Comments on: NBN Revenues Provide Interesting Calculations

By: Michael Wyres

Michael Wyres — Mon, 22 Oct 2012 08:09:00 +0000

You could start with accepting that you’ve gotten it wrong.

The BUILD project is 10 years. The FINANCIAL aspect of the project is 30 years.

The outlay is set to be recovered over THIRTY years.

Since you’re so fond of quoting the business plan, check out page 9, and I quote:

“The higher level of connections and revenues beyond FY2021 results in higher projected cash flows, which increase the forecast return (IRR) from 7% to 7.1% over the 30 year period used for the NBN Co financial model (from 1 July 2010 to 30 June 2040).”

Sounds like thirty years to me.

Secondly, I *NEVER* related anything to ARPU. You know, when I said “They’re not there to “make money” – ARPU is therefore irrelevant.”

It was YOU who related it to ARPU when YOU said: “On p.69 of the current corporate plan, the NBN needs at least $20 ARPU in the current years.”

Am I denying you $6b figure? Yes. It is easy to do so. If all 12 million premises took the top plan at $34.00 pcm, that’s only a smidge over $4b.

Yes, that doesn’t include CVC pricing, but that’s near impossible to model, because every ISP will do it differently.

If you can’t accept that the project has a 30 year financial life, it’s clear you haven’t read the business plan you keep quoting from – rather, you’ve cherry picked the pieces that suit your argument.

You argument is therefore, invalid – because you are basing it on inaccuracies – deliberate or otherwise.

What is embarrassing is your refusal to believe the 30 year project length, and your attempts to wriggle out of it, while still refusing to accept it.

By: Jim

Jim — Mon, 22 Oct 2012 07:28:00 +0000

Wow. Just wow. I don’t know where to start.
Alright, first point — it’s a 10-year project. Remember the policy as conceived by Labor is to sell the NBN once the network is complete so the revenues in 2021 are incredibly important.
Second, you are denying that the $6b+ figure is correct. That is what the NBN themselves have said in their corporate plan — see p.72 http://www.nbnco.com.au/assets/documents/nbn-co-corporate-plan-6-aug-2012.pdf
You simply can’t dispute that the $6b+ figure is needed as conceived by the NBN to recover costs. By the end of the 30 year period, by the way, the annual revenue needed to recover costs is more than $14b pa. Remember the full extent of the recoverable costs includes both capex and opex — that is, they have to recover all costs of Telstra, Optus deals etc. So don’t try to backsolve projected revenue streams purely on the $37.4b capex. Also, we still don’t know how the NBN quantified its Initial Cost Recovery Account in its SAU — but it has basically been rejected by the ACCC anyway and they have had to go back to the drawing board.
As to tripling of the wholesale costs — that is exactly what they are proposing to do. See the proposed uplift in ARPU on p.69 of the corp plan.
In terms of prices, the NBN may say its planning to hold prices on specific products at half of CPI but it is also proposing to a) impose CVC costs to recover revenue through increased usage (no wonder they love quoting the ABS stats on usage) b) upsell customers to other products like multicast ($20 a month) and c) upsell customers up speed tiers.
And finally, you say they have exceeded a $24 ARPU in 92 per cent of premises — my whole point is that you can’t simply equate AVC charges with APRU. You’ve clearly never done any financial modelling for a telco before.
So to recap, the whole premise of your post is just utterly, embarrassingly wrong. The assertion that $2m in revenue shows that the NBN is now a great cash-cow for taxpayers is just wrong. It shows us … nothing of great significance. We simply need much, much more data to make an informed opinion on the economic viability of the NBN project

By: Michael Wyres

Michael Wyres — Mon, 22 Oct 2012 06:41:00 +0000

You seem to be of the mistaken opinion that the project is a ten-year project.

The build project is ten years, but the financial terms of the project run for 30 years. If it were 10 years, your $6b+ figure would be close to the mark.

But it would also mean the approximate tripling of the wholesale cost – ($24.00 vs $72.00) – which would defeat the goal of maintaining rough parity with current pricing levels.

Some ISPs still fork out more than $24.00 to Telstra for wholesale access now, so $72.00 would be a laughable figure.

No, the financials terms are 30 years, so your point is completely invalid.

By: Jim

Jim — Mon, 22 Oct 2012 05:05:00 +0000

But by 2021 (when the build is finished) they’ll need $6.1b in revenue pa to be on track to making a return (corp plan p.72). So no, $2.52 b is not impressive — it would mean the gov is on its way to burning 58% of its investment.

By: Michael Wyres

Michael Wyres — Mon, 22 Oct 2012 04:56:00 +0000

Jim – I actually said that in the post. That most, if not all, would only have been connected for a part year. I also pointed out that NBN Co didn’t even charge for the full year, starting in fact in October 2011.

This is also why I provided the theoretical figure of $288.00 per customer service – (12 x $24.00) – as a comparative measure.

In using the $149.97 figure, I’m pointing out that even it’s infant stages, when pricing wasn’t even place for the whole year, that it still makes a revenue return.

If you’re trying to suggest that $2.52b – (or even $1.34 billion based on the lesser per premise result) – is not a decent amount of revenue, I don’t know what you think is.

ARPU is not the guiding principle as to NBN Co’s revenues. Their goal is to return the investment, with a 7% return, over the 20 year life of the project.

They’re not their to “make money” – ARPU is therefore irrelevant. $24.00 returns their costs, plus 7%.

Nothing more, nothing less.

By: Jim

Jim — Mon, 22 Oct 2012 04:48:00 +0000

Michael, i think you’re seriously confused about this. It is wrong to extrapolate that $2 million revenue can be divided by total customers to give a yearly revenue spend. Many customers will have only connected to the NBN for part of the year. $149.74 per customer per year is extraordinarily bad — that assumes an ARPU of just $12.4. On p.69 of the current corporate plan, the NBN needs at least $20 ARPU in the current years and then push it up to $60 by 2020. The NBN are providing very little information on revenues but as you can see by the graph on p.69 they’re below the 2010 projections on ARPU. No offence but this was one of the most intellectually weak analyses of the NBN economics I have ever seen. If you want to follow someone who knows their stuff, read Ian Martin who publishes often in the TJA.

By: Michael Wyres

Michael Wyres — Mon, 22 Oct 2012 04:29:00 +0000

I look to publish facts – not the “facts” that some politicians believe in…

Spending money to advertise some facts is perfectly reasonable…

By: Dylan Xavier

Dylan Xavier — Mon, 22 Oct 2012 04:16:00 +0000

You Zealot. how dare you publish such controversy!

Seriously thou. do you think that the common man knows this. Or are that listning to Tony Abbot and the main stream media that publishes articles like “NBN Co lags behind schedule while bosses get ahead on bonuses”. Its hard to know what the general public believe.

http://www.watoday.com.au/it-pro/government-it/nbn-co-lags-behind-schedule-while-bosses-get-ahead-on-bonuses-20121020-27y5r.html#ixzz29zwAwDW4