The National Broadband Network will pay its way and return the Government about 6-7% on its investment once it is rolled out and privatised, the Government’s implementation study has found.
The long-awaited study, by McKinsey and KPMG, has given a strong endorsement to the NBN proposal, finding it generated a rate of return even under conservative cost and revenue scenarios, one at or slightly above the Government bond rate, though below a commercial rate of return.
Finance Minister Lindsay Tanner called it “a classic case for government investment.”
Following a detailed national mapping process, the study found that a national broadband fibre network could be rolled out beyond the 90% originally announced by the Government, for the same or less cost than the $43b anticipated by the Government. The McKinsey/KPMG model envisages a 250,000 km fibre network to 93% of the Australian population, with the remaining 7% obtaining 12 Mbs (significantly higher than comparable international speeds) served by a combination of fixed wireless and next generation satellite services. It will also reach the additional 1.3m new houses anticipated to be built during the life of the project.
According to the report, the rollout is anticipated to cost $38-43b in out-turned costs, but it would cost significantly less if a deal could be negotiated with Telstra to access its infrastructure. The report’s conclusion that a unilateral build could be achieved for the same or less than forecast by the Government, and that the NBN would generate a return, is likely to increase the pressure on Telstra to reach a deal on infrastructure access.
The study also found that the planned 8-year timeframe was realistic, the study concluded, and more conservative than international experience suggested.
The study concluded that the NBN could offer retailers entry-level wholesale access prices of around $30-35 a month for a voice/20Mbs service and $25-30 for broadband alone, contradicting claims from conservative critics and NBN opponents that access would cost hundreds of dollars.
Crucially, the study concluded that the Government would need only invest a maximum of $26b over the first seven years of the project, with NBN Co able to fund the remainder of the cost of the rollout from its own commercial earnings. That investment would return $40b once privatisation was completed, yielding a rate of return comparable to or higher than the Government bond rate. Only under a scenario of a significant blowout in the cost of fibre deployment did the NBN rate of return drop to 4.5% on the $35 a month costing.
The study estimated that rollout costs for about 70% of premises were about $3000 per premises, but began rising after that, with costs accelerating rapidly once 85% of premises have been reached. However, the study concluded that costs up to 93% of households were acceptable, and only became prohibitive beyond that point.
The study has also dismissed claims that wireless broadband will undermine NBN’s fixed line fibre network, saying limited wireless capacity was dependent on expensive infrastructure and continuing expansions of spectrum and that the planned fibre network was virtually “future-proof” given its capacity.