said, I can't see how a Scottish bank is so qualified to make comment on an NBN scheme half a world away.
    anonymous
  • re The facts

    Couldn't agree with you more, but I'll bet you get taken to task on this, by the anti-Telstra mob.
    anonymous
  • The facts - the spin!

    Nice Telstra spin but the government realised that Telstras plan was/is to replace the network so that they can decommision the old cable network effectively giving themselves a landline monopoly.

    The obligation to provide access to competitors was part of the Telstra sale. If Telstra want to maintain their obligation on the new network then I say by all means go ahead. If they want to restrict speeds to twisted pair equivalent then that is fair enough too.

    Nice try for the sidestepping attempt guys but can we try to keep the bleating down to a minimum please.
    anonymous
  • Open Access

    Lets get this right once and for all. OPEN ACCESS IS NOT WHOLESALE ACCESS. Just because Telstra called it OPEN ACCESS did not make it OPEN ACCESS.

    Open Access requires fair and equal access to a common network, without a conflict of interest. You cannot do that while you have both a retailer and the wholesaler operating under the same roof. True "Open Access" requires the operator to deliver only wholesale access on that network without retailing services as well.

    We have see Telstra's performance on "Wholesale Access" in past and the ACCC is now taking them to court. What Telstra offered to the Howard Government in 2005 was no different to what they currently offer today.

    I will finish with this: Telstra did not offer the Howard Government an "Open Access" solution in 2005. Telstra did not start to use that term until 2008 when the NBN RFP was released.
    anonymous
  • A Royal Joke

    A Royal Joke indead.

    Comparing Ausat to the NBN is one very long streach.

    a) In 1990 when Ausat was launched the broadband revolution was still 10 years away. The demand for services, applications and the network speed to deliver that has really only started in the last 5 years

    b) Comparing Satellite to fixed line access is unbelievable. Satellite has high latency and limited speed issues when used with TCP/IP. It is only in the past 5-8 years that those problems have been resolved with improvements in TCP/IP stacks designed for high latency networks.

    c) Ausat was launched predominately for telephone and broadcast applications, it was never intended for data services.
    anonymous
  • re open access

    yes and here it is 4 years later and ...... we are much better off, aren't we?

    no nbn at all and $4.7b just about to be thrown at whoever, to fulfill an election promise.

    had telstra been given the go ahead in 2005 with 'open access', to build a metro network, there wouldn't have been a need to then quash opel in the rural areas.

    so what does that mean, only that in 2009 we would now have, but in a 2 different ways with 2 different companies, what we will still be building in another 5 years or more and it would have only cost $1b for opel not $4.7.
    anonymous