Dr Dennis Jensen MP

The national broadband network continues to be plagued by cost blow outs, roll out disasters and questionable business practices. Yet the Gillard Government is barrelling ahead un-fased by the mess they are really in.

We have long known under its deal with NBN Co, Telstra will be forced to rip out its copper network to make way for a fibre replacement, but we are neglecting the ultimate consequences this will have for the end consumer. Closing down the copper network will force customers who only use a phone line to switch to NBN Co retail service providers. As you can understand, pensioners who have been with Telecom/Telstra all their lives will not be happy changing providers but what really bites is that this change will mean higher service costs. Customers will potentially pay a higher retail internet rate for their phone service as opposed to the line rental and fixed price package they have always signed up for. Minister Albanese in Consideration in Detail could not guarantee, that those people who do not wish to be hooked up to NBNco, will still be able to access a telephone only service for the $19.95 a month plan, including line rental Telstra currently quotes for a home phone service.


Simon Hackett Founder and Managing Director of retail service provider Internode recently gave an interview with the Business Spectator and his predictions on service costs do little to allay my fears

“The NBN co’s business model says they need to earn $33 to $34 per month per customer on average to pay the government back…Yes, I’m talking about wholesale price, but it will directly reflect into retail price.”

Just the amount NBN co need to charge each customer wholesale, exceeds the current commercial rate that is charged for a retail 25 MPS service.

Hacket continues:

“…We and everyone else are just going to add a reasonable commercial margin to those costs and charges, so like the NBN we are just passing on government policy in terms of what that does to consumer prices.”


Senator Conroy continues to tell the Australian Parliament that one of the benefits of the NBN is to lower the price of services to consumers. But to maintain the fated 7% return on investment as outlined in their business case, NBNco must charge a premium price for its backhaul and thus the cost to the Retail Service Providers will be in the order of $50-$60 for a 25Mbps service. Senator Conroy continues to quote the rollout prices of the Tasmanian Trial but as we now understand the retail providers are yet to be charged for access to this network. After all, this is just a trial, and does not represent commercial reality. Senator Conroy clearly misunderstands basic economics.


The $29.95 per month fee provided by one Retail Service Provider could increase to $59.95 once the NBN backhaul charges are applied on the mainland. How can the Government justify this significant increase in cost for broadband services during a time when the average Australian is struggling to meet their basic needs? The likes of Dodo and TPG currently offer a 24Mbps service for $29.95 per month.
If the average Australian has to pay more for their internet access, would this not drive more people to cheaper and just as fast 4G networks? The NBN Co business case assumes a cap of 17% of the market accessing wireless services. But Telstra and Optus are building 4G networks Australia wide. Two profitable companies would rarely invest billions of dollars for a share of the market of only 17% of the market.

These telcos know they have the economic and technological edge. Telstra now has 11 billion dollars to further develop this NBN competing technology, courtesy of government policy.Their wireless networks can provide Internet access from as low as $20 dollars a month and NBNco can only offer through its retailers a basic service at $50-55 dollars per month.

Telstra will be laughing all the way to its shareholders, for a copper network it no longer wanted and funding to develop a wireless network in direct competition with the NBN. Not only is the 17% wireless cap blown out the window but the 7% ROI will also never be reached.

Further according to the NBN co business case, the writers have assumed as part of their modelling that 100% of Greenfield sites within the fibre footprint will be serviced by NBNco. It is my understanding that already, there are other companies developing Greenfields sites, so the 100% is already shot. How does this affect NBNco modelling if it doesn’t get all Greenfields sites?

Will this affect the 7% Return on Investment? The government is the guarantor of a huge equity injection to NBN Co. But the government expects this money back. It is not a subsidy, it’s not a grant, it’s a commercial investment needing a commercial return, we’re told. As we know that means everyone in the city is going to have to pay more than they could have for the NBN in order for country consumers to pay the same price. So the cross subsidy is actually coming out of consumers’ pockets, rather than subsidies provided by the government. There is a huge amount of pressure on that 7% figure I have mentioned. Given the issues of take up, wireless competition, Greenfields developments, wage breakouts, and infrastructure cost blow outs the Government faces significant pressure to deliver on its NBN promises
But does the Government have a contingency plan if NBN can not make a return on its capital?

Removing the moral hazard inherent in bailing out a Government backed enterprise, would the Government allow NBN to fail?

If the government had to raise more money, would this come from consolidated treasury revenue?

If NBN co was to fail, would the government look at selling it back to Telstra?

Do you think Telstra expects NBN co to fail?


The Coalition is asking these pertinent question but answers from Conroy and Gillard that refrain from focus grouped hyperbole (or, for the benefit of the prime minister, hyper –bowl) are few and far between. Private enterprise is always better than government at running a business.


Even from afar we can see Telstra is running a game plan where by which the final outcome of its 11 billion dollar deal with the government will be to buy NBN co from Government. This will of course include the buy back of its infrastructure at a reduced cost to supplement its thriving wireless services. Are the government and Senator Conroy happy to be bested by Telstra in the game of business? Is the Senator a pawn in Telstra’s endgame, a mere naïve recalcitrant who is holding a losing hand and doesn’t even realise the game has been won and lost, right now, under his management? The winner, as always, will be the more efficient private sector, the loser being the tax payer and Senator Conroy. Nobody is suggesting the Government doesn’t have a role to play, government can do a lot of good, but only if it settles for being a hand maiden to the free market.

These are serious issues but the waters grow murkier.

I have received information that complaints have been made to Senator Conroys’ department regarding breaches of the Commercial in Confidence contracts signed by the companies who entered the NBN co Greenfield tender process. The companies involved are complaining that NBN co has stolen intellectual property provided to the Government through the tender process. I’m sure you can understand the seriousness of stealing another company’s intellectual property. It would of course undermine the future business dealings of a state sponsored enterprise like NBN co and would reflect poorly on the Minister who selected the management team at NBN co.

And then we come to another costly spin campaign, an outfit being paid $4,000 a day to develop and implement a communications strategy, an $800,000 package in total I understand.


Labor is quick to publish the headline but we are kept guessing about the story long after the paper has been recycled.
I maintain if the NBN is a good idea you don’t need these kinds of marketing campaigns. And that precisely is the point. The NBN is a bad idea, we don’t need to spend $50 billion-plus on fibre to every home, whether it needs it, wants it or is prepared to pay for it. The NBN can be replaced by a comparable alternative, with better functionality that utilises a mixture of technologies for less than a third of the cost of the NBN.


There are a lot better things to spend this money on