The next federal election is fast approaching, which means for the next couple of months, political news will be reported more like moves in a chess game rather than important national information.
There will be a lot of, ‘vote for us and we’ll do this’ or ‘don’t vote for them because they’ll do that’.
Today, we’re covering Labor’s latest promise to Australia if they are elected.
It has to do with the national broadband network (NBN); that insanely fast internet technology scheme which households across Australia have been waiting to become accessible in their area. It’s been a painfully slow transition from the copper cables…and an expensive one as well.
According to AAP and The Australian Financial Review, Labor intends to fix this by writing down the value of NBN, making it more affordable and therefore helping telco retailers in the process.
More customers means more profit which means faster progress to faster internet.
And we aren’t afraid to admit, it does sound like a pretty good plan. That is, until you realise that Labor aren’t technically liable to fulfil this plan…
Labor’s selling pitch
Michelle Rowland, communications spokeswoman for Labor, says the party are forming this NBN policy around the notion that ‘honesty’ on the future of broadband is necessary.
She refers to data from NBN Co — the government-owned company in charge of Australia’s high-speed internet — which shows that nearly 160,000 people were waiting for the NBN switch from July 2017 to June 2018.
A Senate committee was also informed by NBN Co that customer satisfaction regarding services went from 7.2/10 in 2016 to just 6.5/10 in 2018.
‘Australians are reasonable and do not expect perfection — but they expect better than this,’ Ms Rowland told AAP.
‘Less downtime, greater accountability and fewer missed appointments — that is what consumers deserve and what Labor wants to achieve.’
To do this, as we’ve already said, Labor are looking at reducing the value of NBN Co by as much as $20 billion, which would in turn lower its financial return targets from 7% to just 3.2%.
This means NBN Co can lower their broadband wholesale prices to telco retailers like Telstra, Optus and TPG Telecom. As a result, these telcos can then sell broadband internet plans at a cheaper price to the everyday customer.
And as we said, it’s a very appealing cause-and-effect chain. The problem is, the government isn’t allowed to fulfil the first step.
Plan is against the rules
As Finance Minister Mathias Cormann pointed out last week, neither Labor nor the Coalition have the right to decide on a write down of NBN Co:
‘The government’s investment in NBN can only be written down in accordance with the requirements of relevant accounting standards, and subject to independent audit.
‘These standards require there to be evidence that the investment should be written down and do not allow this to be done at the government’s discretion as seems to be implied in some of the commentary on this.
‘In fact, the value of NBN can only be written down where the NBN Company itself has assessed that this is required for its assets under Australian accounting standards.
‘This assessment is made by NBN independently of government in preparing its financial statements and is subject to independent assessment by the auditor-general.
‘The proposition that somehow the government should be making an arbitrary, political decision to write down the value of NBN or any other investment in a government business enterprise is false.’
Of course, Labor have attempted to get around this technicality by noting it is well within their rights to ‘suggest’ a write down to the company. And, as this plan looks ideal for both telco retailers and NBN Co itself, Rowland believes the possibility of the company taking their advice ‘looks more likely’.
But there are still some concerns that we wish to highlight…
The figures we need to explain
As it stands, estimates say that the completed NBN rollout will have cost around $51 billion. This means the current book value of NBN upon completion is also $51 billion. So if it sells for less than that, the government would be out of pocket.
$29.5 billion of this cost estimate is in the form of a federal government equity investment. This hasn’t appeared on the budget bottom, because it’s considered a commercial investment. However, if this investment ends up being written down, the government need to take the loss.
What this means is, if returns end up being less than the 3.2% target we outlined earlier, ‘the $29.5 billion of taxpayer equity would be added to the budget deficit because it would be counted as a grant rather than equity’, as AFR reports.
Labor is insisting that there’s no danger of the lowered target not being met. They believe the decrease in price of broadband plans will entice many more customers and therefore keep profits up.
But it’s important to remember that around 180 retailers are currently offering NBN to customers. That’s intense competition, no matter how you look at it. And that could mean telcos’ margin relief could actually suffer from these lower wholesale prices.
What’s more, Liberal’s push on mixed technologies means there are alternatives to NBN that may look more desirable to consumers. We’re talking the new 5G wireless broadband, or even TPG Telecom’s competing fibre-to-the-basement network in metropolitan cities.
We’re not saying the plan has no way of succeeding. We just want you to be aware that it isn’t exactly foolproof.
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