Tories are kinda right on the NBN

There's a bit of a furore over the costings of the Notional Broadband Network, with the Conservatives claiming $150 a month or more. I thought I'd do someback-of-the-envelope calculations.


Number of Australian households: 8,321,000 (projected for 2009, series 1 which was lowest)

Number of households covered: 7,488,900 (90% coverage, assuming they all take it up)

Ten year government bond rate: 4.605% (though I'm not sure I understand the terms "Coupon" and "Yield" here so using the lowest number)

Cost of NBN: $43,000,000,000


So the interest on $43 billion is $1,980,150,000 per year. Divided by the number of households that's $264.41 per household per year, or $22.03 per month.

So without factoring in any payment of the principle, it looks a whole lot like the Telstra tax (line rental), which you must pay today to get xDSL-based broadband. Of course you'd need to pay back some of that money, or at least the half that isn't being stumped up by the government, at a commercial rate of return. But even doubling it to $44/month to give some payment of the principle and if you get a few services over it (phone, pay TV, broadband internet, smart electricity grid) that's still okay.

But part of this whole process is to preserve the competitive tension between the new NBN and existing ADSL1/2- and cable-based broadband services. Keeping the NBN honest, so to speak. So what happens if only half take it up? Well then we're looking at $38.25 a month per household, only paying off the interest.

Assuming more numeric minds than mine, who know the fudge factors for "commercial rate of return" and understand what bond rates are, it sounds like the Tory claim of $150/month upward would be at the wide end of the calculations (say your Internet provider was BigPond), but aren't out of this world.

The basic fact of the matter is that we shouldn't be expecting this thing to pay for itself directly. Roads don't, nor does any other infrastructure project. At best we should expect to pay the interest on the bonds, and make the project a gift to the people of Australia. The sooner the ALP has the honesty to say this (hell, did the Hoover Dam pay for itself?) the sooner they can shut down this attack on the project.

Here's my spreadsheet. Feel free to point out my mistakes.