Monday, August 10, 2009

Australia: The National Broadband Network would take 18 years to connect most homes

[] IT WILL take at least 18 years for most Australian homes to be connected to the Rudd Government's National Broadband Network, according to financial services giant Goldman Sachs JBWere.

In a 92-page report on the NBN, Goldman analysts say it will take until financial year 2017 before 50 per cent of homes are passed by the network, and until 2028 before 85 per cent of homes are connected.

When the Government announced the $43 billion NBN project in April, it said it intended to sell down its stake in the scheme "within five years after the network is built and fully operational".

According to the analysts' estimation, the NBN company's present value is negative $9 billion.

They predict it will take until 2019 for it to break-even on an earnings before interest and tax basis.

The report -- from analysts led by Christian Guerra, Tristan Joll and Adam Alexander - also argued that dominant telco Telstra is likely to sell $12 billion of its network assets into the NBN, making the project faster and cheaper for the Government to build.

It said Telstra was most likely to sell "passive" physical assets, such as ducts, pits and pipes, to NBNCo for a discounted $8 billion, below Goldman's $12 billion valuation, but would keep its copper network.

The analysts argued that for Telstra to accept a 33 per cent discount on the replacement value of the assets is a "somewhat contentious assumption", but said that, among other reasons, "Telstra's public persona has certainly been more constructive, conciliatory and co-operative in recent times. We believe this will continue".

The report argued the NBN would cost the Government $37 billion if Telstra co-operated in this way, but if not the price would be bumped up to $41 billion.

It said the benefits to the Government of Telstra selling these assets would be enormous, reducing the cost of the NBN build by 10 to 15 per cent and speeding up the NBN roll-out by three to four years.

The analysts said paying Telstra through an equity stake in NBNCo was likely to be "completely unsatisfactory" for Telstra and its shareholders.

"It is difficult to see the market ascribing any value to an equity investment in a company such as this," they said.

The report argued the Government's regulatory review of the telco sector was its way of "encouraging Telstra to co-operate" in the NBN, "as opposed to a significant industry reform plan".

It said the structural separation of Telstra, the enforced split of its retail and wholesale arms, was unlikely, as was the forced divestment of its 50 per cent stake in pay-TV provider Foxtel.

The report came a day after Broadband Minister Stephen Conroy announced financial advisory firm KPMG and management consultancy McKinsey & Co had won a $25 million contract to head up an implementation study into the NBN.

National Broadband Network years away, says analyst report

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