Questions remain over NBN business case after study suggests network can be built without Telstra

Government negotiations with telco giant Telstra will still continue even after the KPMG implementation study said the National Broadband Network could be constructed without any further assistance.

But questions have been raised as to the veracity of the report, with one broadband analyst saying there isn’t enough detail to establish a substantial economic business case for investment in the network.

Communications minister Stephen Conroy announced the release of the study yesterday, saying it provides a case for constructing the network without any assistance from the private sector.

But the Government has still given Telstra a deadline of June for negotiations, saying it will construct the network without assistance if necessary if an agreement cannot be made.

“I wouldn’t imagine we could keep talking through to the end of the year, I wouldn’t imagine we could keep talking through to the end of June, at some point you’ve got to make a decision — either you’re going to get there, or you’re not. You shake hands and you walk away, if you can’t,” Conroy said at the press conference yesterday.

Telstra has delivered a reserved response to the report, telling ComputerWorld the company is “interested in [the report’s] findings and will consider them in detail”.

SmartCompany contacted Telstra for comment, but no reply was received before publication.

But David Kennedy, research director at Ovum, says the report is lacking in detail and does not provide an economic case for the network’s construction.

“The report has made assumptions about take-up rates and pricing in order to reach those figures, and I think at these stages these are just assumptions and don’t seem to be backed up by any detail of research,” he says.

“The two areas I am referring to are the uptake of fibre, which is quite high and they are predicting a 6-12% uptake rate per annum, but if you look internationally that is only happening where an incumbent is building fibre itself and transferring existing traffic to that network.”

Kennedy says the report, which sets a wholesale price of between $30-35 per month, is merely an estimate and furthermore, the notion that taxpayers could see the Government recoup its investment within five years is based on a hypothetical take-up rate.

The report also claims full taxpayer investment could be reclaimed by year 15 of the operation assuming full-take up and privatisation is completed. But Kennedy says this is an arbitrary figure.

“The report actually seems to assume a deal with Telstra. There are certainly a lot of considerations to make regarding the report, but on the key issues of take-up and pricing settings, there actually isn’t a lot of quantative analysis the back the assumptions they’ve made.”

“How can you just price wholesale access so low that it’s the same as current DSL prices, and still claim you’re going to get a viable business out of it? That is the crucial question and it isn’t being addressed… there is nothing in here that’s actually a business case for the network.”

Despite the criticism, the Government is using the report to bolster its assertions the NBN is economically viable.

The report suggests the $43 billion price can be reduced with investment, the fibre component of the plan should cover 93% of the population instead of 90% and should cover 1.3 million extra homes.

This comes in response to criticism from the Opposition, which has said for some time that the NBN is too expensive at $43 billion, will not deliver any economic benefit and does not even carry a business plan.

Opposition communications spokesperson Tony Smith has said the Coalition will continue to oppose the rollout of the network, and will introduce an alternative proposal closer to the election.