Kohler: time to come clean on the NBN
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The Government needs to pluck up its courage and confess the extent to which the national broadband network is uncommercial — that is, the amount of subsidy embedded in it. In other words, the government must produce what everyone is now calling for — a cost-benefit analysis. The problem, and the reason courage will be required, is that cost-benefit analyses are better done before, not after, the decision to go ahead. Yesterday three company chairmen joined the chorus — John Morschel, of ANZ, Michael Chaney, of NAB and Woodside, and Bob Every, of Wesfarmers. They’re used to the quaint business idea of looking at a cost-benefit analysis before they make a final investment decision (FID); with the NBN the FID was made long ago and the board (federal cabinet) was locked in behind it. There was an AGM on August 21 and the directors were re-elected (albeit after a close call). So the NBN is off and running sans business case, and even though there are three more final approvals pending: ACCC approval, legislation through parliament and a vote by Telstra shareholders. If any of these don’t get up, it will be quite a mess. In the circumstances the government can’t simply ignore the calls for a cost-benefit analysis, and should respond with transparency rather than simply an “implementation study” that confirms the return of 6%-7% per annum will cover the government bond rate. That study did not discuss the opportunity cost or the element of subsidy inherent in the project. Of course, the NBN is not commercially viable, otherwise the government wouldn’t have to do it. But the extent to which it is not commercial — that is, the amount of subsidy — should be published. The simplest way to calculate that, in my view, would be to estimate the actual cost of the network over eight years (it’s less than $43 billion) and then get an independent expert to estimate its market value at the end of that time, since the stated plan is to sell it as a monopoly. Presumably there will be a gap that will need to be justified on national interest grounds — in other words, a national cost-benefit analysis. It’s a reasonable demand, but would require courage because the figure could be anything, and unless it’s zero, the Coalition would go into a frenzy of inflated opposition. And it might actually be zero: how often does a legislated national monopoly with virtually 100% of the population as customers come onto the market? Any independent expert would put a big premium on that. One of the less tangible benefits of the NBN is the transformation it is forcing on Telstra, unveiled last week as “Project New”. The company has known for 25 years — ever since telecommunications was deregulated in the mid-’90s — that it would eventually have to do this, but successive CEOs — Frank Blount, Ziggy Switkowski and Sol Trujillo — managed to delay it by gaming the regulatory system and suppressing competition. It was the right thing to do for the company, but not the country. Now the NBN has forced the issue, and the extent of Telstra’s transformation over the next three years will be extraordinary; possibly the greatest corporate rebuild the nation has ever seen. Every single process within the company is being examined and re-engineered; every person’s job, in effect, will be spilt. Thousands will leave the business and the company will become a lot smaller. The result, if David Thodey and the Project New team led by Robert Nason pull it off, will be a company that uses its scale as an advantage rather than being weighed down by it. Telstra would become a creator of value rather than a destroyer of it, both for its own shareholders and the nation. Without the NBN, this would have been put off and Telstra would have become more and more uncompetitive, a lumbering elephant nipped to death by hyenas. Maybe Thodey and Nason will fail because the task is simply too hard, but they’re pretty optimistic. It’s an exciting time for telecommunications in Australia. Unfortunately the lack of transparency around the NBN is turning it into a messy, ill-informed debate. *This article originally appeared on Business Spectator. |
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10 Comments
How about the businesses that Alan Kohler invests and has interests in come clean about how much government subsidies they receive, the amount of taxes they legally avoid or have reduced by heavy government lobbying and the amount the tax payer bails them out during hard times?
How about these businesses show us a cost benefit analysis of their tax payer funded subsidies and tax reductions along with transparent planning they have in place in the case of the next financial downturn so they don’t have to rely on tax payers bailing them out?
Best of luck with that.
I don’t understand why Crikey ran this piece in its current form. Bernard Keane’s recent pieces on a cost benefit analysis of the national broadband network and posters’ comments took us way beyond these rudimentary comments.
Calls for a cost benifit analysis are a ridiculous red herring by people who know that the costs are easily measured but the benifits are not, especially the benifits to those segments of the market that their preferred provider, the private sector, have little or no interest in supplying services to because it’s just not profitable. These people need to accept that sometimes there are things that Govt should do just because it is the right thing in the national interest, whether it will ever be profitable or not… Imagine if some idiot had insisted Clem Jones do a cost benifit analysis before he proceeded with his obscenely expensive and much pilloried decision at the time, to provide a sewage system to the whole city of Brisbane..!! Outrageous..!! I have not checked but I suspect there was similar howls of outrage when those new fangled electric lines and trains were also introduced at great cost…
Lot’s of laughs. Kohler can’t see a way to gouge some cash out if it for himself and the rent-seekers he spruiks for so it’s time to start massaging the Government into simply stumping a lot of taxpayers funds directly into him and his mates coffers in return for going easy. The same corporate extortion ploy he went for in the mining tax “debate”. A textbook “cost benefit analysis” is meaningless. Perhaps he should ask for one on the road system and maintenance/upgrades thereof?
While we’re extracting confessions on the level of subsidies received, how about the companies burning fossil fuels? There’s another “messy, ill-informed debate” right there…
I agree with TBW…what cost benefit analysis is ever done for the purchase and/or build of submarines? Need to get off this band wagon and move on.
I thought it was Possum who gave us a wonderful article, only a few weeks ago, informing everyone why a CBA with any useful results could NOT be done on the NBN. Seemed perfectly reasonable at the time and remains so. Anything the so-called business commentators (read AK) has to say is irrelevant. They are only interested in two things; making money and supporting the return of a Coalition Govt so they can continue their cosy rip-off schemes. The lesser beings in the community, all 90+% of us, can take a hike!
let’s have a cost benefit analysis on the war in Afghanistan! Lots of costs we already know about( back to the 19thCentury)……the benefits however we are asked to believe in.
If the NBN is a matter of belief in the benefits, which it is, because they are hard to quantify, they are a lot easier to believe in than the Afghan war.
Why are the bean counters let loose when the visionaries are needed
Cost benefit analysis ‘must-do’ shortlist
- Joint Strike Fighters
- Collins class submaries
- Occupation of Afghanistan, now in its 9th year
- ASIO (now with 10x the budget in 2001) and other ‘intelligence agencies
- ‘War on Drugs’
- Mandatory detention of refugees
That’s just a select few.
I’d say to school leavers looking for a secure career… get into CBA. Heaps of work coming up once pundits like Alan Kohler start getting serious about the need for a rigorous examination of costly publicly-funded activities of dubious/negative benefit.
Syd Walker: None of those ‘ventures’ of the government that you listed compete with the private sector.
It’s not as if we have NO broadband service in Australia. The market already provides broadband to a high percentage of the population, relatively cheaply, considering our geography, albeit not equally and not to the standard most people wish for.The fact the govt intend to privatise it after it is fully built is a complete contradiction, it is just creating another Telstra. What do you think this now commercial entity will do? Raise prices as much as they can, stifle competition as much as they can, and avoid maintaining the infrastructure or ask the govt to pay for it. We will be in exactly the same situation as we are now in 20 years.
If the govt came clean and said, this is the capital outlay to get it built, this is how much we will be subsiding the operation of the network and here are the benefits we can predict now not counting the ones that are yet to be envisioned, I think people would look at it with a fair mind. Of course the coalition will attack it vigorously, but have faith in the Australian people to see through that! I believe this is the courage AK is calling for, which is completely valid to expect of our leaders.