Slattery calls 'bullshit' on NBN economics

Slattery calls 'bullshit' on NBN economics

Summary: Pipe Networks founder Bevan Slattery today delivered a ringing slap in the face to Communications Minister Stephen Conroy, predicting most of the promises around his flagship National Broadband Network initiative would fall flat, with the project to end up being a liability to Australia's taxpayers.

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Pipe Networks founder Bevan Slattery today delivered a ringing slap in the face to Communications Minister Stephen Conroy, predicting most of the promises around his flagship National Broadband Network (NBN) initiative would fall flat, with the project to end up being a liability to Australia's taxpayers.

Bevan Slattery

Bevan Slattery
(Credit: Delimiter)

Slattery has a great deal of expertise in laying out the fibre infrastructure that will be at the heart of the NBN — with partner Steve Baxter he founded fibre player Pipe Networks in 2001 and built it into a major, predominantly wholesale player, before selling the company to internet service provider TPG last year.

He told the Communications Day Summit in Sydney today there was one major issue with why the project would fail — what he described as the fact that you couldn't get a commercial return on investment for a project building a wholesale-only broadband network that would reach 90 per cent of the population.

"I firmly believe you can't get a commercial return on this infrastructure," he said. "Don't play cute, don't spin, don't bullshit."

Slattery highlighted recent comments by NBN Co chief Mike Quigley that the NBN wouldn't make a commercial return for 30 years — comments Quigley himself attempted to clarify in an earlier speech this morning.

"Trying to draw out a 30-year investment — that's not a commercial return," said Slattery, challenging the government to prove that it could make a better return from the NBN over the time period than it could by simply putting the $43 billion in the bank and collecting interest. This in turn meant the private sector would not invest in the project.

Slattery predicted many of the government's key promises about the NBN would not be met.

For example, he pointed out the cost of extending the NBN from 60 to 70 per cent of the population (in the cities) to the promised 90 per cent of the population would be the most expensive part of the roll-out due to the final 90 or so per cent in regional areas — leading to the idea that the 90 per cent figure would not be met.

He also pointed out the wholesale-only nature of the NBN — emphasised by both Conroy and NBN Co chief Mike Quigley this morning — was already being questioned due to provisions in draft NBN legislation that left the door open for the NBN to provide retail services.

And the executive also predicted that the government might remain the 100 per cent owner of NBN Co and be forced to stump up the whole amount required to build the NBN due to the lack of a firm investment return for the private sector.

There were three smaller problems that Slattery highlighted with the NBN project apart from the commercial return issue, although he noted all three could be addressed in theory and might even be in the process of being addressed currently.

Firstly, Slattery said, there was no business plan for the project. "If you have no business plan, you cannot go out and market this product — other than as vapour," he said.

The executive also lambasted the project for what he said was a "massive problem with disclosure" in terms of the information about the project which is being put out to the industry. "The disclosure is woeful," he said, claiming that the project had been less than forthcoming with information about areas such as end user prices, product sets, internal rate of financial return and what it will cost to maintain the NBN.

Finally, Slattery noted that the NBN project would need access to telecommunications ducts and overhead infrastructure — an issue that could be addressed through the government and NBN Co's ongoing negotiations with Telstra about how the telco could move its customers and infrastructure to the NBN platform.

There were three options that could be taken to redress the NBN's problems, Slattery said.

The government could cancel the project, he said, preserving taxpayer funds. "The spending that's going on, without a business plan and ... external oversight would cease. That's a good thing," he said. But that path, in reality, was not politically acceptable and would lose the positive momentum for change the NBN project has garnered, he said.

Secondly, Slattery said, the NBN project could continue regardless of its problems. In that case, he said, eventually the government would be found to have misled the Australian taxpayer about the project not being able to obtain a commercial return.

Slattery labelled this option "economically irresponsible", saying the reality of "the scale of taxpayer subsidy and burden" would hit "like a tsunami" against the tide of misplaced optimism in the NBN project.

The third option — which Slattery proposed as the best actual solution — was for a modified version of the NBN project to go forward, focusing on building out backbone connections and 3G mobile broadband to areas in regional Australia as a first stage to address those with the most problems currently getting reliable broadband.

Slattery said instead of building fibre-to-the-home in cities, where residents already had access to two cable networks and ADSL2+ infrastructure, the NBN project should focus on what he called the backhaul and distribution networks to locations such as schools and hospitals.

"We definitely need to build to those in need first," he said.

After this stage, which would have a real impact on end users within one to four years, Slattery said, the NBN focus could turn to fibre to residents' homes.

"You'll be surprised how much easier it will be able to negotiate with the incumbent if you build the core and distribution network first," he said, referring to the Telstra negotiations.

Despite the claimed problems, Slattery acknowledged there were a number of positive aspects to the NBN project as it currently stood — notably the unified support for the project from the government, community, industry and the "generational opportunity" to create leading communications infrastructure for the next century.

Then too, he acknowledged the technical capability built by NBN Co chief Mike Quigley at the fledgling company of 150 staff, which he referred to as "a bit of a brains trust up there in North Sydney". Slattery said he hadn't personally had that many dealings with NBN Co, but "my people tell me the guys at NBN Co have got their you-know-what together".

"You don't get that high at Alcatel if you're a muppet, so he's obviously a pretty good guy," he said, referring to Quigley's history at the French telecommunications vendor.

Topics: Broadband, Browser, Government, Government AU, Telcos, Telstra, NBN, IT Employment

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  • Bevan Slattery thank you for your honest, enlightening and educational remarks concerning the FTTP NBN. Nobody would deny that to have a fast fibre network as promised by Mr. Rudd would be marvellous and certainly, providing the cost of provision was acceptable, an advantage to all Australians.

    My concern is the dream (and hope) of the Rudd promise will prove to be a financial disaster for the Australian taxpayer and be abandoned at some future date without reaching its full potential. There is no doubt the ability of the assembled NBN Co. team who have been chosen to implement the roll-out are exceedingly qualified but the sad fact is that the real controlling masters of the NBN Co. are politicians who will make decisions that assist their re-election at the coming election.

    The Government threat of blackmail on Telstra in an effort to remove Telstra as a competitor to the NBN Co. demonstrates that the NBN Co. cannot be a success if Telstra competes against it. Mr. Rudd, Conroy and Tanner have recommended the NBN Co. to Australians as a great investment which will be sold back to the Australian people (as was Telstra) but Mr. Quigley speaks to truth when he tells us that the NBN Co. will be without acceptable financial returns for 20 or 30 years. Mr. Rudds promise was easy to make but the delivery of it will present many dangers.

    We are now told that to reduce costs and expedite the delivery of the proposed network it is being considered that the fibre will be strung out on power poles instead of being, as promised, buried underground, the very action that caused great public fury when Optus and Telstra created visual pollution with the deployment of their cables some time ago. Also, needing to deliver the cable to 4000 premises per day for 8 years is a heavy task.

    It would be interesting to know what the ACCC, who is duty bound to ensure competition in Australia thinks of the Rudd and Conroy plan to destroy Telstra as a competitor by blackmail and threat the likes of which has never been seen in Australia in our history. Believe me the burning bats and the school rip-offs will be small beer for the Government if they continue on their present path. So far Telstra has remained silent but must, if negoiations with Government fail, inform every Australian of a Government who is persecuting an Australian company that is owned by 1,400,000 Australians and has 34,000 Australian employees.
    sydneyla
  • Interestingly, because you appear to have top quality comms yourself, you believe others should make do with their tin cans and piece of string (at a premium price, of course) just to help that TLS share price? Well here is a clear example of why a NBN is needed, regardless of YOUR shares or anyone’s biases (note not all Telstra complaints)…

    ZD Net - 20/4 – “A user from Sydney measured 379kbps @ Broadband Speed test”.

    ZD Net – 21/4 – “A user from Pymble measured 575kbps @ Broadband Speed test”.

    ZD Net – 21/4 – “A user from Brisbane measured 647kbps @ Broadband Speed test”.

    These aren’t people from the outback or a third world country… but from “Sydney and Brisbane”! And these…

    ZD Net 21/4 – “just got 181 Optus sucks in Sunshine Beach”.

    ZD Net 20/4 – “getting 45 k(bps) out of Primus. I am in the bush, so my expectations were never high, never the less Telstra salesman still tried to sell me ADSL2. Still, if he is calling from Mumbai he wouldn't know would he”.

    Interesting info, Primus is doing business in the unprofitable bush eh? And Telstra trying to sell ADSL2, to someone (who infers) he/she doesn’t have availability or at best, are too far for it to have any real benefit – but give us the money anyway?

    Plus you are concerned about the NBN’s viability, but Telstra aren’t (tells a shareytale too, eh). Telstra have said many times they have the same NBN dream as the government. You also mention a claimed projected 20/30 year, before a ROI! Well Optus, although critical of comments that the NBN may retail, have said this –

    “Despite the criticism, Optus said it remained a strong supporter of the NBN and believed it was a commercially viable project that had the potential to reshape the telecommunications in Australia”.

    http://www.theaustralian.com.au/business/nbn-threatens-to-step-into-telstras-monopoly-shoes-warns-optus/story-e6frg8zx-1225853819411

    So please look at all sides of the story and think about your fellow Aussies who need comms, like you already have.
    RS-ef540
  • I happily agree that a FTTP for Australians is a commendable desire but to use blackmail and threat to remove an opponent (Telstra) so as to allow viability for the proposed FTTP network, which would be a monopoly and with the possibility of extending into the retail business thereby effecting every other Australian operator, should be closely monitored.

    Anyway RS others who have far more control and information on the subject than us have doubts about the proposed FTTP Network. I note that the Federal Opposition have said that they intend to scrap the $43 billion proposal should they attain Office at the next election. It was interesting to note RS, that all your venom was directed at myself with no mention of the observances of an expert on the subject or referral to his comments. I refer of course to Bevan Slattery.
    sydneyla
  • Ooh BTW Syd...

    Mr. Slattery says the NBN is bullsh!t and Optus says it's viable and basically, nation building/changing.

    One of them is wrong.

    I am hoping Mr. Slattery is wrong, because I would like nation building/changing infrastructure to create jobs and opportunities for all Aussies, including my children.

    Where as you hope Mr. Slattery is right, because you think it will help your Telstra shares.

    So right or wrong, which of us is the more honourable?

    Let me give you a hint - first initial R second S!
    RS-ef540
  • According to the author of this article, Renai LeMay, the last major deal Bevan did was "An absolute travesty" .... http://www.zdnet.com.au/pipe-networks-sell-out-an-absolute-travesty-339299494.htm

    I doubt very much the insight from someone, who as a director voted to sell PIPE for around $373m in the face of TPG's share price rallying around $300m. Someone's idea of business judgement was to sell their company for around half what the market thought it was worth....

    That one right there doesn't pass the smell test.

    With that as evidence of his business acumen, Bevan is uniquely unqualified (even more so than Tony Abott) to speculate on the financial future of the NBN.
    adavion