Calls grow louder for NBN write-down

THERE are growing calls for a major change in the way the NBN is valued to ease the country’s internet woes but the government remains defiant.

CALLS for the government to write-down the value of the NBN are growing louder as industry experts suggest the government’s hand will eventually be forced on the matter.

Telecommunications consultant Paul Budde has welcomed the fact the country’s top consumer watchdog recently indicated its support for the NBN Co to reduce the financial burden it operates under, paving the way for an overhaul of the project that could lead to improved performance for customers.

“The fact that the ACCC (Australian Competition and Consumer Commission) has now joined the chorus is a significant development,” he wrote in a blog post yesterday.

The ACCC recommended the Turnbull government “consider whether NBN Co should continue to be obliged to recover its full cost of investment through its prices” in a draft report into the communications sector released in October. The final report is due out in early 2018.

Essentially, the ACCC said the project would require direct budget funding for non-commercial services, relief from having to repay debt provided by the government, or an asset write-down.

Mr Budde, who helped organise industry consultation with Labor in the early stages of the NBN project and has been a critic of the Coalition’s multi technology approach, says he is concerned by the government’s response to the ACCC’s initial suggestions.

“The (Communications) Department and the government clearly indicated that they were not happy and what worried me was that they actually stated that the ACCC should seek to discuss with the government before they make an announcement,” he told news.com.au.

“In my opinion they are trying to interfere with what the ACCC wants to say. It’s a worrying situation for an independent organisation.”

The NBN project is kept off the government books and has been mandated to turn a commercial profit and return taxpayer money to government coffers. However NBN boss Bill Morrow has previously cast serious doubt on the company’s ability to be profitable.

A write-down in the value of the network would give NBN Co breathing space to reduce the amount it charges retail telcos to both access the network and provision bandwidth for their customers. The latter charge, known as CVC, has been criticised for being too expensive and blamed for being the source of congestion problems on the network.

If the government is willing to treat the project like a road or a hospital and include part of its cost in the budget, telcos like Telstra and TPG could be charged less to use the network and the consumer experience would very likely improve.

But the government has repeatedly shut down the idea to spend any more taxpayer money on building the network since it lent NBN Co an extra $19.5 billion in November 2016. In October, Finance Minister Mathias Cormann told The Australian Financial Review “there is no basis for such a write-down,” saying such a thing would need to meet accounting standards and could not be done “at the government’s discretion.”

In his blog post, Mr Budde criticised the Coalition for its lack of leadership on the issue as the 2020 completion date for the project draws near.

“If they don’t take the lead it is important that the rest of the country (industry and users) start looking at what would be the best strategy in the wake of the inevitable write-down and restructuring that will result in a major change to the Australian telecoms market,” he wrote.

A growing number of voices — including the Greens — have been calling for an NBN write-down to help address problems faced by end-users.

Last month JPMorgan analyst Eric Pan wrote to clients suggesting a government write-down was on the cards, a move the bank thought would provide a boost to Telstra’s share price.

“We believe it would be in the best interest of Australians for the government to require a lower return on its investment in the NBN to allow the NBN to focus more on the service being provided rather than on profitability,” she wrote.

“To do so, it’s likely that the government will have to write-down some of its investment.”

If it was to occur, such a decision would be unlikely to take place until after the completion of the rollout but Mr Budde says he would like to see the government begin public discussions on the future of NBN Co.

“There has to be a solution for the whole situation, they will obviously wait until after 2020, I can understand that,” he said. “The trouble is if they solely base their next step of telecommunications (policy) on the value of the NBN then we are in deep trouble.”

In the long run, if the government does not consent to a write-down or some other form of cash injection for the company behind to project, Mr Budde believes the cost of home broadband could edge higher for consumers.

“Doomsday scenarios include continued political denial leading to increased regulation to prop up a financially struggling NBN company, creating further market distortions,” he wrote. “This will further block innovation will lead to higher prices for the users, and in general hamper economic growth and productivity.”