NBN "Hayman solution" may see it split in two: Coutts

Operational split likely as wholesaler struggles to sell national network

The increasingly apparent split between the financially attractive urban fibre-to-the-home (FTTH) rollout and the obligatory wireless and satellite deployments to rural and regional areas under the National Broadband Network (NBN) may effectively and operationally split its wholesaler, NBN Co, in two.

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NBN Co is understood to be considering treating the two separately in an attempt to fund the viable urban rollout without turning off potential investors. According to a report from BusinessSpectator: a report from BusinessSpectator, key sources close to the broadband project attending a leadership summit on the Hayman Islands in August suggested the Telstra deal had made the urban aspect of the NBN an attractive proposition for potential investors. The rural and regional aspects of the NBN remain less appealing.

NBN Co chief executive, Mike Quigley, has suggested government equity to peak at $27 billion, with the company able to source an additional $10 billion from private debt markets. Some financial analysts, however, have speculated government funding could be decreased further if the network is primarily used for regional areas.

A member of the initial, $4.7 billion NBN committee, Reg Coutts, said the initiative — dubbed the ‘Hayman Solution’ — may be the only viable option due to recent agreements made with independent MPs, making it an ‘outside-in’ rollout.

“This idea of almost splitting it into two companies — you have an ‘NBN Co Commercial’ and an ‘NBN Co Rural’ — where NBN Co is almost like a way of institutionalising the USO [universal service obligations]’,” he told Computerworld Australia at the World Computer Congress 2010 held in Brisbane this week.

“I think the notion of essentially separating a parcel of NBN Co that you can clearly make a business case for, as opposed to requiring ongoing subsidy, will provide a level of transparency.”

If the $9 billion Financial Heads of Agreement deal between Telstra and NBN Co is approved early next year by Telstra shareholders and the Australian Competition and Consumer Commission (ACCC), the Federal Government will foot another $2 billion to relieve the telco of its legally-mandated USO obligations, and create another government enterprise business — USO Co — to provide a bridge between remaining copper networks and the wider fibre rollout. NBN Co, however, will still need to provide the satellite and fixed wireless access networks for those areas.

The main issue is the cross-subsidy promised by the government in the post-election agreement with independent MPs. The agreement would result in uniform wholesale and retail access pricing, but Coutts questioned whether the government could rely on a market-based mechanism for regional areas, even once the rollout is complete.

“The question is: Where is the government subsidy coming from, and where is it vulnerable to the government not continuing it,” he said. “It might have to do it in an ongoing basis.”

The ultimate nature of NBN Co as a business is expected to be revealed once the wholesaler submits its business case to the government. However, communications minister, Senator Stephen Conroy, is yet to issue a reply to the NBN Implementation Study commissioned from KPMG and McKinsey & Company, and has so far refused to make any business case for the company public.

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Tags National Broadband Network (NBN)Reg Coutts

More about Australian Competition and Consumer CommissionAustralian Competition and Consumer CommissionetworkFederal GovernmentKPMGQuigleyTelstra Corporation

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