Slattery: NBN is turning toxic

Government decision to change how the NBN operates is dooming the network to fail and the only winner will be Telstra, according to the NextDC chief and Pipe Networks founder

The $36 billion Government funded National Broadband Network (NBN) has become a bad investment that will only benefit Telstra in the long run, according to NextDC CEO and Pipe Networks founder, Bevan Slattery.

“I actually think the NBN is now turning toxic,” he said. “This is not a dig at NBN Co since it is only executing a strategy for the Government.

“But as a nation-building exercise it is not good.”

Slattery’s comments were spurred by the numerous backflips by the Federal Government on key NBN promises. These include ensuring the network will make a decent return, allowing the private sector to partially fund the project and keeping the NBN as a wholesale-only provider.

In the NBN Co business case document released last year, it noted the NBN would expect a return of 6-7 per cent – a very low figure in Slattery’s opinion.

NBN Co is now a 100 per cent Government-funded organisation and the Federal Government introduced legislation to allow NBN to be provisioned directly to utility providers which was recently passed by parliament.

Slattery pointed out the Federal Government has pushed through bills to change the entire basis of the network in a bid to make it commercially viable.

“The only thing to stay the same in the NBN is its name; everything else has changed,” he said.

Despite Government insisting direct to utility NBN decisions will be assessed by the ACCC, it has done little to calm the minds of telcos such as Optus and Telstra. Both have spoken out against the legislation amendment.

This is one of the biggest reasons why Slattery considers the NBN toxic.

“For those guys to actually come forward and actually state that is a very good point and that was a big backflip,” he said. “That is where the industry started to turn against the NBN.”

There have also been more objections to the way NBN will operate from a number of ISPs.

iiNet and Internode recently voiced their concerns over anti-cherry picking laws in fear it would disrupt planned upgrades to existing high-speed networks.

Compounding the issue was the provision which stipulates ISPs are not allowed to deliver broadband services in excess of 24Mbps downlink to companies employing less than 15 people unless they are able to offer open access wholesale services to competitors, he said.

Slattery considers this is a “national disgrace” and would strand small businesses.

He predicted the NBN will ultimately fail and the only winner in that scenario would be Telstra.

NBN Co and Telstra entered an $11 billion non-binding agreement to gradually decommission the telco’s copper network and move residential customers onto the NBN. The deal also allows NBN Co to lay fibre through Telstra-owned ducts.

“The sad part is Telstra will be the only buyer of the NBN if the network fails since no private equity firm can,” Slattery said. “It doesn’t work if you don’t have customers and Telstra owns a majority [of consumers].

“... If Telstra has the spectrum [for 4G LTE] and the money [from NBN Co], it can by the NBN back for 20 cents in a dollar.”

If NBN fails early, Telstra’s extensive copper network remains intact and it can dominate the wholesale broadband market for another five years at the expense of a wasted taxpayer-funded network, he said.

“I think this is a pretty bad situation and I think the business case for the NBN is flawed,” Slattery said.

And in the vein of online Ruslan Kogan, founder of consumer electronics brand Kogan, the NextDC chief has thrown down the gauntlet at Macquarie Telecom over comments made at the CommsDay Summit on Tuesday by the telco's CEO, David Tudehope.

Tudehope claimed new datacentre players will disappear from the market in the next three years.

Slattery has bet Tudehope $1 million that NextDC would survive and thrive in the coming years. The winner can select a charity the money will go to. The Macquarie Telecom CEO was not at the event to accept the bet.

“I’ll go even further to say not only will I be right but I will be co-locating 20 of [Macquarie Telecom’s] competitors,” Slattery said.

Tags macquarie telecomNational Broadband Network (NBN)nbn coCommsDay SummitNextDCoptusTelecommunicationsbroadbandTelstra

More about Australian Competition and Consumer CommissionetworkFederal GovernmentIinetInternodeKoganMacquarie TelecomOptusTelstra Corporation

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12 Comments

nicoli

1

Toxic? Boo-hoo, more whining from the telecomms monopolists.. what's the matter, you finally don't have an iron grip over the consumers of broadband in Australia so you flood Whirlpool and other I.T news sites with pro-privatisation propaganda?

Please, sheeple, let's not forget one of the main reasons for building the NBN is to undermine the monopoly Telstra has on aussie telecomms infastructure. Why repeat the same mistakes? DO NOT PRIVATISE THE NBN.

Greg

2

"Compounding the issue was the provision which stipulates ISPs are not allowed to deliver broadband services in excess of 24Mbps downlink to companies employing less than 15 people."

Huh? I haven't read that anywhere and can't find it in a search. Any more information on this?

Schneider

3

I would be interested to know where the 24Mbps comes from that's quite interesting. Nicoli, Bevan Slattery was on of the reason your broadband is as cheap as it is! In the old legislation he was able to build his own backhual network which competed with the Telstra network allow DSLAMs do go into a lot of exchanges! I this new paradigm he will not be able to do this! The legislation will stop any backhual building of any kind! With no competition what would push down wholesale prices? You've seen what happens when the ACCC get involved it takes months! Will they even have the power in the NBN world!

Spandas

4

@Greg - It was part of the NBN bill amendments pertaining to anti cherry-picking laws. The amendments were passed through parliament on Monday .

ISPs cannot provide those high-speed services to small businesses unless they are willing to provide open access layer 2 wholesale services to competitors, which is not ideal for business. I have added this into the article to clear things up.

Hope that helps.

Mike ELLIOTT

5

My TLS holding will vote against any involvment with the NBN which I think is doomed to failure or that costly we can't afford it.
The government need compition to keep prices down!!

Francis Young

6

Mike, your TLS holding has already risen 5.6% in six days from when the Senate got the final bills to debate last Thursday to last night after the market responded to their passage Monday night.

Telstra has high-revenue IPTV offerings like its T-BOX, that can only be bought by fewer than 200,000 customers now. The NBN gives Telstra and every other telco access to more than ten milllon premises as customers, plus a free market in mobile wireless services (the NBN will mainly supply fixed wireless).

The private sector will fund all of the project. $27 billion of the construction cost will be borrowed on the open finance market by the government, and the remaining $8 billion will be borrowed from the open finance market by NBNCo. The government can obtain the finance more cheaply than a company, which is why this makes sense, and the funds are not taken from other budget areas like health, education or infrastructure.

Update: TLS has risen a further 4 cents so far today to $2.84, from $2.66 last Thursday, making a 6.7% gain and rising fast since the bills hit the Senate last week. I predict $5 soon after shareholder approval of the deal. The NBN is win-win-win for consumers, telcos and Australia.

Schneider

7

The reason Telstra shares increased is everyone understands the NBN is paying too much for something Telstra no longer wants! It's that fixed networks are dying world wide. Why would a Telco want to keep it when 11 Billion is waved in their faces... (they still keep the Ducts just so you know)

PS: Any chance arnnet could fix their Google Chrome issue so I don't have to open IE just to post, it's quite annoying!

Spandas

8

@Schneider - Thanks for the feedback. We'll look into it!

Jason

9

Bevan Slattery said to the Pipenetworks shareholders it was a great time to sell due to the fear of the governments anti duplicate infrastructure police.
Now Bevan Slattery has started Pipenetworks 2.0 in the form of NextDC and is still crying over the government NBN.

Shef

10

Fly-ny-nighters like Slattery will always complain about infrastructure like the NBN bringing cheaper wholesale rates to all industry players. It inhibits the MO of these shysters. He cashed in on Pipe, and he's just waiting for the next cherry to pop, and he'll be gone again.

singo79

11

@Mike ELLIOTT - Obviously it is your choice as a TLS shareholder as to what you believe is best for your share portfolio, however if you think that Telstra for one minute is up to the task of competing with the NBN you are sadly mistaken.

In fact the $9B payment on the table is the best deal that Telstra will ever get. Telstra can not afford to keep up maintenance on it's copper network, nor does it want to is more the point.

Telstra shares will plummet when the NBN starts competing directly with Telstra. Also, the anti-cherry picking laws will see Telstra legislated to open their network to ALL ISPs in the market! Telstra have clearly made their decision to focus more on wireless services then fixed services and I think that is the best idea for Telstra and it's customers.

Telstra will be able to still offer customers fixed services via the NBN and wireless services on it's own network, of which is unlegislated and where they make the most of their money.

It would be clearly foolish for TLS shareholders to think that Telstra would survive if it decided to directly compete with the NBN. In fact I could see TLS shareholders losing even more money then when the Howard Government and Sol Trujillo went to battle!

I for one will be switching to the NBN as soon as it is available. I will be far better off under the NBN in terms of speed and value for money. The good point of the NBN is no monthly line rental! I am forced to have a Telstra POTS if I want broadband. Also, given the poor quality of the copper network I barely reach 5Mbps on a 24Mbps plan. The NBN will guarantee me whatever speed I decide to sign up to, which is far better then what Telstra will ever be able to offer.

My advice to TLS shareholders is to take the money and let David Thodey and the other executives put it towards beefing up the Telstra wireless network.

Kevin

12

Here we go again. Companies that are not satisfied with a reasonable profit. No they want something they can virtually print money with.
The internet should be regarded as an essential tool for business not some money pit for a few players to fill their coppers with.
If the likes of Slattery don't like it then find some other business. There is always loan sharking or the more commonly used term, banking.

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