NBN Co has unveiled a 7% rate of return and lower-than-expected wholesale prices as part of a set of conservative projections over the next 30 years.
The government belatedly released the NBN Co Corporate Plan this morning, (still without commercially confidential information that might affect tender processes) giving a much greater level of detail about the company’s plans and expected returns out to 2040.
Total capital expenditure for the network will be $35.9 billion, including government equity of $27.5 billion, $1.5 billion up from the $26 billion equity contribution identified in the McKinsey NBN implementation released in May. The government’s contribution would be repaid by the early 2030s.
The plan also includes first details of NBN’s planned wholesale pricing, with a base service of 12 Mbps download speed and 1 Mbps upload speed available to retail service providers for $24 a month across fibre, wireless and satellite. A 50/20 Mbps speed will cost $34, 100/40 Mbps $38 and 1000/400 Mbps $150. Bear in mind those are wholesale prices, not the cost of services likely to be offered by retailers.
But the prices entirely discredit claims from commentators such as Henry Ergas, who claimed 100 Mbps would cost $215 a month, particularly as NBN Co stated this morning that prices would decline in real and nominal terms as usage and download speed increased.
NBN Co claims to have used conservative assumptions about a levelling off of current exponential growth rates in speed and data consumption by households, and assumes a middling roll-out rate of the infrastructure. 1.27 million households will have access to the NBN by the end of the 2012-13 financial year and 5.6 million households by 2016, with 12.2 million households reached by 2021. For most of this decade, NBN Co assumes, the bulk of residential users will access only the basic 12 Mbps (or a voice service only), and there will be no significant uptake of speeds beyond 250 Mbps until close to 2020 and beyond.
The government has also enshrined elements of the McKinsey implementation study and the corporate plan in its “Statement of Expectations” to the NBN Co Board. Statements of Expectation are the list of directions and requirements that boards of statutory authorities must operate under from governments. The NBN SOE, also released today, imposes the 93%/7% fibre/wireless and satellite split, the provision by NBN Co of fibre in new residential developments, the provision of battery backups and a range of other requirements on the NBN.
For all the detail and hysteria while parliament was still sitting, the Corporate Plan is unlikely to change the debate over the NBN. There will still be demands for a cost-benefit analysis, regardless of the financial rate of return predicted by NBN Co; economists will continue to insist that the copper network and wireless will provide high-speed downloading and uploading speeds and partisan commentators and journalists will still continue to predict that fibre will be outmoded by an as-yet unidentified technology just around the corner — presumably on the basis that someone will discover a way to go faster than the speed of light.
The only real number that counts politically is that come the next election, 1.3 million households will have access to the NBN and about 600,000 households will, NBN assumes, have connected up. By that stage the fibre rollout will be going at well over 5000 premises past per day.
The Coalition — which despite the arrival of Malcolm Turnbull in the communications portfolio has yet to identify how it will provide fast broadband beyond wrecking the NBN — has some thinking to do about what it tells voters if the Gillard government hangs on until 2013.
Bigpond currently offers 50 mbs from $49.95 per month (although curiously the minimum cost for this package is over $2400 over 24 months due to the fact that you need to bundle your other services). This would mean that under the NBN the same package for the same price would give the retailer a 47% gross margin. If they were to offer 1000 mbs fo $49.95 they would have a 31% margin. This to me would indicate that the consumer will end up getting a higher speed for a lower price.
The fact that the NBN is expecting a lower rate of return than commercially accepted is exactly why the govt has to build it, the private secotr won’t build it because they won’t make enough money.
This debate is like wondering whether we should have electricity over gas-light and then debating how we will run factories on that gas-light.
We risk being swamped by the flood of services that the NBN would enable if we don’t build the bloody thing quick smart.
Bring it on – it is clearly a very affordable necessity for an advanced economy like Australia’s. The Abbott-led opposition is purely party-political and mean-spirited.
Turnbull will finish his political career despised as the tool of a cynical politician unless he has the courage to stand up to Abbott and attempts to substantially reverse the current negative and ill-conceived Liberal policy.
David – I find the current opinion polls fascinating – The Coalition is leading Labor but Abbott is at 35% as preferred PM with Gillard on 52%. So Abbott could be said to be holding the Coalition back but they didn’t improve in the 2 party preferred until he brought his negative, oppose everything conservative approach so if they change back to Turnball they could lose everything.
I would like to know whether the NBN business plan includes ancillary benefits, such as a more even (or perhaps greater population), lower business expenses when distributed over smaller offices (or even working from home) and so forth. It appears to me that it is being treated as just another commercial enterprise offering possibilities of an eventual profit. In fact, it is an infrastructure element, like fast trains or a master water plan, which is part of a developmental model to use land more efficiently to reduce pressure in large cities, improve the areas available for food production, and so forth. If Australia reaches its proposed target of 35 million people, we will have 5 persons per sq. km. compared with 100s of people per squ km. elsewhere in the developed world. We could increase the population to 70 million people and still have only 5% of the density experienced in Europe. If we did reach this point with a proportional number engaged in productive work, the underlying return on the NBN investment would (over 20-30 years, say) surely be much greater than the 7% currently envisaged.
In case anyone wishes to argue that the lifestyle will not be the same as today (corresponding to 35 million people) and that we should keep things as tehy are, James Lovelock, in his book “The Revenge of Gaia” points out that increasing population and the decrease in food-growing area could potentially lead to great conflicts – even wars. If we do not use our land to its maximum efficiency, poorer people will be under pressure to take it over and live at that simpler level – at our cost.