Weasel maths won't fix coalition's NBN case

For a party that's been beating the drum about transparency in government seemingly forever, the Coalition's election platform is sure looking pretty opaque — and its maths skills are seriously wanting.
Written by David Braue, Contributor

Time after time, Malcolm Turnbull fronts mainstream media outlets to push the merits of his plans, but he cannot produce a single number substantiating his claims that fibre to the node (FttN) will be cheaper and roll out faster than Labor's fibre-to-the-premises (FttP) network.

Witness his recent appearance on the ABC's Lateline (transcript or video), in which he evaded Tony Jones' every attempt to pin him down on some costing or another, saying only that his FttN plan will cost "about a quarter of the cost and a quarter of the time to provide an upgraded broadband service".

Dispense with the Coalition's costing fantasies ... and your back-of-the-napkin price suddenly rockets to AU$38bn. Throw in some portion of the AU$1.8bn-plus to cancel existing contracts if necessary, and a coalition FttN isn't going to deliver much change out of AU$40 billion.

I know these advanced new maths methods are filled with ambiguity that may be evading my small mind, but in my understanding, a quarter of AU$37 billion — the current estimated cost of Labor's NBN — is just north of AU$9 billion.

That's all well and grand — but in another Lateline appearance late last year, Turnbull said that the Coalition's base NBN would cost around AU$15 billion.

In other words, months later and in the face of constant calls to justify his numbers, Turnbull is actually downgrading his cost estimates. Remember that an independent Citigroup analysis pegged it at approximately AU$16.7 billion, and it appears that Turnbull's numbers are driven more by wishful thinking than by actual reality.

Who is he kidding? Everyone, he seems to believe.

Lateline host Tony Jones tried fruitlessly to get the putative minister for Communications to concede that it will take more than bubblegum and dental floss to build even an FttN network. But Turnbull, who has built up a sizeable arsenal of weasel words and weasel maths to avoid coming straight with the Australian public, predictably shifted the blame onto Labor, arguing that its existing contracts — which Turnbull recently conceded would remain intact if the Coalition is elected — impose unknown costs that prevent the Coalition from offering real numbers on its liabilities.

It's really not that hard to estimate these costs; since the would-be government of this country apparently doesn't have staff that knows how to use the internet or add, I've undertaken the difficult, extensive, labour-intensive, gruelling process of doing this analysis for them. You're welcome, future coalition overlords; my invoice is in the mail.

ProviderDate signedAreaValueProportion left after Sep 2013 (months)Cost to Abbott government
Downer (build) Feb 14, 2013 Northern NSW AU$94m 17/24 AU$66.6m
Downer (build) Dec 21, 2012 MDUs (NSW, Vic, ACT) AU$66m 15/24 AU$41.25m
Universal Communications Group (build) Dec 21, 2012 MDUs (Tas, Sydney) AU$21m 15/24 AU$13.13m
Visionstream (build) Mar 25, 2012 Tasmania — Complete AU$300m 30/48 AU$187.5m
Syntheo (build) Sep 6, 2011 NT, SA AU$141m (through Sep 2013); AU$341m (with two-year extension) 24/24 AU$200m
Syntheo (build) Sep 6, 2011 WA AU$174m (through Sep 2013); AU$484m (with two-year extension) 24/24 AU$310m
Transfield (build) Sep 6, 2011 Victoria AU$133m (through Sep 2013); AU$395m (with two-year extension) 24/24 AU$262m
        Build costs AU$1,080.48m
Silcar (maintenance) Sep 6, 2012 NSW, Qld, ACT AU$78m 12/24 AU$39m
Service Stream (maintenance) Sep 6, 2012 Vic, WA, NT, SA AU$64m 12/24 AU$32m
        Maintenance AU$72m
Perkins/Cockram Oct 26, 2012 Satellite ground stations AU$180m 25/36 AU$125m
ViaSat July 12, 2012 Satellite ground stations AU$280m 27/42 AU$180m
Space Systems/Loral Feb 2012 Satellites AU$620m 27/48 AU$348.75m
        Satellite AU$653.75m

Admittedly, this is not a complete analysis; I have not, for example, included the cost of NBN Co's coffee-supply contracts, or even, for that matter, its predicted expenditure on light bulbs, pens, staples, copy paper, or water for flushing NBN Co office toilets.

In the main, however, I'd say these figures make it quite clear that the government's existing NBN contracts will cost the Coalition around AU$1 billion through the rest of their lives (assuming that Labor extends its Syntheo and Transfield contracts, which are due for review in September, for a further two years; it also obviously doesn't include any further contracts that Labor might sign between now and the election).

NBN Co's satellite program, which Turnbull hates with a passion, would represent around AU$654 million of amortised forward expenditure for a coalition government.

There, Turnbull: Was that really so hard? Now, just tell us how much your extensive and detailed estimates have suggested your network will cost to build, and add AU$1 billion to it.

Oh, and the cost of getting Telstra to not only retain its hybrid fibre-coaxial (HFC) network, but to also open it to competition for the first time ever. And the cost of getting government control over Telstra's copper network; we know it costs AU$11 billion to guarantee access to Telstra's ducts, so we can only assume that it will cost far more to actually take control of that copper network. Turnbull seems to believe that this process will be as simple as giving David Thodey half of a BFFL necklace, but we know it won't be that easy. Call it AU$15 billion on the conservative side.

The lack of real information around the Coalition's policy makes it impossible to seriously evaluate as an NBN alternative. If it wants to be taken seriously, it should demonstrate to the country that it's capable of doing accurate financial modelling on a real, ongoing project with a cut-and-dry scope and future.

Add this all up, and even if you are going to accept Turnbull's latest weasel maths (in which he claims FttN costs a quarter as much as FttP), you've got AU$9 billion +AU$15 billion +AU$1 billion, for a minimum cost of AU$25 billion. Suddenly, FttN is not so cheap.

Dispense with the Coalition's costing fantasies, and factor in something more approximating reality — say, Citigroup's AU$17 billion estimate plus AU$20 billion to Telstra for its network, plus AU$1 billion in forward contracts — and your back-of-the-napkin price suddenly rockets to AU$38 billion. Throw in some portion of the AU$1.8 billion-plus to cancel existing contracts if necessary (although Turnbull recently said he would not rush to cancel contracts), and a coalition FttN isn't going to deliver much change out of AU$40 billion.

This figure, of course, assumes a complete FttN build, which won't be entirely accurate, since existing NBN fibre (and Telstra HFC) will have covered a certain number of premises that won't need to be serviced by FttN. Yet, we must use figures for the whole project for the purposes of comparison — or be equally willing to consider the future NBN based on forward costing rather than costs to date.

However you look at it, is anybody else having trouble following the bouncing ball here? Of course not. Turnbull has surely done these maths, too — which is probably why he's willing to cop a hailstorm of criticism after conceding that the Coalition actually has no intention of costing its NBN policy before the election.

Instead, even with loads of evidence and his own words out there for all to inspect, Turnbull still continues to try to promote his party's plan with financial figures that simply do not add up. He will not do the industry the courtesy of providing a real ballpark figure as to what the Coalition's policy will actually cost, in the presence of these contracts. He speaks in vagaries and conducts evasive interviews riddled with weasel words and weasel maths that simply do not stand up to even the slightest scrutiny.

Even in pointing out the potential savings in interest from his policy, he doesn't mention how much interest Labor's current policy will incur. Turnbull told Jones that a cost-benefit analysis (CBA) would take "not very long", but cannot or will not even say how long it would take.

In other words, Turnbull's NBN world is completely devoid of numbers, except the ones that he likes the sound of.

The lack of real information around the Coalition's policy makes it impossible to seriously evaluate as an NBN alternative. Yet, behind all the politicking, there is a significant lost opportunity here: If the country's alternative government wants to be taken seriously, it really should demonstrate to the country that it's capable of doing accurate financial modelling on a real, ongoing project with a cut-and-dry scope and future.

The NBN is an excellent opportunity to show its nous, since the costs of the existing NBN plan are well known and understood — as distinct from entirely speculative planned coalition investments, such as the putative AU$30 billion dam build. If the Coalition really is all about running a "transparent, business-like" government, as Turnbull recently claimed, it should start by getting honest about its NBN policy.

What do you think? Are my figures as fanciful as Turnbull's, or am I missing something? What will the real cost of FttN be? Is there really a valid financial argument to be made in favour of FttN? And is Turnbull really winning as much political capital as he thinks he is, by being utterly opaque about FttN costs?

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