The Department of Finance appears to have been behind a push by then-communications minister Malcolm Turnbull and Finance Minister Mathias Cormann to get NBN to compare the alleged cost of Labor’s version of the NBN against the Coalition’s multi-technology mix.
As one of his final acts as communications minister before he resigned and successfully challenged Tony Abbott for the prime ministership, Turnbull launched NBN’s latest three-year corporate plan.
The document has had a controversial history. In the life of the Labor government, NBN corporate plans had been accompanied by announcements that the network would cost a bit more, and construction targets would have to be revised.
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It was no different for Turnbull. Instead of the $29.5 billion network he had promised before the election, which could be quickly upgraded by 2016, it would now cost between $46 billion and $56 billion, and most premises would not be connected until well after the 2016 election.
But to give cover to the Coalition’s “multi-technology mix” model, NBN handily put together the numbers for what it would cost if the company were to switch back to Labor’s model of the NBN — even though some of that cost would include the cost of the switch itself.
That figure came out at $84 million, and the company estimated it would take between six and eight more years to complete.
How did a government-owned business come to essentially cost an opposition’s (potential) policy without Labor asking for it? Turnbull asked NBN to do it.
In April last year, Cormann and Turnbull sent a letter to the chair of NBN, Dr Ziggy Switkowski, asking NBN to undertake an “updates cost estimate” for a fibre-to-the premises rollout to be “an important counterfactual to the multi-technology mix” model of the NBN now being rolled out by NBN, which uses legacy copper lines for fibre-to-the-node services, and cable instead of full fibre.
NBN agreed to complete the “counterfactual” as part of its corporate plan released in August.
One of the major points of criticism is that what was referred to internally as “scenario 1.5” was interpreted by the public as being the cost for Labor’s version of the NBN. This wasn’t helped by Turnbull, who told Parliament on October 21 and November 25 that “Labor’s original plan” or the “Labor Party’s approach” would have been $30 billion more.
“That is a fact,” Turnbull said.
In reality, this is a fictional model of the NBN that exists somewhere between what would have happened if Labor’s model had kept being rolled out (scenario 1) and what would happen if a number of cost-savings identified by former NBN CEO Mike Quigley were implemented (scenario 2).
But much of the additional cost in scenario 1.5 is that it takes into account the estimated $8 billion of additional cost that comes from switching from Labor’s policy to the Coalition’s policy in the course of the last two years, and then the cost of renegotiating contracts and switching back.
In an estimates hearing in October, Cormann was asked to provide advice given by the Department of Finance as to whether a government-owned company like NBN should be undertaking “counterfactuals” of opposition policies. The department ultimately refused a request to table the advice on the grounds that it would be inappropriate and contains commercial-in-confidence material.
Crikey has obtained redacted versions of these documents under freedom of information law that show that in March last year, Finance advised Cormann to ask NBN undertake a costing of a full fibre rollout.
In a heavily redacted letter to Cormann from the department sent a week before the letter was sent to NBN, Finance acting assistant secretary for the NBN branch Andrew Bourne revealed NBN had already submitted its draft business plan to the government in late March, but suggested “an updated FttP scenario” using experience gained by the company since December 2013 “may provide a useful comparison for key financial and operational metrics set out in the MTM Business Plan”.
Bourne noted this “would not replicate the rigor of the Business Plan” but would include peak funding requirements for the infrastructure project, and rate of return.
NBN eventually completed this work in late May, and in a letter to Turnbull and Cormann, NBN boss Bill Morrow said that the new estimates took into account historical and current cost per premises figures, changes to industry engagement and construction contracts, peak construction rates, and possible impacts of competitive threats from alternative networks and technologies, as well as cumulative cost forecasts for ongoing network operations.
“We can confirm that despite higher than anticipated cost and risk, the Multi-technology mix (MTM) rollout remains a superior strategy to an FttP rollout for fixed line areas.” Morrow blames higher cost for the latter on construction costs, operating costs and revenue generation.
The full details Morrow included in the letter to the ministers were redacted, citing commercial-in-confidence.
With an election due this year, Labor still won’t say what its policy will be for the NBN if it wins back government. Labor communications spokesperson Jason Clare has only indicated that Labor would implement a “two-step” version of the NBN where fibre-to-the-node services are eventually upgraded to fibre to the premises. Turnbull’s policy was not released in detail until five months before the election.