NBN: The long toll road to nowhere

You see, a banker really wants to loan money for a viable project as he will receive income for his employer (and himself) if it succeeds. However, if it is a flop the bank loses money and normally the banker loses his job.

When a transport infrastructure project goes bad the real loss falls on the original owner. The project gets broken up or on-sold at a large discount and then the new owner may make a profit based on the lower purchase price of the infrastructure compared to its original project cost. From the point of view of the first owner that is called a loss.

A loss can be caused by overestimating many factors. It can also be caused by overdesign, which is what I think is the real problem with the NBN.

Overdesign results in a product too expensive for the cashflows that can be generated so that it cannot service its debt and provide a reasonable return on the investment.

None of us imagines that we should build six lane highways to every house in Australia but that is analogous to what the government is doing with the NBN.

Not every house needs or would use a six lane highway to its door even if they had 3 cars in the family!

Or to look at it using another piece of transport logistics: there are is no justification for building a Sydney Airport equivalent in every town (or is that house) in Australia.

Some overdesign may be desirable, but how much overdesign is enough?

We have seen overdesign or underutilisation of transport infrastructure occur over recent years with the example of toll road projects being sold for far less than the project cost when the ambitious usage figures assumed for projecting cash flows did not eventuate.

We all know unhappy shareholders that got burned.

Some holders of monopoly assets have been able to rescue their situation by raising toll prices. Sydney Airport has raised monopoly prices and charges to make its business work.

This could be a strategy for government with the National Broadband Network Monopoly (NBNM). If custom is too slow, and if users are forced to use it for telephony as well as Internet, we may all be forced to pay up.