Bailout to save the National Broadband Network

December 9, 2011

Gemma Jones From: The Daily Telegraph December 09, 2011 12:00AM

TAXPAYERS may have to rescue the National Broadband Network because prices for services have been set so low, the government was warned yesterday.
A report released by the Productivity Commission slammed the expected 7 per cent rate of return on the NBN, which it said was too low to cover risks.

The report found the government was potentially in breach of its own competitive neutrality policy, which promotes competition between public and private businesses, over the rate of return and the fact the NBN will not turn a profit for 12 years.

To comply with government policy, which was initially set by the Howard government, the NBN Co would need to increase service prices to "achieve a commercial rate of return that reflects its risk profile" for the foreseeable future, the commission found.

In defending the low return target which the government pledged to maintain, the NBN Co and the Department of Communications and the Digital Economy claimed the network had "social benefits".

The department's "response to the complaints confirms that the government has internalised the cost of risks that a commercial entity would need to bear", the report found.

Opposition communications spokesman Malcolm Turnbull last night branded the NBN "anti-competitive" and "uncommercial".

"The Productivity Commission said NBN Co was using access to capital provided by taxpayers to tilt the playing field against competitors," he said.

Communications Minister Stephen Conroy dismissed the competition issues raised in the report. He labelled the rate of return findings "misguided".

Mr Conroy said prices, which would be the same in the city and rural areas, would remain unchanged.

"The Australian government has established NBN Co to build the NBN because the private sector was unable to do so," Senator Conroy said.

"While the company is to operate as a commercial entity, it is not expected to earn a private sector rate of return."

A spokesman for Mr Conroy said the competitive neutrality policy was written under the Howard government and Mr Conroy would not conform to it.