no returtn on nbn for "up to 30 years"

OMG - good luck!!!


No return on NBN for `up to 30 years' Mitchell Bingemann From: The Australian April 16, 2010 12:00AM THE head of the $43 billion national broadband network has warned that the federal government will not make a financial return on its ambitious project for up to 30 years.
Speaking before a Senate select committee, NBN Co chief Mike Quigley raised fresh doubts about the project's ability to attract private investment when he told senators that capital returns from the project to provide broadband at speeds of up to 100Mbps across the country would be long-term.

"The board's role is to get a satisfactory long-term return on the capital the government invests," Mr Quigley said. "Now it's up to the government to determine what that return rate is, but we would hope to generate a return.

"This is a long-term project, so for this type of nation-building infrastructure I'd imagine you'd be looking at a 20- to 30-year timeframe."

Mr Quigley revealed that NBN Co had not yet begun thinking about ways to attract private-sector financing for the project, despite steaming ahead with construction plans in Tasmania and mainland Australia, and acquiring more than 150 staff in the process.

"We are nowhere near that point yet," he said. "It's simply not practical for a company such as NBN Co any time soon to go to private equity or private debt markets, so we're not even thinking about that at this point."

Until now, NBN Co has subsisted entirely on government funding. The government has already injected $260 million from a total $4.7bn pledge to NBN Co, but that represents barely 10 per cent of the capital requirements to build the network.

It's expected infrastructure bonds could supply an additional $17bn, leaving the private sector to contribute a further $21bn.

Billions of dollars are expected to be wiped from the final price tag, but only if the government can secure Telstra's co-operation, a large chunk of its internet traffic and access to the pits and trenches needed to lay new fibre.

Telstra and the government are locked in private negotiations about how to do this, but they remain billions of dollars apart on the compensation the telco believes it deserves to move its lucrative customer base across to the NBN.

It's likely the long-tailed equity return quoted by My Quigley will not help these discussions along, and the failure to secure Telstra's involvement would greatly complicate the matter of attracting private investment to the project, analysts say.

"What's reasonable to the government on this new investment is perhaps not acceptable to Telstra as it has existing returns it needs to consider for any incremental investment," Nomura analyst Sachin Gupta said.

"Telstra's previous management used to talk about 17-18 per cent post-tax return. For a utility-type investment, that's a large spread over the cost of capital, irrespective of technology risks . . . that's perhaps one of the reasons why no agreement was reached back then."

Other analysts were more optimistic of possible returns the NBN stood to make, arguing that returns could accelerate for investors once construction of the broadband project was complete.