The economics of telco economics

A very interesting seminar organised by the Coalition of Competitive Carriers provided excellent information crucial to the decision-making process surrounding the NBN. There were speakers from Britain, the Netherlands and France, as well as experts from Australia, from organisations such as the Centre for International Economics (CIE).

The CIE has now released a report entitled The Telstra return on a national FttN network: community impacts based on Telstra’s argument that it wants a return on its FttN investment ‘north of 80%’.

Matching our own analysis, the CIE report maintains that such an ROI would make the NBN unaffordable for many Australians. The conclusion was that a Telstra network would cost 15% more than one built by others who were basing their investment on utilities-based infrastructure ROIs.

It is, of course, great to have some real economic data fed into the debate, but these scenarios are extremely hypothetical.

Putting aside the theories and looking at the practicalities, we all know that it will never come down to a decision between provider A and provider B. Any alternative bidder will rely on Telstra’s network for much more than 50% of its network activities, and the real economics could only be worked out if such scenarios were able to be properly costed. Without any willingness from Telstra to do so, and given the lack of any clarity from the government on the subject, we will never get a real picture of the economics of this new network. We won’t even come close to the truth of the matter.

But in the absence of any sanity in this market the CIE report is as good as any other information. One thing is certain – a network built on Telstra’s terms will result in significantly higher end-user charges. According to our own calculations the difference will be significantly more than the 15% calculated by the CIE. We estimate between $50 a month for networks built with ROIs around 10%-11% and $80 a month for Telstra’s 18%+ ROI.