Why a write-down for NBN Co is not the main issue

The possible write-down of taxpayer’s investment in NBN Co is again making news. The Labor Opposition have again put a spotlight on this issue by challenging the chairman of NBN Co, Ziggy Switkowski, to justify his statements that no write-down is necessary at this point in time. Both Switkowski and the Minister for Finance, Senator Cormann, have engaged in the debate with Labor (see here and here $$$).

But while this may make good political headlines, the real problem for NBN Co is not the write-down but whether it can generate enough revenue to remain operational. In other words can NBN Co continue without more taxpayer funding over and above the $51 billion that has already been committed via equity and debt.

NBN Co is currently forecasting it will be marginally (ie. $100 million) cashflow positive in FY 2022.

The main reasons for the debate regarding write-downs are the growing calls for NBN Co to reduce its wholesale prices. The effect of this will be to reduce NBN Co’s revenues and hence the argument goes that this will reduce the value of the company. But the more immediate problem is that this will mean NBN Co is not cashflow positive in FY 2022 and may never reach it depending on the size of the price decrease.

Futhermore, if NBN Co starts losing customers to fixed wireless broadband competitors, which is now clearly a possibility given Optus 5G announcements this week (see here), then this will also reduce NBN Co’s revenues.

So the question really is not about a write-down of the taxpayer’s investment which is after all, mainly, a question for the accountants.

The real question is how will NBN Co be funded beyond the build phase if its revenues are not able to fund its ongoing expenses.

For a more detailed analysis on what to do with the NBN please check out my piece in the Australian Journal of Telecommunications and the Digital Economy (https://telsoc.org/ajtde/2018-11-v6-n4/a162)