NBN & Telstra
Yesterdays press has the news that Telstra has agreed, in principle, to migrate it’s copper and cable data networks to the government owned NBN Co. Assets to be transferred were valued at $9 billion dollars and another $2 billion for .. I’m honestly not sure, for a total settlement of $11 billion dollars. Under the proposal, government will pay $9 billion progressively as the copper and cable data network is decommissioned, NBN paying Telstra a fee for every customer migrated to the brand new, shiny NBN fibre network.
At a quick glance you could be excused to being thrilled at the idea of being moved from copper to fibre.
But there is something screwy and circular about this whole deal.
For a long time government policy has been based on the idea that public involvement in private enterprise was inefficient and wasteful. Look at any news article about the Sydney public transport system in the last ten years or more. Its very reflective of a school of thought, dating from the Reagan years, that government is philosophically wrong to be in commercial ventures and useless at it to boot.
I’ll side step the argument as to whether privatizing Telstra speeded up data, reduced phones bills and increased service levels as the philosophy suggested it would.
But what’s at the core of this proposal?
Having sold off Telstra, according to the grand privatization plan, the government is now proposing to pay Telstra $11 billion dollars to get out of the wholesale business. So the government can run it. Not only that, the $11 billion dollars isn’t going to actually buy any asset for the government, they’re going to shut down the copper and cable ‘assets’ as they go. Tax payers actually receive nothing for their $11 billion.
It’s not an investment, it’s a redundancy package.
Additional to this, tax payers will also get the huge bill for building the national fibre network. According to the FAQ’s on the NBN web site the government is so far committed to spending $43 billion. It’s worth remembering that the sales of Telstra netted something like $12 billion and $15 billion each, for a total of about $27 billion. That was for both the retail and wholesale networks and business. Now the government can’t build the wholesale network alone for less than $43 billion plus an $11 billion redundancy payout.
What this proves is when they sold the Telstra network for $27 billion it was miles below the asset replacement value. If the new NBN fibre network costs $43 billion to build, but Telstra was sold at $27 billion, that’s a 37% discount. Oh, but wait - if we add in the $11 billion redundancy they only paid a net $16 billion, at which point we see the discount was 63%. Sold for close to one third of it’s wholesale asset value. If we add in the retail network, the retail business, future earnings and goodwill the discount was obviously bugger. Sorry, freudian typing there!
To state it another way, tax payers were ripped off by at least $27 billion dollars in the sale of Telstra, plus whatever the entire retail network and business was actually worth. I would never suggest any kind of fraud. I tend towards the simplest explanation, which appears to be that the government of the day was commercially incompetent.
If you’re a pessimist, remember this when you drive through a pothole on the way to sit in line at an under resourced hospital.
If you’re an optimist, remember this when the government decides it doesn’t want to own the NBN anymore and starts offering 63% discounts.
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