Prime Minister Malcolm Turnbull has conceded the National Broadband Network will never generate returns high enough to be commercially viable, and blamed Labor for the “mistake” of setting up a new organisation to build the network.
In response to NBN chief Bill Morrow’s comment that something needed to be done to fix the broken economic model under which the organisation operates, Turnbull reportedly said the current 3% return would not be enough if it were a private company.
“It certainly is not a commercial return that the stock market would expect,” he said, according to the AFR.
When asked Monday at a press conference whether the NBN was “a mistake” and a “waste of money”, the Prime Minister reportedly agreed.
“Well, it was a mistake to go about it the way they [Labor] did; setting up a new government company to do it was a big mistake.”
He took the example of New Zealand as a better model, where that country’s biggest telco had its network infrastructure team split out from its retail business – then commissioned to build a national fibre network.
In Australia, the NBN company pays an ongoing fee to incumbent Telstra to gain access to infrastructure spaces like underground pits.
“So the way Labor set it up was hugely expensive. And there are many billions of dollars wasted — and I’ve said this many times, it’s a fact of life — that we can’t recover. So having been left in a bad place by Labor, what we are doing is ensuring we deliver it as quickly and cost-effectively as possible but I have to say to you, again, one complaint is one complaint too many.”
The comments come ahead of an ABC TV Four Corners report on the NBN, which is expected to be critical of the “digital divide” created by the arbitrary level of performance Australians receive – and are sometimes different on the same street.
Morrow spoke to Fairfax Media about the NBN’s obligation to pay back its costs to the government, meaning it could not lower the fees charged to retailers and hence consumers.
The NBN collects about $43 monthly per home from retailers, but in order to cover costs it needs to ramp that up to $52.
“We, NBN and the board, are betting that future applications are going to bring more value into homes, that they are going to need more bandwidth or more data and that the retail service providers will pay us more,” Morrow said.
“It’s a bet we’ve taken. If it doesn’t come together, we’ve got a problem.”
Some industry critics, such as telco entrepreneur Bevan Slattery, have argued the NBN should be seen as a social contribution by the government which should not be expected to bring a direct profit back to Treasury.
“I said in 2010, 2012, and 2015, and I’ll say it again in 2017. The NBN will never make a commercial return,” Slattery told a conference in April.
“This is the single fundamental problem that is screwing up broadband in this country… It was a stupid policy dreamt up on a plane between Sydney and Canberra between the prime minister and [communications] minister of the day, and we’re still living with the consequences of those stupid decisions.”
Morrow this week also worried about the rising competition from mobile networks, which will not be charged the roughly $7 per month levy to be placed on NBN’s fixed-line competitors to subsidise the national network’s work in expensive rural areas.
“The government has two options: to regulate to protect this model, or to realise that the NBN won’t have the finances it thought and might require some off-budget monies to go in to make it happen.”
NOW WATCH: Tech Insider videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.