One day soon we will download this NBN disaster

It is only a matter of time before the federal government admits it will never recover billions of dollars from the National Broadband Network. It will be an ugly moment in a federal budget that has seen more than enough catastrophe in the past decade. At the stroke of a pen, the commonwealth could be landed with more net debt.

Malcolm Turnbull has conceded the problem but has yet to sign the formal surrender. He blames Labor for a “calamitous train wreck” and owns up to the dismal returns on the investment so far. All that is missing is an official decision to accept the money is gone for good.

Unfortunately, the past decade of budget deficits coincided with a period of escalating promises about faster internet speeds, with politicians assuring voters they could fix their slow downloads. No project in Australia is so thoroughly compromised by political hype, as leaders on both sides steadily raised expectations they consistently failed to meet. It is an astonishing political failure.

Throughout its history, the NBN has been a contest between consumers and taxpayers about who should pay for a public good that delivers private benefits. The taxpayers have lost every round. They will lose the next round, too.

There is plenty of blame to be shared. The Coalition decided against a structural separation of Telstra, then chose to sell Telstra without locking in a broadband plan. The Telstra board appointed Sol Trujillo and went to war with Canberra. Labor sketched out a $43 billion spending program that was all hope and no detail but struggled to build it quickly enough. The Coalition then sacrificed the quality of the connection in the name of a faster rollout to households.

What started as a $4.7bn promise from Kevin Rudd and Stephen Conroy before the 2007 election has turned into a $49bn nightmare for the Prime Minister and Mitch Fifield. The reality of the network today can never live up to the brochureware of the past.

There is no going back. Australians wanted a broadband network the private sector did not want to build. Politicians told them the government would build it for them. What the politicians also promised was a uniform price for all households to appease regional communities. This had to come with a vast new monopoly, the NBN Company, which had to be defended at all costs against “cherry-pickers” that would try to build private networks to poach wealthy customers in big cities.

It was all there in the advice to Stephen Conroy as minister in 2010 and it shapes the project to this day. Do not think a levy on 5G mobile services is a shock. This is where the debate has to turn every time the NBN faces a competitive threat.

This is all done in the name of achieving a rate of return that is supposed to give the commonwealth its money back when the NBN repays its debts and is sold off to a private buyer. That means it is all based on a fantasy. Nobody will commit $49bn in combined debt and equity to buy the NBN — at least not in the near future.

The $49bn consists of two elements: a $29.5bn equity injection and $19.5bn in loans, with both sums financed by commonwealth bonds. Almost all of the $29.5bn in equity has already been transferred. The loans were meant to come from the private sector — proof, so the early plans said, that the NBN could pay its own way.

That changed last November when the government said it would provide the loans to “help ensure” the rollout.

Who wins from a writedown? Consumers. Without pressure to meet financial performance hurdles, the NBN Co could ease prices and worry less about the pace of its spending on the rollout. This would be brilliant news for Telstra and other internet providers because they will have healthier profit margins if the NBN Co does not have to charge them so much.

At issue is the charge the NBN levies on broadband providers for capacity. The Connectivity Virtual Circuit charge was meant to repay taxpayers for the infrastructure they financed. Now it is the barrier to giving consumers lower prices for higher download speeds.

NBN chief Bill Morrow will outline new prices before Christmas. It is safe to assume these will see customers getting download speeds of 50 megabits per second for the price they now pay for 25 megabits. The challenge for the company and the government is to manage the lower financial return.

Finance Minister Mathias Cormann says there is “no scope” to cut the value of the NBN. “The government cannot, on the basis of an arbitrary political decision, make such a writedown and still be consistent with accounting standards,” he told Senate estimates this week. This is a logical and fair point, for the moment.

A decision has to come sooner or later. By the time of the next election, the government will have to map out budget forecasts to 2023 including the end of the rollout and the sale of the company. This is the trigger for a writedown of some of the $29.5bn, with the amount of the writedown adding to net debt because there is no longer an asset to balance the ledger. A Labor government would have every incentive to review the project and cut its value, blaming the Coalition for the red ink. So the writedown will come under either government, even if the timing is uncertain.

The NBN enters a critical phase next year. Most of the rollout has been to regional areas until now, but the technicians will be spreading across more marginal electorates in the big cities soon. The pricing change in December will be crucial to keeping these households happy. This immediate political imperative will take priority over the company’s internal rate of return and any longer-term sale.

Yet the deeper problem never goes away. Australians who are unhappy with their internet speeds today may be just as unhappy when they upgrade to 4K televisions and find their high-definition Netflix movies freeze when the kids next door are on school holidays. The NBN is a nation-building project that is needed for the century ahead, but at some point the burden must shift from taxpayers to customers.