NBN: The Turnbull Node Plan isn't just a Financial Disaster, can only make BIG losses

Turnbull has stopped talking about 'more affordable' because he doesn't want to draw attention to it.
The Coalition modelling required a price be used for line access (AVC), and phone services, BUT they've never declared them.

I've written a more complete list of Coalition wholesale pricing questions that Retailers need for Business Planning. I've approached the Internet Industry Association (no answer yet) and a senior Turnbull staffer (reply was invective and abuse).

More Affordable = Less Revenue = Less Profit.

My calculations, based on assumption as my attempts to gain the basis used by Turnbull et al have been rebuffed.

• FTTN charges will $16/port/month, same as ULLS charge ($192/yr)
• Real growth is limited to 3.5%, presumably by dropping CVC/Volume charges quickly and from a single AVC charge, not tiered as with current plans.
• 30GB Avg/mth = $3/mth in ARPU @ 10c/GB
• Total DSL ARPU:
• =  ($16 + $3) *12 = $192 + $36
• = $228/year

• The Coalition is expecting to pay Telstra NOTHING, even the 'PSAA' payment ($11B) is not included (pg 12 of Coalition NBN Plan)
•  a more reasonable Telstra charge would be 50% of current ULLS fee, $8/mth or $96/year
• places a value of $1000 on asset (@10% ROI, the value Telstra uses for these assets)
• Doesn't allow for 2.5% inflation or "cost of money", interest rate.

• For $900 CapEx and $90 maint/yr, with ZERO payments to Telstra.
• Interest = 6% of $900 = $54
• Maintenance = $90
• Depreciation = $45 (20yrs, straight-line)
• = $189 Expense/Yr
• = $39 Gross Margin/yr/line [EBITDA] ($228 - $189)

 This EBITDA, $39, won't cover $96 for Telstra ULLS charge, nor interest on the already contracted 'PSAA' payment. [The Coalition's estimated value of the 'PSAA' payment is $1,500. I use a lower value.]

•  If $1100 'PSAA' payment accepted, @ 6% interest = $66/year
•  Coalition budgeted to get the lines etc FOR FREE.
• No 'PSAA' payment
• No rental charge
• This is unbelievable.

Only by omitting Depreciation ($45), a cardinal sin in commercial profit/loss accounting, can the Coalition even pay the Interest on 'PSAA' and become "Cash Flow Positive".

Coalition's FTTN has to pay Income Tax as well... at 30%.

• Tax = $12 (rounded up)
• Surplus = $27 surplus, assuming Telstra get nothing but a smile
• That's 40 years to pay out the loan. Twice the depreciation period

 The Coalition needs to be paying off the Capital, from "cash flow" (surplus) after Tax!

• You'd expect no more than 15 years, so there's 5 years for the surplus to generate any Return.
• For last 5 years, Investor Return will be:
•  =  $54 (interest saved) + $27 surplus - $18 (30% of $54 interest deduction, no longer claimed)
•  = $63
• = $315 (*5 yrs) on $900 over 20 years.
• = 1.75% ROI, if they pay Telstra nothing,  as planned.

Otherwise, the Gross Margin is an Operating Loss:

• = $39 - $96
• = -$57/year/line
• = $511M Loss per year
• = $10.2B over 20 years, and they still have to pay Telstra the 'PSAA' of ~$1100.
• 'PSAA' = $8 Billion for 75% of current PSAA on active lines.

• Total FTTN Losses over 20 years:
• $10.2B + $8 B
• = $18.2 billion loss

Note: I've not included growth in CVC charges as the Coalition specifically limit this to 3.5%/year. Starting at $3/mth, over 20 years this reaches $6/month.

Calculating Coalition AVC for FTTN

Why $16 for AVC charge for FTTN ports?

The Coalition EBITDA ARPU  for 2014 is $21.19 in 2012 dollars [pg31 of Background doc]
vs $29.60 for current plan [pg 21 of Background doc]

Assume same $3/mth CVC charges for FTTN and FTTP
and 75% FTTN, 25% FTTP. Minimum AVC charge for all other services (12/1) is $24/mth

• $21.19 ARPU = AVC + CVC ($3)
• = $18.19 AVC
• = 0.75 * FTTN-AVC + (0.25 * $24 FTTP)
• FTTN-AVC = ($18.19 - (.025 * $24) ÷ 0.75
• = ($18.18 - $8)  ÷ 0.75
• = $10.18  ÷ 0.75
• = $13.50

• For 85% available ports active:
• = $13.50  ÷ 0.85
• = $16/mth/active-line FTTN AVC

• It's unlikely that a price lower than current ULLS would be offered to Retailers.

• Why did I choose 75% FTTN in 2014, when that may not be the case?
• To be generous.. 50% FTTN and $18 average AVC is at best $12/mth
• The Coalition Revenue would then only be ($12 + $3) * 12 = $180...

• Similarly, I chose $24 as FTTP-AVC, as it was the lowest, most generous value.

Sources:

Coalition NBN Plan:

pg 12

NBN Co will seek permanent access to Telstra’s copper between premises and concentration points such as pillars, cabinets or exchanges. Telstra has publicly stated the copper has minimal economic value, leading us to anticipate cost-effective access will be attainable.

Coalition Background doc.

p21.

Pg 21: NBN Co Corporate Plan

p31.

Pg 31. Coalition forecasts, without Interest, Depreciation etc