Productivity Commission: NBN Competing Unfairly & Won’t Earn Commercial Return

08/12/11

The Productivity Commission’s first chance to probe the National Broadband Network has confirmed the $50 billion Government-owned communications monopoly is anti-competitive and uncommercial.

The PC said NBN Co was using access to capital provided by taxpayers to tilt the playing field against private competitors, and warned projected returns on the project were so low they are in breach of ‘competitive neutrality’.

Competitive neutrality is the principle that Government-owned businesses should not be allowed to use advantages such as access to capital raised at the Commonwealth bond rate to unfairly compete with private sector rivals.

The NBN’s business practices were referred to Australian Government Competitive Neutrality Complaints Office (AGCNCO), an autonomous unit within the PC, after a switch in NBN Co policy on rolling out the NBN at ‘greenfields’ (new) housing developments effectively knocked a number of private firms which previously built such infrastructure out of  the market.

The Government has claimed its huge investment in the NBN and sub-commercial returns (expected to match the bond rate at best) are justified by community service obligations placed on the NBN and other intangible returns expected to flow from the network.

But Productivity Commission concluded any community service obligation costs carried by the NBN Co should be transparent and quantified so that their true impact on the corporate plan and commercial returns can be assessed.

The Commission separately found Labor’s funding of the NBN is “not subject to the debt neutrality provisions” required under competitive neutrality policy.

Plainly the NBN Co is not going to deliver a commercial return, as required under competitive neutrality.  The network builder conceded as much when it released its Corporate Plan showing returns would be less than its weighted cost of capital.

In the words of the Commission: “NBN Co’s own estimates of risk also suggest it views itself as operating in at least a medium risk environment for the foreseeable future.”

No one should have ever been in any doubt about this.  In fact, depending on the audience he is talking to, NBN Co chief executive Mike Quigley boasts that the project is not commercial – neglecting to mention the hard-working and entrepreneurial small businesses his ill-conceived project has killed.

In August he told the Daily Telegraph:

``You're not in it (private enterprise) for the public good … The job you have in private enterprise is to maximise the return to shareholders.  You have to obey the law of the land, but it's not your job to be interested in the public good.''

``This isn't about generating large commercial returns.  This is about how do you build an underlying platform, not just for the next five years, but for the next 30 or 40 or 50 years.''

Good governance is something learnt over successive generations in Australia; the more policy-makers learned, the more they erected a legal scaffolding to protect the economic principles that have ensured our continuing prosperity.

And yet, the NBN Co has secured extraordinary concessions from competition law, freedom-of-information law and Government oversight.  Now the Productivity Commission has revealed it breaches competitive neutrality policy as well.

It is little wonder Senator Conroy was so eager not to have the Commission conduct a rigorous cost-benefit analysis.