The NBN investment equation
Morris Kaplan
Morris Kaplan, one-time stockbroker and venture capitalist, brings his finance skills and recent experience as a business journalist and writer to IT, with a special interest in telecoms and how communications is being transformed by technology.
Is the NBN going to be the next train wreck for the Labor government? Is it yet another hole that billions gets tipped into without any real cost-benefit assessment done - like the $2.5 billion Home Insulation Scheme? Like the $16 billion schools stimulus package? Like the Green Loans scheme? How do you assess the viability of such a scheme? You get Malcolm Turnbull to run his laser sharp, investment banker’s acumen over it. Now that’s an idea.
Actually, it’s not a bad idea. Technology is great, but at any cost? Certainly not. Politics aside, there are more opinions out there as to whether spending $43 billion is good idea as there are economists and IT experts. First up; let’s just focus on some of the realities of a government rolling out technology.
Why on earth is the government going back to the future? They sold off Telstra (rightly so) because they had no place in being a telecoms owner at a time when competitive ‘threats’ actually offered competitive benefits in terms of technology uptake and consumer benefits. Then, the government was owner of a less-than-optimally competitive organisation in an unproductive industry structure.
They also sold off the Commonwealth Bank and Medibank because they are not businesses that governments should be in. Now that the Feds have stepped back into the private sector world they need to be transparent and be absolutely clear about just what taxpayers will get for their money with the NBN.
When operating in the investment world it was incumbent one me as a broker to present a well-researched case to my investors as to the risks and rewards of a proposed investment. Often the investment opportunity was a technology development ranging from biotech (for example medical devices) to digital technology (for example online niche recruitment sites). The challenge for the broker and the investor is to make sense of potentially transformative and disruptive technologies. What would the take up be in the market? What competitive threat would emerge? Although such questions are difficult they are not impossible to address. They require making the kind of commercial assessments that every investment banker, investor and venture capitalist does every day.
But what about the social benefit of access to higher speed broadband? How do measure the benefits of that on private sector economics? That does not negate the need for a cost-benefit analysis; it simply throws up another variable or two. Remember we, the taxpayers are de facto investors.
Malcolm Turnbull was a co founder of the internet services provider Ozemail. In 1998 he and his co-investors sold it for $520 million to WorldCom. Breathless stuff especially when you consider that within two years the dot-com bubble popped.
Rather then demolish the government ‘s NBN case perhaps within this strange coalition that is our government, Malcolm should be invited to be a consultant for the NBN and do a NPV based on private investment sector principles on a credible alternative. It’s surely better than throwing away the cost-benefit principle.