Analysts greet NBN Study but ask for business case

Analysts have broadly welcomed the findings of the NBN Implementation Study, but expressed some doubt around the state of a business case for the national infrastructure project.

Ovum's David Kennedy said the Study's cost estimate of $26 billion for coverage of 93 per cent of the population was realistic and in the range the analyst house had expected -- between $25 and $30 billion.

However, there was much less detail in the Study on the revenue side, Kennedy said, particularly around the assumptions on the rate of fibre take up.

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Analysts have broadly welcomed the findings of the NBN Implementation Study, but expressed some doubt around the state of a business case for the national infrastructure project.

Ovum's David Kennedy said the Study's cost estimate of $26 billion for coverage of 93 per cent of the population was realistic and in the range the analyst house had expected -- between $25 and $30 billion.

However, there was much less detail in the Study on the revenue side, Kennedy said, particularly around the assumptions on the rate of fibre take up.

"They are predicting, based on international experience, a six to 12 per cent per annum take up where fibre is rolled out," he said. "But, if you look at their examples it's places like Japan, Korea and Holland. In those cases we've had an incumbent transferring its customers over to fibre. That can happen here, but only if a deal with Telstra is struck.

"In the event of a competitive scenario with Telstra the benchmark is more like Italy where the newcomer is competing against the incumbent and the take up is just two per cent."

Kennedy was also sceptical when it came to the extent to which the Study provided a business case for the NBN.

"There's nothing in this report that you'd call a business case." He said. "The question of how much the government is going to be committed to capitalising [the NBN] and how much they will get back I don't think is settled by this report."

According to telco industry stalwart, Paul Budde, the Study confirmed the importance of the NBN as national infrastructure project and as a utility for the digital economy.

The NBN's return on investment figure of between six to seven per cent would also mean that it was possible to create wholesale prices that were competitive.

According to Communications Minister, Stephen Conroy, entry level NBN wholesale prices would start at between $20 and $30 for basic broadband.

"Based on this a $30-$35 wholesale rate is most certainly achievable and will lead to a $50-$60 retail prices for a combined broadband services (20Mb) and a voice service," Budde said in a blogpost on the Study. "This certainly is a competitive price. This will lead to a rapid penetration and that in turn will make the roll out economically viable."

On the question of a business case and return on the NBN Budde said it was critical to leave the NBN in government ownership for the duration of the roll out to ensure a competitive and affordable environment.

"It is perfectly acceptable that as a utilities investment the government works around a 15 year pay back period, again this applies to many other forms of infrastructure," he said.

Echoing the Study's comments that the NBN could be built without Telstra, Budde said this was possibly but would require some overbuild.

"There obviously will be a cost saving - at a minimum of $5 billion according to the study - if the NBN can be built in cooperation with Telstra," he said.

Emilie Ditton at Telsyte said while there was no doubt that NBN Co could push ahead to build the NBN in the event that Telstra chooses not to be part of the NBN, an network without Telstra would lead to far greater build cost, far fewer subscribers in the initial years and a slower rate of take-up, which would mean the project would not achieve the market share required to satisfy investors.