Telstra Says It Will Take Decades, If Ever, For Cost Of NBN To Be Recouped

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NBN Co’s business model has been slammed by major telecommunications providers, which say the government needs to reconsider whether the company should have to fully recoup its investment costs.

In public submissions made in response to an Australian Competition and Consumer Commission review of the communications sector, Optus, Telstra and other leading retail service providers said a review of NBN's costs and pricing was needed sooner rather than later.

The government requires the $49 billion NBN to recover the cost of its rollout around Australia, which directly affects the prices it charges telcos for access to its network, which they pass on to consumers.

The ACCC's draft report, released in October, included a proposed recommendation that the government consider whether the NBN should continue to be obliged to recover these costs.

In its response, Telstra said there was “widespread commentary” about the commercial viability of the network, noting NBN Co chief executive Bill Morrow himself had said the current revenue per user coming from retail service providers would not generate enough total revenue to produce a positive return on the investment made.

Telstra pointed to NBN information that there was $14 billion "of unrecovered revenue ... that will ultimately need to be recovered from consumers within the current regulatory and policy framework".

In order to achieve a positive internal rate of return, a measure used to determine profitability, there would need to be a higher take-up of telco deals offering higher NBN speeds.

While NBN was forecasting a significant rise in consumer demand for higher speeds in coming years, “there appears to be limited evidence to support this assumption", Telstra said.

“Based on current projections, it will be many decades (if ever) before the full cost of investment is paid back, by which time Australian consumers would have paid tens of billions of dollars in ... return on capital.”

It said the government should consider these issues “sooner than the medium term”.

New pricing arrangements announced by NBN in December, which aim to encourage take-up of faster speed bundles, could improve returns.

Optus also pushed for a “near-term” review of the draft’s recommendation for the government to consider whether NBN should be required to recover its full cost of investment through its prices.

It said the requirement to achieve a dedicated internal rate of return limited NBN’s ability to adopt pricing reforms to promote the long-term interests of users.

Its submission also said NBN’s “pricing policy appears to be dictated” by its average revenue per user growth requirements, which had “very real impacts on consumer pricing”.

TPG Telecom said the NBN should be allowed to finish its rollout as quickly as possible.

“Governments should accept whatever the financial outcome is for that, take the financial hit (as we expect will be necessary) and the NBN should compete with private capital so that the industry can return, as quickly as possible, to a more rational economic circumstance,” it said.

“We consider this will take quite a long time.”

The NBN Co submission said “these matters are policy matters which are appropriately considered and progressed by NBN with its shareholder's departments”.

It did not provide further comment.


This article originally appeared in the Sydney Morning Herald on January 5


Comments

    How unusual that politicians (both Labor and Liberal) are useless project managers. Another white elephant project by Kevin Rudd.

      You cannot blame the current NBN on Rudd, the original plan may have been able to recover the cost eventually, but the current clusterfuck is not going to due to ongoing copper maintenance, and the inevitable rollout of fibre anyway, because the hodgepodge of old tech will never be able to support future expansion

    Considering the non FTTB/C/P parts were obsolete before it was built on top of which they were built over sub-par quality lines i think any sane person (IE anyone who thought Malcolm 'balls-up' Turnbull's plan was stupid) already knew it wouldn't be able to recover costs before it had to be rebuilt (especially since they got scammed and bought the dysfunctional lines at a premium rate).

      The worst part is, there probably isnt even a good case to privatize it in the future, because it wont be worth purchasing

        They'll do it anyway, Telstra will buy it, run it into disrepair, then sell it back to us for a profit.

        It probably wont even be worth the copper its made from.

    These nationwide projects such as rail lines, roads, telephone systems, airline facilities , Electricity transmission equipment, public transport have been traditionally funded by the taxpayer. Any business which does a cost/benefit analysis of commencing any of these projects will always drop them because they cannot make a profit. The taxpayer picks it up because it is good for the nation to have these resources.
    This is the case for the NBN, BUT we seem to have forgotten the national benefit model and tried to replace it with a profit model. We are now realizing as businesses have done for decades that projects like this are just too capital intensive to make money. However, we taxpayers continue to pour money into this pseudo NGO.

    With all of the other national projects, the government got them up and running and recently has virtually given them away as this is the only way that profiteers would adopt them.

    What we are now finding that selling off national assets has allowed the profiteers to continue to increase the service costs in order to make massive profits. (It's a bit like the taxpayer giving Gina Rhinehart $3.5 billion in diesel rebates and then have her brag that she made a profit of $3.5 billion this year, something stinks here).

    We can expect the profiteering to increase with the NBN and for internet service costs to more than double every ten years for this century.

      Like Telstra is complaining NBN won't be profitable, while they count the $11 Billion they got paid for the rusty copper wire they sold them. They also continue to get revenue from NBN as part of customer connection and disconnection deal too.

      So Telstra's seems to be the only on profiting from it, and is the reason the NBN won't recoup its costs.

      The diesel fuel excise was introduced in 1957 and hypothecated to fund the interstate highway network. The reason being that the transport operators were the only users of diesel fuel at the time and they would benefit from the new interstate highways and the excise would be a marginal tax on this benefit.

      Because farmers and miners would not benefit from the improvement of the road network, they were exempt from the excise.

      The Government suspended the hypothecation of the excise in 1959 for the purpose of 'budget flexibility' (i.e. an excuse not to spend the money on roads).

      That Gina Rinehart receives diesel excise rebate (and it's nowhere near $3.5 Billion because she would be sending over $8 Billion on diesel if she was), it's because as a mining enterprise her company does not receive the original benefit from the excise and is responsible for provision of her own roads on her mine sites.

      Linking the diesel fuel excise rebate to the NBN is a total red herring but don't the facts get in the way of your rant.

    Not sure why this has suddenly become new news. I remember someone already stating that the NBN will not be able to produce enough income from its services due to the change in technologies as they are incapable of delivering the speed tiers at an infrastructure level as was originally planned with FTTP.

    It comes down to the fact FTTN cannot deliver 100Mb and the majority of the homes on these nodes would be lucky to get 50Mb. You can see why the income isn't there. It cannot deliver!

      Also it's an infrastructure project that should be viewed that way not as a way to make money.
      We don't expect our road system to turn a profit, but it enables industries that rely on it to thrive as well as making everyone's day-to-day lives better.

      I know they will privitise it eventually, but I really wish they wouldn't. Privitisation of Telecomm was how we got into this mess to begin with.

    If only NBN didn't waste $11 Billion Dollars on Telstra's rusty copper line.

    The silliest thing is how they are calculating recoup costs. The government spends a lot of tax payers money subsidising profitable industries cause it benefits the economy... yet they don't factor that into their own projects economic value???.

    Economically running the NBN at a loss to provide high speed internet would of been a sound decision to improve business (great and small), healthcare, education, entertainment and communications across Australia... they would of made the money back in economic growth and taxable revenue especially in the economical centres (which is why building in Armidale and Tasmania seemed dumb), this is the reason it is so messed up.

    A 100% Fibre deployed in high population areas would of delivered better economical returns while still running at a loss. But this cluster dumpster of a hodge podge network will lose more money on maintenance on ongoing costs of strangling the copper lines that it insisted was cheaper but proved more expensive the second an actual engineer audited the copper lines.

    But at the end of the day, it was the business model that stinks, it should of been an unabashed wholesaler and monopolised the whole infrastructure. Too mabyt sacrifices made bending back to appease Telstra and Optus to get this built... and now they complain about money.

    If they want to recoup the cost they need to push the bandwidth out for the higher tier plans, no point paying for something you're not going to get.

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