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The NBN legacy – Rising prices and falling global rankings

Remember when the NBN was going to bring Australia a feast of fast and affordable broadband? Then how is it that Australia is 82rd in the world and falling ever further behind? And how is it that broadband bills keep rising in Australia while falling around the world?

Bob James and I have written many times over more than a decade about the failings the structure and level of NBN pricing. The time seemed right to remind people of why we are in the present situation. See The NBN Legacy_Final

What is the fair value of the NBN?

The Department of Communications estimates the value of the NBN based on the depreciated current replacement cost less the present value of leave and superannuation. It should now turn to using net present value of discounted future cash flows; as it does now for Australia Post. In doing that, it should not assume that average revenue per users will rise at the rate needed to recover costs but assume levels that reflect the market (especially competition from wireless broadband). It is likely that the fair value revealed by this DCF estimation will then lead to a write down in equity.

SeeEconomuse 2017-10-24

NBN Co. fiddles while Roma buffers

The two major problems with the National Broadband Network business model are the pricing structure and the future level of prices.

In November 2016, the nbn conducted its third secret consultation on CVCs; a controversial aspect of its pricing structure. It is still fiddling with a hopeless construct. The pricing structure is too complex, does not lead to affordable retail prices and will not lead to the transformational outcomes expected from this broadband project.

Worse, the nbn clings to the hope that it can turn a profit on a very expensive project which was priced initially to smooth migration from legacy copper networks. This will mean increasing wholesale revenues per line (ARPU) over time; which has not been the case historically for broadband ARPU.

For more on the latest consultation, read economuse-2016-11-30

The NBN and competitive neutrality

In my previous column, I said I would explain how the discount rate might be set for a company with neither debt nor equity. The NBN is not quite the same but the same solution was used for it both by the ACCC and the BCR. Combining that information with the BCR’s estimate of the economic loss that the NBN incurs in supplying fixed wireless and satellite services, I find that that there is some evidence that the NBN is breaching competitive neutrality – i.e. competing unfairly. This issue was first raised by the NBN’s competitors in greenfield fibre sites and the issue is likely to arise again.

The most logical solution, it seems to me, is to write-down assets (and the corresponding amounts in the ICRA) so that the overall internal rate of return becomes commercial.

For more, see Economuse 2016-06-06