It may cost $43 billion, plus inflation over the next eight years, the downpayment might be $4.7 billion, but the Rudd plan for a national broadband network has made Telstra shareholders, including The Future Fund and through it the taxpayers of this country, more wealthy this morning.
How long that will last is open to question, but the 3% rise in Telstra shares from $3.21 on Monday night to $3.30 just before noon was contrary to what commentators and analysts were saying would happen.
Telstra shares have been as low as $2.99 two weeks ago as investors fretted about the loss of presence in the Government’s broadband plans.
Telstra issued a conciliatory statement about the plan and the review of telecoms regulation that the Federal Government also revealed at the same time.
The first paragraph was very different to some more recent Telstra utterances on these sorts of issues, especially from the chairman.
Telstra today welcomed the Government’s announcement about its proposed $43 billion new national broadband network (NBN).
Telstra Chairman Donald McGauchie said: “We look forward to having constructive discussions with the Government at the earliest opportunity. There is a lot to absorb in the Government’s announcement and we will consider every aspect in detail.”
Purr, purr. Is this why investors snapped up more than 126 million shares in the first two hours of trading?
Telstra shares had fallen more than 20% since it was excluded from the NBN plan late last year. But this morning up they jumped to a morning’s high of $3.37. It was as though punters were saying Telstra was a winner, but that’s hard to see at first glance.
The fibre-to-the-premise network will run to 90% of Australian homes and businesses. The Government will make an initial investment of $4.7 billion in the company but intends to sell its interest within five years after the network is fully operational. It will be a major competitor for everyone in communications, from Telstra down to the smallest content provider.
Pay TV groups like Foxtel and Austar will need to take heed and get on board in some way, Free To Air TV networks such as Seven, Nine and Ten and the Government duo, the ABC and SBS, will need to be involved someway. Fairfax and News Ltd will have to join otherwise a national broadband network could make their existing offerings and business models redundant and look ageing and loss makers.
The Government says it will seed the $43 billion and kick it off, with contributions then sought from the investment community and investing public.
“The network will be funded from Aussie Infrastructure Bonds while private sector investment in the new company will be capped at 49%”, the statement said this morning.
Those infrastructure bonds have been discussed for some months and originally there was talk that some state governments were interested in going down this route, but nothing happened.
The bonds will be marketed heavily to Australian investors now shy of returning to the sharemarket because of the big losses they have suffered since the crunch started back in August 2007.
There is a risk here that the Government might oversell it. The Name Aussie Infrastructure Bonds recalls the Aussie Bonds that were marketed in the 1970s by the Whitlam and Fraser Government to help finance deficits. In one memorable case, Repco was caught rorting the $100,000 maximum by having a multiple of holdings. The chairman of Repco at the time was the then Federal President of the Liberal Party.
But there’s also a whiff of the old infrastructure model here in that there’s a mix of government and private interest (a variation of a PPI, a Public Private Partnership).
Those types of financial arrangements are now viewed suspiciously by the market.
Just look at the debacle in Brisbane with BrisConnections where the Bligh Government, Macquarie Group/Bank and Deutsche Bank are in knots over what is a dog of a company and investment. The road way this company is trying to build was the biggest infrastructure project in Australia at $4.9 billion. Now Kev had gazumped that dubious claim.
Then there are the Cross City and Lane Cove Tunnels in Sydney, under used, over financed and broke in all ways except the banks pulling the plug and saying goodbye.
The City to Airport railway in Sydney was supposed to be a killer deal: it went broke and the NSW Government had to pay to buy it back and continue its operations.
And in the fibre optic cable area (which is what will be at the heart of the NBN), does anyone remember the ambitious plan to girdle the country?
Eternal partners Leighton and Macquarie Bank were involved in the project (Just as they are in BrisConnections). This is what Leighton said in August 2000:
Nextgen Networks today announced that it will develop an $850 million national optic fibre network of approximately 8400 km in length extending from Brisbane to Perth via Sydney, Canberra, Melbourne and Adelaide.
Nextgen Networks is a business venture between Leighton Contractors and Macquarie Bank. Lucent Technologies will be the supplier of technology and services.
And what happened? It went broke and after contributing $140 million of its own, Leighton took it over in 2004 for around $30 million. Almost a billion dollars lost in the project.
Before its time? Yes, just were as the HFC cable Telstra and Optus madly rolled out in the 1990s in their cable TV/telephony rush that ended in big losses and tears.
Broadband’s time is more current, but what about those wireless networks developing across the country?
These huge projects do not have a good track record in Australia. and it doesn’t matter if its built by Labor or Liberal.