Australia National Broadband Plan: Not Much Room for Error

The latest update of the Australian National Broadband Plan might suggest the financial risks fiber to the home networks represent, even in a scenario where there is a monopoly national wholesale network that sells capacity to all the country’s retail service providers. The plan now envisions a seven percent internal rate of return.

In other words, it is worth doing, if the underlying assumptions are correct, and IRR winds up being a positive integer, not a negative number. In principle, one might ask whether the opportunity cost is too high (would a higher return be possible from an alternative investment), but that is another issue.

The obvious danger would arise if the underlying assumptions are mistaken, such as costs being underestimated, or revenue overestimated, and by what magnitude.

The NBN will build a single national wholesale fiber to the home network between now and 2020, allowing all retail service providers to buy wholesale broadband and voice services.

The latest version of the business plan does suggest that the actual direct financial return from a fiber to home access network, built on a continental scale, is relatively small, at about a seven percent internal rate of return, despite its societal and economic importance.