Communications Minister Stephen Conroy should do more than just remove from the NBN legislation the option for it to be a retailer – he should put in a clause that it will never raise equity or be privatised.
The NBN can, and should, be fully funded by government-guaranteed debt.
Its prices should be regulated to provide a margin over the cost of that funding to pay for management and maintenance, and then that’s it.
And those misty-eyed nostalgics within the government who want to create another PMG or Telecom Australia should be taken aside, arm on their shoulders, and counselled: get over it, the world has moved on, and it wasn’t really better then anyway.
This is an opportunity to build a great public asset that will turn Australia into a hotbed of innovation, but for that to happen the leash on the NBN needs to be very tight – forever.
NBN Co chief Mike Quigley has done the right thing by declaring that he will only provide a very basic bitstream transport service – called Layer 2. The legislation’s main purpose should be to make sure his successors in the future do the same thing.
Raising equity and/or privatising the NBN will set up a demand for growth – equity investors require capital gain as well as dividends, and they would eventually install directors who can provide them with that.
But the best NBN for Australia is one that leaves capital growth to those who use it to transport their bits. Once Quigley and his team have finished the exciting business of building a fibre to the home access network, they should move on and let a group of utility cardigans move in and manage it for a regulated return.
There is an argument that businesses need to be privatised simply because the government is so hopeless at running things, but Medicare Private is doing okay, and in any case – we don’t actually need NBN to be run like a private company. It needs to be managed by government engineers who know how to fix it when it breaks and accountants who can add up the money each month and send it off to Treasury.
We certainly don’t need smart cookies trying to figure out how to make more and more money from it. “Hey! I know – why don’t we set up our own little wholesaling division and offer a one-stop service to government departments?” Or: “How about we do some video channels – Hollywood is offering us some movies going cheap”. That would be a disaster.
Legislation to the effect that the NBN will never be privatised and will only be funded by government-guaranteed debt would also simplify the negotiations going on between the NBN and Telstra – about Telstra transferring its access business to the NBN and renting out space to the NBN in its underground ducts.
I don’t know the details of what’s going on these negotiations, but I’m guessing that Quigley and his board are to some extent hamstrung by the future requirement for capital growth.
They know that their company will, at some point, have to raise equity. That restricts what they can pay Telstra because they have to put blue sky in their business plan.
If the plan only required a fixed margin over the 10-year bond rate, the whole thing would be transformed. McKinsey and Co and KPMG would not have to toil expensively for hours over whether the project can generate equity returns, as they are now doing, and Quigley’s negotiators could be completely transparent with their counterparts from Telstra about what’s available in the pot. It would take five minutes because no one would have room to move.
As things stand, NBN Co and Telstra are, naturally, facing off like two listed companies with shareholders and future growth demands to worry about.
As part of the negotiations, each has produced detailed business plans that, they say, show they don’t need each other.
NBN says it can compete with Telstra’s copper and still make a return over its life, while Telstra believes can make a decent return from its copper network for a while, even if it has to transition to the NBN fibre later without compensation.
But both of them know it would not be ideal. NBN would have to string most its cables in the air, between power poles, which, as Optus found when it did the same thing with its own cable, would provoke a lot of local opposition.
And Telstra would condemn itself to long-term obsolescence with a copper access network, although it could no doubt compete effectively with the new fibre for a while.
So a deal will have to be done in which NBN Co pays Telstra cash compensation to decommission its copper network and rent its underground ducts for the fibre.
Neither side knows quite why the government included in the NBN legislation last week the possibility of NBN becoming a retailer, but it certainly put the proverbial cat among the pigeons. Stephen Conroy has since said it’s just a draft and there’s no serious intention for NBN to be a retailer. Right then – so take that bit out, Minister.
But even apart from that glitch, you’ve got to feel for Telstra’s leadership team right now – with the share price plumbing new lows they are under a lot of pressure to resolve the uncertainty about the company’s future but they know that the mob is primed and ready to howl if they step a millimetre out of line in the announcement.
And they’ll be bench-marked against an impossibly big number – $20 billion-plus – which seems to have entered the market’s consciousness as the value of the copper access network.
With NBN team having to seek an equity return on investment, it’s probably impossible to get to a figure like that for an announcement – even if they add up all the cash compensation for decommissioning the copper and the present value of all future fibre access discounts plus the present value of future rent payments for the ducts.
But it could be close if NBN was just a government utility, and would never be allowed to join Telstra on the ASX.
This article first appeared on Business Spectator.
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