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Department of Finance dismisses idea of discretionary NBN write-down

Officials say the value of NBN is dictated by accounting standards, and a write-down would not impact NBN pricing.
Written by Chris Duckett, Contributor

The Department of Finance has attempted to pour cold water on the idea of writing down the value of the National Broadband Network, stating that any movements in value are dictated by accounting standards.

"The value of NBN in government funded statements is in line with the Australian accounting standards. So there isn't an ability for the government to unilaterally choose to write down or determine the value of NBN," Department of Finance first assistant secretary for financial analysis, reporting and management, governance and resource management Tracy Carroll told the Joint Standing Committee on the National Broadband Network on Friday.

"For the financial year most recently completed, NBN is valued on the basis of the net assets. There's a process being undertaken right now, for the financial year that will end on 30 June 2020, to consider what's the appropriate value for the NBN that would be reflected."

Carroll added that there is no expectation of a write-down this year.

For years, the prospect of a write-down has been used to argue that NBN could lower its prices, with NBN CEO Stephen Rue previously saying write-down proponents simply wanted cheaper wholesale prices.

On Friday, Carroll said the two things were not necessarily linked.

"The value of the NBN in whole-of-government financial statements or in government financial statements would not naturally impact the pricing strategy for the NBN," she said.

Stacie Hall, first assistant secretary of commercial investments division, commercial and government services at the Department of Finance, said any write-down could not be discretionary.

"In terms of the proposition that it might be suggested that the value of NBN should be written down, this is not a matter within the discretion of government or shareholders -- or the company, in fact."

NBN chair Ziggy Switkowski two years ago ruled out a write-down until the business was cashflow positive.

"I think considerations and evaluations of NBN will await the business moving into a normal conventional mode, which will happen when we finish the building in 2020, we complete the conversion of all households and businesses in 2021, we turn cashflow positive, we look forward, and then whoever is going to make a judgment will make it then," he said in October 2018.

In March, the Parliamentary Budget Office said the value of the NBN at 30 June 2019 was AU$8.7 billion, with the government providing NBN with AU$29.5 billion in equity.

"The $20.8 billion difference between the amount paid and the current fair value is a revaluation. It reflects the extent to which the Commonwealth Government's balance sheet has directly deteriorated as a result of this investment as at 30 June 2019," the budget office said.

"By definition, this impact is not captured in the fiscal or underlying cash balances, though it is captured in net financial worth. This value is a point-in-time estimate and may change in the future."

Responding to questions on the valuation, Finance officials said the AU$21 billion gap was explainable as NBN was still in its startup phase.

"That is what you would normally expect in the startup phase of a business," Carroll said.

"You would take the equity that was given to the business, and then there are high levels of expenditure until the business in fact turns into a profitable business. So it is not unusual to expect the government's equity in NBN to be lower than that which was initially invested."

Carroll also said Australian accounting standards dictated two ways to value a business: total assets, which are used currently for NBN; or basing it on future cashflows.

"But, for that change in methodology for the evaluation of NBN, it would need to consider some stability and certainty in relation to future cash flows," Carroll added.

"That's a process that the infrastructure department this year would be working through as they settle their financial statements."

Huawei report says 100Mbps is fine, then demands unachievable gigabit target

On Monday morning, a Huawei-commissioned report authored by Omdia called on Australia to set a gigabit speed target, to give industry something to aim at.

"Although it is true to say that there are still no true applications that require gigabit speeds -- even 100Mbps is more than sufficient for even the heaviest residential bandwidth users -- the fact remains that gigabit speeds have become the accepted gold standard for operators across the globe," the report said.

"The geography of Australia means that delivering Gigabit capability is inevitably going to be considerably more difficult in terms of time and expense compared to the likes of Singapore and smaller states like Latvia."

The report called for a plan to achieve "universal gigabit access" in the nation, and then avoided discussing the fixed wireless and satellite networks which are currently only capable of 50Mbps.

5G would not help those in the fixed wireless network hit 1Gbps, the report said, due to spectrum constraints.

"Australia simply cannot ever reasonably be expected to deliver universal gigabit access via the NBN but the opportunity is clearly there to extend ultra-fast speeds beyond the 28% that can get 1Gbps and the 22% that can get 250Mbps-750Mbps on the HFC network," the report said.

"Whilst still dwarfed in size by Australia, European markets such as Spain and France -- and even the UK -- have gigabit targets in place and while they may not be achieved by their still ambitious target dates they do give operators and industry a long-term target to actually meet."

The report dwelled on upgrade paths for fibre-to-the-node (FttN) users on NBN, and said users, especially those in regional centres, needed certainty if they were ever going to be upgraded.

"If there are no upgrade plans in place for these FttN locations then local governments and businesses can start to at least plan for alternative provision, including potential local public investment, but without certainty over NBN Co's longer term plans then it is extremely difficult for them to make such plans," it said.

"One major factor why a clear upgrade plan is needed is that it is hard to envisage a private buyer emerging for the network whilst it still requires a multi-billion dollar upgrade and requires expensive ongoing maintenance."

Whist critiquing the government-owned NBN for its rollout options and switching to the multi-technology mix, the report also held the government to a higher standard.

"Had the current status of Australian broadband deployment been achieved under the private investment of Telstra, Optus, and Vodafone then the current outcome would have been broadly acceptable and roughly in line with what has been achieved in similar countries such as Canada and the United Kingdom."

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