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Four ways we are paying for Labor's broadband blunder

Friday, 03 November 2017

The reaction to the release of Telstra’s annual results on Thursday is a cold reminder of how long it can take poor government decisions to show up in outcomes.

Telstra shares fell to $3.51 on Thursday, meaning that a cool $25 billion has been sliced off the company’s value in 17 months.

Part of this loss can be attributed to lower than expected margins on the broadband capacity Telstra buys from nbn and sells to its customers.

Shareholders in other broadband retailers have also taken hits. TPG’s market value has more than halved since June 2016 while shares in Vocus (that’s Primus, Dodo, Nextgen etc) have dropped by 72 per cent.

Share holders in these companies (and that includes our superannuation) can blame Stephen Conroy and Kevin Rudd’s broadband folly for a slice of the $35 billion they’ve lost in the last year and half.

The broadband network, like all government mega-projects, was way more expensive to build than they predicted, meaning nbn has to charge ridiculous prices for data. The retailers get squeezed first (lower margins, lower volumes, lower profits) and then the share holders (smaller nest eggs, tiny dividends).

So we’re paying at least four ways for this over-priced, state-owned monument to Labor hubris. 

As taxpayers we carry the liability for the difference between what the nbn cost to build and what it’s actually worth - that’s $25 billion at a rough guess.

As customers we are forced to pay through the nose for a slower service because the nbn is trying to recover huge sunk costs.

We take another hit as shareholders which flows through to our superannuation savings

And the economy is blighted by lower productivity and made even less competitive by the higher prices businesses pay here to connect compared with, say, New Zealand.

Others may well identify more ways we are being punished because of the overpriced nbn.

Rudd once described the broadband project as the equivalent of building the railways in the late 19th and early 20th centuries. 

It was an appropriate metaphor. They too were built exclusively by governments, which also insisted on operating them, badly, a peculiarity exclusive to this country alone.

Railway debt just about send NSW broke in the 1930s, with taxpayers still carrying the burden of debt, even after many lines had been closed.

The knock-on effect for the rest of the economy of not leaving railways to private entrepreneurs was extraordinary and probably incalculable.

It stunted the growth in our wheat industry, for example, as I argued in a chapter in Only in Australia, edited by William Coleman. Private railways and competition helped make wheat exports from Canada and the United States cheaper and more reliable than ours.

Oh, and let’s not forget that in the 1940s the Chifley government wanted to nationalise airlines so they wouldn’t be able to compete against loss-making railways.

That, I’m afraid, is the dispiriting end-game for government mega projects; when all else fails, noble the competition. Nick Cater

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