NBN Co business case summary leaves many questions unanswered

Stuart Corner
Wednesday, 24 November 2010 16:36

IT Policy - Regulation

In a bid to win over independent senator, Nick Xenophon, to secure passage of its NBN legislation, the Government has released a 36 page summary of the NBN Co business case, but it is devoid of any pricing information, any estimates of revenue or of service take-up rates.

Nonetheless, it says that "the pricing structure and levels have been set to achieve a viable internal rate of return based on NBN Co's estimates of take up of different speed tiers and connectivity capacity usage. The project returns, on an unleveraged basis, are expected to exceed the long term government bond rate."

And, it claims that "NBN co pricing points will allow any retail service provider to offer substantially higher quality products (ie much faster speeds) at highly competitive prices in today's market."

Based on take up and speed usage growth assumptions, NBN Co says it "anticipates being able to reduce real prices for all products and nominal prices for all products, except the basic service offering, while maintaining an internal rate of return above the Government long-term bond rate."

The internal rate of return is also "dependent on completion of the Telstra deal, which has a material impact on construction costs."

Also, NBN Co says its business case and IRR estimates are based on its preferred 14 points of interconnect model being adopted.

On the basis that its deal with Telstra is consummated, NBN estimates the total capex of its network, will be $35.7m by 2020 and in addition it will have paid Telstra $13.8b by that date for decommissioning of Telstra infrastructure and its use of Telstra infrastructure.

It estimates total government equity requirement to be $27.1b and says that from 2020 - 2022 it intends to replace equity funding with debt to achieve a 1:1 balance by 2022.

It expects to be paying shareholder dividends to the government from 2020, which in aggregate would repay the government entire equity by 2034, even if no shares were sold to private investors.


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