The NBN endgame

The NBN end game is unexpected and how the government might disaggregate and sell off the NBN assets is discussed this week in Business Spectator. Last year Communication Minister Malcolm Turnbull trumpeted the reports of the six National Broadband Network (NBN) related reviews and audits as justification for the government’s decision to implement the mixed-technology roadmap. Hidden amongst the hubris were a few gems the “economic zealots” can be rightly proud of.

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Last year Communication Minister Malcolm Turnbull trumpeted the reports of the six National Broadband Network (NBN) related reviews and audits as justification for the government’s decision to implement the mixed-technology roadmap. Hidden amongst the hubris were a few gems the “economic zealots” can be rightly proud of.

The litany of reviews and audits might well be looked back as a meticulous exercise in pulling apart legislation enacted by the previous government.

Before we consider the eventual disaggregation of NBN, a significant recommendation made by the review and audit teams, we should ponder why Labor left the door open and made it relatively straightforward for the Coalition to refocus the NBN from a forward looking nation building project to something far less substantial.

Is anything set in stone?

NBN’s outsourced construction approach has been on the receiving end for some time and while a new more competitive dynamic has been injected by NBN chief executive Bill Morrow and his team, one can only wonder what might have occurred if NBN had an internal construction division and entered into a binding contract in 2010 for the Fibre-to-the-Premises (FTTP) infrastructure plant and vendor equipment for the entire nation; and the contact had a huge penalty clause for cancellation or a change in technology.

The opportunity for the Coalition government to change from FTTP to the obsolete Fibre-to-the-Node (FTTN) might have been curtailed.

The Examiner recently reported that Turnbull has confirmed that the government would honour existing FTTP contracts in Tasmania as “the alternative would be to breach them and that is a course we would not countenance''.

This approach does not always work, especially if an incoming government is prepared to wear a huge financial penalty to abort what it considers to be a bad project. A recent example of how infrastructure projects can turn into financial and political disasters was the Victorian East-West Link project.

What is interesting about the East-West Link project was the cost per metre would have made the project one of the most expensive of its kind ever undertaken anywhere in the world.

But wait a minute, isn’t that the same argument the Coalition used when in opposition against Labor’s FTTP rollout? Hasn’t Turnbull stated at every opportunity that the nation could not afford Labor’s gold plated FTTP NBN and “they don't care what it costs or how long it takes - they want fibre to the home regardless.”

“That point of view is reckless in the extreme. Every public infrastructure project has to be carefully and honestly analysed so that governments, and citizens, can weigh up the costs and benefits.”

Disaggregation and insolvency

The main objects of the NBN Companies Act 2011, together with Part XIC of the Competition and Consumer Act 2010, are to provide:

1. a regulatory framework for corporations that promotes the long-term interests of end-users of carriage services or of services provided by means of carriage services;
2. to ensure that NBN Co remains in Commonwealth ownership until the following events have occurred:
   1. the Communications Minister has declared that, in his or her opinion, the national broadband network should be treated as built and fully operational;
   2. the Productivity Minister has caused to be tabled in both Houses of Parliament a report of an inquiry by the Productivity Commission;
   3. the Parliamentary Joint Committee on the Ownership of NBN Co has examined the Productivity Commission’s report;
   4. the Finance Minister has declared that, in his or her opinion, conditions are suitable for the entering into and carrying out of an NBN Co sale scheme, and the declaration has taken effect;
3. to provide a framework for restrictions on private ownership or control of NBN Co.

What this means is there were four hurdles included in the Act that have to be achieved before NBN can be sold off. The Communications and Finance Ministers determine whether the network has been completed and how the sell-off is to occur. To ensure that there is public visibility of the conditions surrounding the sell-off a Productivity Commission report is to be prepared which will then be examined by a Parliamentary Joint Committee.

Without the legislative support in both Houses of Parliament necessary to change the Companies Act, the government of the day would face significant public scrutiny in any attempt to sell the NBN.

The Act identifies 31 December 2020 as the anticipated date by which the NBN should be completed and any sale prior to 31 December 2020 would be required to follow the steps in Section 48 and these include the four hurdles noted previously. 

But perhaps the government has been somewhat lax by also providing for NBN to sell assets under Section 33 which states that “the Communications Minister and the Finance Minister may, by written notice given to an NBN corporation:

(a) direct the NBN corporation:

(i) to dispose of one or more specified assets of the NBN corporation (otherwise than by transferring the asset to another NBN corporation); and

(ii) to do so within the period specified in the notice; and

(b) give such other directions to the NBN corporation as the Communications Minister and the Finance Minister consider necessary for the purposes of securing the disposal.“

What this means is the Communications Minister and the Finance Minister have been provided with an option if there is a decision to disaggregate the NBN and sell off the constituent parts (or will Telstra simply buy the lot?). Nothing under Section 33 appears to prevent the Communications Minister and the Finance Minister from taking this action especially if they determine that by disaggregating the NBN this will “promote the long-term interests of end-users of carriage services or of service provided by means of carriage services” (Section 33 (2)(a)).

But how can the NBN be sold off if disaggregation occurs? Section 97 states that “this Act does not, by implication, prevent an NBN corporation being wound up in accordance with the Corporations Act 2001.” If the NBN is disaggregated and the component parts sold off the government appears to be able to wind up NBN as a (now) insolvent company.

Looking back at Labor’s attempt to put in place legislation to support the NBN it’s hard to miss the gaping holes that the Coalition is now exploiting.

Probably the biggest mistake made by Labor was failing to put a technical hurdle into the legislation that would have prevented a change from FTTP, for example, that a minimum of 93 per cent of Australians would be provided with a ubiquitous all-fibre access network capable of providing connection speeds of 100 Mbps download and 40 Mbps upload by 2020.

And the second and third significant mistakes are compounded by the first because the Companies Act permits the Communications Minister to declare that the NBN “should be treated as built and fully operational” without any technical parameters specifying what “built and fully operational means” and having made this declaration the government can then proceed to disaggregate the network and wind up an insolvent NBN.

So when Turnbull says the NBN is finally finished don’t be surprised when you get far less than what you anticipated.

Mark Gregory is a senior lecturer in the School of Electrical and Computer Engineering at RMIT University.