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Australia's National Broadband Network - Will it Pay?

Click here to buy - A How To Book of SMSF's by Tony Negline
Mark Edwards

"We don't need any more studies, any more cost-benefit analysis to know this is an infrastructure investment Australia is calling out for," - Communications Minister Stephen Conroy in parliament 12 May 2009.

I for one am very keen to experience a true broadband connection with fibre to the home (FTTH) via the proposed National Braodband Network(NBN). However, I am not too sure that I would be as eager to invest in the project to build the NBN itself. As a taxpayer, it would appear I have little say in the matter.

The proposed cost of the NBN is $43 billion dollars, part of which is to be privately funded. To attract investors in such a project I would imagine it would need to generate revenue of at least 10% per annum.

That equates to revenue of $4.3 billion per annum. Let's see if that is feasible.

According to the Australian Bureau of Statistics ( http://www.abs.gov.au/ausstats/abs@.nsf/mf/8153.0?OpenDocument ) at June 2009 there was a total of 8,420,000 internet accounts in Australia.

ABS Internet Access and account data

The table above shows the subtotals for each type of connection. Using this table we can make some assumptions about takeup rates for FTTH.

Assume that all of the current 1,087,000 dial-up subscribers will switch to the NBN.

From the non dial-up group, assume that the 1,961,000 mobile wireless subscribers will remain with a mobile wireless connection.

Finally, assume that the remaining 5,372,000 non dial-up subscribers will all switch to the NBN.

This gives us a total of 6,459,000 NBN accounts.

Each account needs to pay $666 per annum or $55.50 per month to the owners of the NBN to generate the $4.3 billion in annual revenue needed to deliver a 10% return.

This would be a wholesale rate paid by ISP's to the owners of the NBN. If this is the wholesale rate then the retail rate may be over $100 per month. This is not exactly cheap.

Various factors would reduce or increase these monthly costs:

The takeup rate for the NBN will not approach 100% for some years after the NBN is complete - this would increase the monthly cost.

The project may well cost significantly more than $43 billion dollars to complete - this would increase the monthly cost.

There will be more internet accounts in Australia by the time the network is operational - this would decrease the monthly cost.

Obviously, the above analysis is nowhere near as detailed and extensive as would have been performed by the government and treasury to justify spending such a large sum of money. However, even a very rough analysis like this can show that a significant cost increase and a slow takeup rate would present significant hurdles to making the NBN a commercially viable piece of infrastructure.


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