It is unreasonable to add the $13.8 billion payment to Telstra, which National Broadband Network Company (NBN Co) counts as an operating cost, to the $35.7 billion capital expenditure cost of the whole network, NBN Co chief Mike Quigley has said.
The government estimated that the original cost of the network would be $43 billion, however in the 36-page NBN business case summary released by the government last week, this figure was reduced to $35.7 billion.
NBN Co said this reduced cost was due to the Telstra deal, however this led to Shadow Communications Minister Malcolm Turnbull and NBN critics with the Alliance for Affordable Broadband to add the $13.8 billion deal to the capital expenditure cost for the network to infer that the network may cost up to $55.2 billion.
Quigley told ABC TV's Inside Business that it was incorrect to add the two numbers together.
"They are two different buckets and what you've got to do when you're looking at the total of the opex [operating expenditure] costs, obviously in taking on those additional opex costs we, in our business case, we get considerably higher revenues as a result of that," he said.
The multi-billion dollar payment covers NBN Co's lease of infrastructure from Telstra, as well as the decommissioning of Telstra's copper network.
The deal will allow the NBN to use infrastructure owned by the telco giant, which Quigley said will help offset NBN Co's costs.
"The deal is absolutely positive," he said.
"It's positive for Telstra, it's positive for NBN Co and as a result of that deal we pay operating expenditure costs higher than we would in a no-deal case but we also have much higher revenues."
Quigley said the deal would improve NBN Co's internal rate of return, although he declined to say by how much.
"I know but I can't reveal that number," he said.
"What I can tell you is that it's substantially better, otherwise we wouldn't have done the deal."
The Senate on Friday passed legislation to split Telstra's retail and wholesale arms, clearing the way for NBN Co to formalise its deal with Telstra. The House of Representatives is meeting this morning to pass the amendments to the Bill put through in the Senate.
Quigley said the project's rate of return would be "above the government bond rate", although it was likely to be below its cost of capital over the life of the project.
"This is an asset that will be of value to the nation," he said.
"While we in NBN Co have done a business case, developed a business case, based on costs and revenue, we have not tried to factor in external benefits.
"But clearly there are external benefits and that's a decision that the government made that this is a project which has national benefits."
The government is expected to contribute $27.1 billion to NBN Co over several years, with the difference between that figure and the network's peak funding requirement to be sourced from debt.