The Shadow Minister for Communications, Malcolm Turnbull, hopped into your correspondent for describing Coalition policy on the NBN as “madness”.
Well, I read his response and we had a long talk last night. Sorry Malcolm, it’s still crazy, and you should still ditch the policy, although of course you’re not, as you argued forcefully to me, an idiot – not that I said you were.
The basic problem, as I see it, is that on this subject the Coalition will go to the election with a plan that won’t be very popular, based on saving money. Everybody’s looking forward to getting fibre: Malcolm Turnbull is going to be the party pooper, coming just as things are getting interesting and pulling the plug on the stereo.
Worse, the money saved – Turnbull estimates $20 billion – can’t be spent elsewhere or used to bring down taxes, because it is capital expenditure, not operating expenditure.
Campaigning on saving money is not usually recommended, and I’m not sure the next election will be fought on the need to bring down government debt, since it’s not too high in Australia to begin with. “Labor waste” might be an issue, but then you have to argue that connecting 93 per cent of Australian homes and businesses to a 21st century optic fibre network is wasteful, which of course is what Malcolm Turnbull does argue.
The Coalition’s policy is based on the proposition that Telstra will quickly agree to hand over its copper access network to the NBN Co for the same money as it is currently getting for transferring customers from it and renting ducts and pipes.
I must admit that is possible. Telstra chief executive David Thodey is a very nice man and it probably wouldn’t enter his head to use the fact that the new minister has made an election promise to screw him for more money.
Indeed, Turnbull argues that Telstra will get its money earlier because a fibre to the node network would be faster to do than fibre to the premise, so Thodey will jump at it. Maybe. But it took years of intensive work to negotiate the existing deal and changing won’t take a couple of days. And in any case the NBN will be a gigantic machine in full flight by this time next year and turning that particular Queen Mary will be not be easy or fast.
So then it comes down to a question of how far advanced the NBN will be by the time Malcolm Turnbull can become its minister and can stop the rollout and negotiate a new deal with Telstra.
It’s true that the latest corporate plan says 54,000 premises will be “connected” by July next year. The election will be held in the second half of next year and I’d say the earliest the rollout could be stopped – unless Turnbull simply declares force majeure, “down tools” – is the following July, when 487,000 homes will be connected.
My estimate of more than a million comes from another definition: “commenced or completed”. It seems to me that’s a more relevant number since the Coalition has said it will fulfill existing contracts.
The plan says 758,000 premises will be commenced or completed by 31 December 2012. There is no estimate for that figure by the middle of next year, but I understand the internal forecast is 1.2 million. The number of premises to be “passed” by July 2014 is 1.1 million, and since it takes 12 months to build each module, that’s consistent with that same number being commenced in July 2013.
It’s possible, I guess, for the new government to pay the contractors to go away and leave those million or so homes and businesses with copper access instead of fibre. But those people will all know they are about to get fibre and might regard paying to have them NOT get fibre as pretty wasteful too.
So Malcolm Turnbull will have to argue that, yes, 1.2 million homes and businesses have fibre available but they can’t use it because we’re going back to copper to save money, although Telstra will get the same amount as before (maybe – if they’re nice, that is).
The other problem, which I forgot to mention yesterday, is that maintenance of the copper access network is now $600-700 million a year as it deteriorates. Over 20 years that adds up to about $15 billion, wiping away most of the savings from using the copper in the first place. The $20 billion in savings is just a guess anyway: it probably won’t be that much because savings never are what you think they’ll be.
The final thing to remember is that the Coalition is not proposing to go back to the way things were. The NBN Co would still be a monopoly provider of wholesale broadband access – it would just do it with fibre only as far as neighbourhood cabinets and then copper the rest of the way – for most but not all, since more than a million premises will already have fibre all the way.
Also, the new minister would have to sack the entire senior management of the NBN Co and hire a whole new team because Mike Quigley and the rest of them all believe passionately in fibre to the premises. And he would have to tell all the service providers that have been gearing up to FTTP, including Telstra, that – terribly sorry – you have to change all your planning to FTTN now.
Very messy, it seems to me. Lots of pain, little gain.
Follow @AlanKohler on Twitter. This article first appeared on Business Spectator.
Alan is the founder of The Constant Investor.
