Steve Ciobo and Malcolm Turnbull talk NBN at a Telstra exchange
Infrastructure Australia has recommended the government look to privatise NBN for almost half the price it will cost to build. The recommendation was formed on the basis that, well, it went so swimmingly when Telstra was privatised.
In its Australian Infrastructure Plan released yesterday, the organisation suggested that NBN (formerly NBN Co) should be transferred from government ownership to private ownership “in the medium term”. It suggests this could be done by splitting NBN along technology lines, so there would be one company for fibre to the node, one for cable, and one for wireless/satellite; or alternatively the government could sell it geographically, so instead of being a “national” broadband network, it would become the “New South Wales Broadband Network”, the “Victorian Broadband Network”, or the “Sydney Broadband Network”.
Labor paints the NBN as a nation-building infrastructure program that will give the country an invaluable asset for decades, but in reality, the party always had plans to sell it off. In an attempt to downplay arguments from the then-Coalition opposition, Labor said NBN would need to have a decent rate of return in order to justify it as an asset that could then eventually be sold off. Initially the sell-off was slated for five years after the rollout had been completed, but the Greens forced the government to conduct a public interest test before any potential privatisation of the network.
Now with the technically inferior version of the NBN being constructed under the Coalition government, Prime Minister Malcolm Turnbull has often joked that he believed NBN would be ready to privatise sometime during Wyatt Roy’s prime ministership.
But Infrastructure Australia has suggested NBN be privatised when the rollout is completed (currently scheduled for 2020), provided there are adequate regulations and after a scoping study has been completed. It says privatisation will benefit competition and investment in infrastructure in telecommunications in Australia. The basis for this assumption? The privatisation of Telstra led to an adequate competitive environment for telecommunications, or so it says:
“Because of these … reforms, the telecommunications sector’s regulatory and market structure has responded effectively to major technological disruption, such as the development of mobile services and the growth in demand for data services.”
This somehow overlooks that one of the main reasons NBN was created in the first place: to address long-term structural and competition issues created by the privatisation of Telstra, and Telstra’s recalcitrance to upgrade its infrastructure.
When Telstra was privatised in the 1990s, the government opted to keep it as a single company that both owns the network and operates as a supplier of services to the general public. This has meant that the retailers like Optus, iiNet and others have had to compete against the company from which they also buy services.
Legislative changes over the years have attempted to restrict the competitive advantage Telstra as a retail company has over other telcos because it also runs the network, but the company still fights against most restrictions placed on it. For example, Telstra is currently fighting the ACCC in the Federal Court over the price it is allowed to charge for services on the copper network it is in the process of flogging off to NBN for the multi-technology mix.
Any major advances in telecommunications infrastructure in Australia have largely been on the back of Telstra’s structural advantage. High revenues from fixed-line services that were more costly than in other parts of the world were plugged into rolling out Telstra’s Next G mobile network, which then allowed Telstra to dominate the mobile market, while resisting any substantial upgrades to its fixed network.
Any plan to privatise NBN would need to be coupled with strict guidelines to continue to prevent NBN from offering retail services in competition with its direct customers like Telstra and Optus, and with pricing controls that would prevent the company from seeking a higher return on investment.
That makes it more difficult to justify privatisation. If the company cannot maximise returns, will that make it less appealing to buyers?
It also seems illogical that the government would seek to acquire an asset it once sold off (the copper network) only to then again sell it off at a lower price once the network has been finished being rolled out in 2020. PricewaterhouseCoopers, which analysed the assumptions made in the infrastructure plan, estimated that the NBN would only fetch about $27 billion, less than the $29.5 billion capped investment from government, and much less than the $54 billion the government has estimated the Turnbull model of the NBN would cost. Once the $29.5 billion investment from the government has been used up by NBN, it will need to go out and seek private investment for the remaining funding for the construction of the project.
PwC found that privatising the NBN would have the smallest impact on GDP of all the proposed reforms in the plan. It assumes a 5% efficiency gain, and would generate a GDP per annum of $119 million in 2031, and $126 million by 2040.
The government said NBN would not be sold off in the short term, in response to a similar recommendation of the Vertigan review. Turnbull said in 2014 that NBN’s cable network division would be kept as a distinct business unit to make it possible to sell off that component of the business in the future, but he said that any immediate split of NBN would incur large costs and would be “an unacceptable distraction” during the rollout.
Turnbull yesterday did not speak about privatising the NBN, but he said that it, along with other projects outlined in the Infrastructure Plan, would be vital to Australia’s future prosperity.