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NBN plan too 'risky' for investors

A telecommunications analyst from investment advisory service, BBY, has labelled the government's $43 billion NBN plan "as risky as it gets" and said it will fail to attract investors in the current information vacuum.
Written by Liam Tung, Contributing Writer on

A telecommunications analyst from investment advisory service, BBY, has labelled the government's $43 billion NBN plan "as risky as it gets" and said it will fail to attract investors in the current information vacuum.

"When it comes to risk this is about as high risk as it gets," BBY analyst Mark McDonnell said of the Federal Government's $43 billion NBN proposal yesterday at the Telecoms World conference in Sydney.

McDonnell backed Shadow Communications Minister Nick Minchin's calls for a study to determine the cost of the project, and criticised the government for not saying whether the $43 billion proposal included construction, finance and start-up costs or just construction.

"There is no clarity around the underpinning assumptions or about the kind of network or industry arrangements implied," said McDonnell of the $43 billion figure put up by the government when it ditched its initial $4.7 billion proposal back in April this year.

"Unless these are addressed, future funding will remain unattractive to investors, particularly equity investors," he said.

Minister for Communications Stephen Conroy has previously declined to answer detailed questions over the NBN, deferring instead to its NBN implementation study currently under way, which is expected to be completed in early 2010. The problem for the government, however, is that it simply does not have the answers.

A senior Department of Broadband Communications and the Digital Economy staffer said earlier at the same conference that the NBN was becoming a "growing list of questions to which we don't necessarily have all the answers".

Answers that McDonnell said he wanted on behalf of investors were key factors influencing the NBN's cost, such as whether the plan is to lease, buy or build access points — pits, ducts and poles. "It would involve much less upfront capital outlay to lease rather than build or buy those types of assets," McDonnell said.

The NBN's costs aside, McDonnell also criticised the proposal because there was no evidence of unmet demand for high-speed broadband. He went on to take a swipe at Conroy for ridiculing suggestions that a profitable NBN would need to charge consumers $200 per month without providing a more realistic figure.

"None of this is to deny that fibre to the premises is a sensible long-term strategy for the industry," McDonnell conceded, "but doing so under a government-led process, devoid of any real detail ... is unlikely to derive investments from the capital markets." If these are not addressed, the cost of the NBN will be footed by taxpayers, he said.

Sameer Chopra, telecommunications analyst for Deutsche Bank, referred to its past estimates of the NBN's cost at around $28 billion (rather than $43 billion), and that the total amount taxpayers would be expected to foot in the vicinity of $11.5 billion.

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