Turnbull: 'Question mark' over NBN commercial viability

It was a 'big mistake' to roll out the NBN under a government-formed company, the prime minister has said, with questions now surrounding the broadband network's commercial challenges.
Written by Corinne Reichert, Contributor

Australian Prime Minister Malcolm Turnbull has said there are questions over whether the National Broadband Network (NBN) will succeed as a commercial enterprise and return money to the taxpayer, adding that it was a mistake to roll out the network via a government-formed company.

"There's a reasonable question mark over that," Turnbull told reporters on Monday morning.

"When it was started under [former Prime Minister] Rudd, you may remember, Kevin Rudd said this was going to be fantastically commercial and that the public would be lining up to invest in it. That's nonsense.

"If we had gone down Labor's route of fibre to the premises, it would have taken another, say, eight years to complete, and another AU$30 billion. So if you think the commercial criteria are challenging now, imagine what they'd be if you loaded another AU$30 billion of cost onto it."

The NBN is expected to cost AU$51 billion at maximum to build out, with the company loaned a further AU$20 billion last year by the federal government to complete the rollout.

According to Turnbull, it is currently estimated to deliver a return of about 3 percent, which is "enough to keep it on the government's balance sheet as a government asset".

"But it certainly isn't the commercial return that the stock market would expect; there is no way it would reach that," the prime minister added.

Turnbull argued that rollout of the network through a government company was the wrong way to go about the infrastructure project, saying the then-Labor government should have instead opted for a similar model to that deployed in New Zealand.

"It was a mistake to go about it the way they did. Setting up a new government company to do it was a big mistake," Turnbull said.

"If you want to look at a country that did this exercise much better, it's New Zealand, and what they did there was they basically ensured that the incumbent telco, the Telstra equivalent, split its network operations away from its retail operations, and then that network company, which is called Chorus, became in effect the NBN.

"The virtue of that was that you actually had a business that knew what it was doing, and it was up and running and had 100 years of experience getting on with the job. The Kiwis have done this at much less cost, so the way Labor set it up was hugely expensive, and there are many billions of dollars wasted ... that we can't recover."

The prime minister's comparison came despite NBN CEO Bill Morrow on Friday publishing a blog post saying the two countries' rollouts cannot be compared, as New Zealand's fibre-to-the-premises (FttP) rollout is vastly different to Australia's multi-technology mix.

Morrow, speaking to ABC Radio National Breakfast on Monday morning, said a government write-down is not being considered "at this point in time".

"We are the only country that has pursued it this way that has any kind of landmass with it. It's too early to tell whether or not it's a success or a failure," Morrow said, adding that the government would have to explore whether to pull taxpayer funds in to subsidise the NBN "if this thing does not stay commercially viable".

"We are trying to fight a competitive fight with one hand tied behind our back," he said, referring to the approximate AU$15 per month from every consumer he said NBN needs to collect in order to pay its fees to Telstra, and to the 2 million "uneconomical" premises it is serving with broadband.

Acknowledging that many consumers are not getting the speeds and capacity they are paying their retail service providers (RSPs) for, Turnbull said he has been in discussions with Morrow as well as with Australian Competition and Consumer Commission (ACCC) Chair Rod Sims on how to remedy this.

"I think that the reality is that the prices people are paying today and the prices retailers are paying NBN is not enough to recover even the AU$49 billion that we're intending to spend on this, and that we expect with future applications that price to go up," Morrow said.

"If the RSPs cannot get the consumers to pay more, then we have a problem ... the RSPs are finding that difficult right now to charge people [more than they charged for ADSL] because in my belief we're in this land-grab phenomenon stage with a massive churn event occurring across the country and they are fighting for market share and therefore cannot raise the price to the consumer."

The ACCC recently released guidance on how RSPs should advertise speeds on their NBN services, as well as monitoring speeds that customers are receiving in real time throughout the day.

The ACCC has also advised extending the government's proposed Regional Broadband Scheme (RBS) charge subsidising satellite and fixed-wireless NBN services to non-NBN high-speed broadband services, which was last month recommended by the Senate committee; however, Morrow acknowledged that a similar subsidy levelled at wireless users, to handle NBN's competition from 4G and 5G services, would be disliked.

Also speaking on Monday morning, Independent Senator Nick Xenophon said such a wireless subsidy should be definitively set aside.

"There's now all this crazy talk of hitting millions of Australian consumers who use mobile broadband with some form of levy. That needs to be ruled out by the government ASAP," Xenophon told journalists in Canberra.

"You cannot plan a AU$40 billion-plus national broadband project off the back of an envelope on a VIP jet -- that's what happened."

With AAP

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