The NBN Investment

In finance, investment is putting money into something with the expectation of gain, usually over a longer term. This may or may not be backed by research and analysis. Most or all forms of investment involve some form of risk, such as investment in equities, property, and even fixed interest securities which are subject, inter alia, to inflation risk.

If a new business  wants to build a factory to produce goods, it needs capital.  It would raise this capital by selling shares in the business.  This will only be possible if the business can convince people that it will be able to provide a return on their investment in the long run.

The Government created the NBN Co to build the NBN.  They expect it to make a 7% return on the money needed to build the network. So they provide the money ( borrowed at a  rate not available to private companies,  about 3 – 5%)  for this as an investment.

So,  the NBN investment is an investment expected to make a return. It is not an expense.

If this turns out as planned, it is almost as if we will eat our cake and have it!  Too good to be true!

And there are significant risks:

  • It may cost a lot more
  • It may take much longer than planned

However, do we have a choice?  The following would indicate not:

  • No private company can do it
  • The existing copper network is inadequite and is starting to fail
  • Why do a cheaper, quicker solution if we will eventually need more than what that will provide. The quicker, cheaper may turn out more expensive, longer!
  • The total benefits are far exceeds the cost if we look a bit further than just the return on investment.

Current Cost Estimate (2012-15  NBN Co corporate plan)

6 August 2012

The table below shows the capital expenditure, operating expenditure and revenue forcasts in the 2012-15 NBN Co corporate plan. The numbers are millions of dollars.

Year Capex Opex Revenue
FY2011 463 337 0
FY2012 888 521 2
FY2013 3,191 1,093 18
FY2014 3,946 1,777 120
FY2015 5,016 2,903 529
FY2016 4,920 3,628 1,346
FY2017 4,224 3,394 2,281
FY2018 3,986 3,351 3,221
FY2019 3,760 3,201 4,200
FY2020 3,610 3,037 5,167
Total 34,004 23,242 16,884

How much is it in the scheme of things

Make the following assumptions:

  1. It will take 10 years to build the NBN.
  2. The schedule for funds required will be as shown in the table above.
  3. Interest on the money borrowed by the government for this investment will be 5%pa compound.
  4. The NBN Co income will be as shown in the table above.

A quick calculation will show that the total funding requirement (capex + opex – revenue) will be $40.4billion.  Compound interest (calculated yearly at 5%) will be $11.2billion.  The total cost for the government is then $51.6billion or $5.16billion per year. 

According the Budget 2012, how it’s spent document, the amount budgeted for 2012-2013 is $372.3billion.  Using the assumptions listed above,  the cost for the NBN for each of the ten build years is  1.4% of the  2012  Australian budget. Shortly after the build has been completed, the NBN will be producing income and the debt will be reduced. 


 Cost to Users

Cost to get connected

Unless you require your indoor network connection to be installed in a very difficult position, installation will be free.

Monthly connection cost

NBN Co provides a wholesale service to ISPs who purchase connections from NBN Co. The price that a end user pays depends on which ISP you choose. In general you can expect to pay the same or less for the same level (or better) than what you currently pay.  This has been proven to be the case to date.  Many ISPs have already published their NBN prices on their internet sites. You can look at some of these prices here.

Price Protection

The Australian Competition and Consumer Commission (ACCC)  controls the prices charged by the NBN.  Below is an extract of comments by Mr. Rodd Simms, charman of the ACCC:

The Australian Competition and Consumer Commission (ACCC) released its first consultation paper on the special access undertaking (SAU) lodged by the network’s builder, NBN Co, on September 28.

The undertaking sets out the terms of conditions and access to the NBN’s fibre, wireless and satellite networks until 2040, while providing the framework for NBN Co to deliver wholesale broadband prices across Australia.

ACCC chairman Rod Sims said the ACCC would assess the SAU before it could determine whether it was reasonable and promoted the long-term interests of retailers and consumers.

“The consultation paper seeks the views of consumers and industry and is the first step in what will be a thorough assessment by the ACCC of the undertaking,”