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Tuesday, 5 July 2011
Page: 7625


Dr JENSEN (Tangney) (17:42): The National Broadband Network continues to be plagued by cost blow-outs, rollout disasters and questionable business practices, yet the Gillard government are barrelling ahead, unfazed by the mess they are really in. We have long known that Telstra, under its deal with NBN Co., 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 or 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 the consideration in detail stage, could not guarantee that those people who do not wish to be hooked up to NBN Co. 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. 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.

I repeat that this is $33 to $34 per month per customer—wholesale. He says:

Yes. I’m talking about wholesale price, but it will directly reflect into retail price.

Just the amount that NBN Co. need to charge each customer wholesale exceeds the current commercial rate that is charged for a retail 25 megabits per second service. Hackett 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 seven per cent return on investment as outlined in their business case, NBN Co. must charge a premium price for its backhaul and thus the cost to the retail service providers will be in the order of $50 to $60 per month for a 25 megabits per second 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 average Australians are struggling to meet their basic needs? The likes of Dodo and TPG currently offer a 24 megabits per second 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 per cent 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 per cent.

These telcos know they have the economic and technological edge. Telstra now have $11 billion to further develop this NBN competing technology, courtesy of government policy. Their wireless networks can provide internet access from as low as $20 a month and NBN Co. can only offer through its retailers a basic service at $50 to $55 per month. Telstra will be laughing all the way to its shareholders—a copper network that it no longer wanted and funding to develop a wireless network in direct competition with the NBN, courtesy of the government.

Not only is the 17 per cent wireless cap blown out of the window but the seven per cent return on investment will also never be reached. Further, according to the NBN Co. business case, the writers have assumed as part of their modelling that 100 per cent of greenfields sites within the fibre footprint will be serviced by NBN Co. It is my understanding that already there are other companies developing greenfields sites, so the 100 per cent is clearly shot. How does this affect NBN Co. modelling if it does not get all greenfields sites? Will this affect the seven per cent return on investment? The government is the guarantor of a huge equity injection into NBN Co. But the government expects this money back. It is not a subsidy; it is not a grant; it is a commercial investment needing a commercial return—so we are 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 seven per cent figure that I have mentioned. Given the issues of take-up, wireless competition, greenfields developments, wage break-outs 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 the NBN cannot make a return on its capital? Removing the moral hazard inherent in bailing out a government backed enterprise, would the government allow the NBN to fail? If the government had to raise more money, would this come from consolidated Treasury revenue? If NBN Co. were 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 questions 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 that Telstra is running a game plan whereby the final outcome of its $11 billion deal with the government will be to buy NBN Co. from the government. This will of course include the buyback of its infrastructure at a reduced cost to supplement its already 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 naive recalcitrant who is holding a losing hand and does not 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 taxpayer and Senator Conroy. Nobody is suggesting the government does not have a role to play. Government can do a lot of good, but only if it settles for being the handmaiden of the market. There are serious issues, but the waters grow murkier.

I have received information that complaints have been made to Senator Conroy's 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. had stolen intellectual property provided to the government through its tender process. Mr Deputy Speaker, I am sure that 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.

Then we come to another costly spin campaign. An outfit is being paid $4,000 a day to develop and implement a comm­unications strategy, which, I understand, is an $800,000 total package. 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 do not need these types of marketing campaigns, and that is precisely the point. The NBN is a bad idea. We do not need to spend $50 billion plus on fibre to every home whether the occupants need it or not, want it or not, or are prepared to pay for it or not.

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 currently put up for the NBN. There are a lot better things to spend this money on, but then this government does have a propensity for wasting money and for bad policy development.