Coalition plan to scrap NBN faces key challenges, Citi report argues

The Coalition faces a number of key challenges in halting construction of the National Broadband Network and implementing its own policy if it wins power at the next election, a report by Citi has found.

The findings come just as the NBN Co. continues to roll out construction, with three more firms being awarded contracts worth several million.

The Citi report studies the Coalition broadband policy in-depth and suggests that such a major policy change – while not impossible – would prove difficult. Although Telstra is set to benefit either way, the report notes the Coalition market approach faces “some big hurdles”.

“If the Coalition shuts down the NBN, they will be faced with committed expenditure that is forecast to total as much as $15 billion by the next Federal election,” it says.

“Ceasing the NBN rollout means sinking these costs, while terminating any contracts in place is likely to incur break penalties. A tough pill to swallow.”

Overall, Citi says the cost of scrapping the NBN and implementing a new policy could reach $17 billion, and that the plan itself could be completed by 2018. It also faces challenges associated with terminating contracts, selling NBN fibre assets, cancelling roll-out and re-writing structural separation legislation.

The report points out that the Greens control the Senate, and any new legislation would need that party’s approval. “This poses a major obstacle given the current state of the Senate,” it notes.

Coalition communications spokesman Malcolm Turnbull was contacted this morning but a spokesperson was not available prior to publication.

Telsyte senior research consultant Chris Coughlan says there has been plenty of speculation on what would occur if the Coalition were to gain power, but the reality might not be as dire as some of NBN’s fans suggest.

“Frankly, my view is that the Coalition would need to unwind the Telstra and the NBN deal. Then they’ll do a commission review to determine the best way forward, and in the interim while that’s happening, they’ll slow down deployment of assets.”

“They’d continue with wireless deployment, and ultimately, they’ll try and strike a deal where NBN assets are transferred to a fully separate network that would be privately owned.”

However, Coughlan notes rewriting the Telstra-NBN legislation will be a huge task, saying it incorporates “a number of assets including infrastructure amendments and leases for 20 years, with 10-year options”.

“The ongoing liability for the Coalition will be that contract.”

The report itself also notes that the shape of the market will be quite different under a Coalition scheme, saying such a mix between private and public “poses a number of limitations”, including distorted pricing, infrastructure investment focused on metro areas, and a lack of forecast for future demand and services online.

Meanwhile, the NBN Co. has continued to roll out new contracts worth $635 million over the next five years to six different companies.

Madison Technologies and Warren & Brown, two Australian-owned companies, have received contracts, along with a partnership between an American and Australian firm, Optimal.

Three international companies, Corning Cable Systems, TE Connectivity and 3M, have all won contracts as well.

The contracts cover a number of deals to manufacture fibre cables, distributors, terminals and wall outlets, along with other pieces of infrastructure.