The BCR has today released a further consultation paper on funding options for nbn non-commercial services.

13 October 2015

The paper provides more detail on the BCR's assessment of the size of non-commercial losses expected from nbn building and operating satellite and fixed wireless services in regional Australia over the next 25 years.

The BCR is also recommending ways nbn-equivalent industry participants can contribute to funding these losses and is seeking feedback from stakeholders.

The final consultation paper is the second in a two-part consultation process and sets out the BCR's findings ahead of providing a final report to the Australian Government later this year.

Dr Paul Paterson, Head of the BCR and the department's Chief Economist said, 'The BCR's analysis has led us to the conclusion that the recommended funding approach is the most economically sound and sustainable approach to fund fixed wireless and satellite losses while supporting competitive market outcomes.'

'The BCR encourages stakeholder views on its preliminary findings and welcomes submissions from interested parties.' Said Dr Paterson.

The BCR is seeking further input from industry participants and members of the public by 3 November 2015 to assist in the finalisation of its report.

nbn non-commercial services consultation paper—additional information

1. Why is the BCR assessing nbn non-commercial services?

In its telecommunications regulatory and structural reform policy paper released in December 2014, the government signalled its intention to quantify the extent of nbn non-commercial services and identify economically sound options for industry to contribute towards these losses.

The BCR was specifically tasked by the government to undertake an assessment of the costs of nbn's fixed wireless and satellite services, which serve many non‐commercial parts of Australia; and provide options to the government for economically sound and transparent funding arrangements involving industry contributions.

2. How did the BCR arrive at the loss estimate?

The net present value loss for fixed wireless and satellite networks is estimated to be approximately $9 billion. The loss estimate has been modelled:

  • using a post-tax nominal discount rate of 6.46 per cent, consistent with the weighted average cost of capital used in the special access undertaking for nbn to calculate a commercial return on investment
  • including only costs that would not be incurred if nbn was not building and operating its fixed wireless and satellite networks (i.e. an avoidable cost approach), and
  • at an aggregate network level over a forecast period to FY2040.

This loss estimate was calculated by the BCR, with the modelling reviewed by a panel of financial and economic experts.

3. Why is the estimate of the size of the loss in the BCR's paper different to other estimates provided in the independent cost benefit analysis?

The difference between estimates is largely a result of different costing methodologies rather than revisions to fixed wireless and satellite costs and revenue forecasts. For example, the independent cost benefit analysis of broadband and review of regulation (CBA):

  • estimated losses using a discount rate of 9.4 per cent, whereas the BCR uses a rate of 6.46 per cent
  • considered economic rather than financial losses which led to the exclusion of a number of costs
  • adopted a different approach to common costs compared to the BCR's approach, and
  • excluded losses incurred to 2014 or unavoidable as a result of past decisions. The BCR has included these losses.

4. What is the economic rationale for the nbn equivalent funding arrangement?

The proposed funding arrangement is designed to encourage level playing field outcomes, ensuring all providers of high-speed fixed line services contribute equally to the provision of services to rural and regional Australia. The BCR favours an nbn equivalent eligibility approach as, in the BCR's assessment, it maintains important existing commercial incentives for nbn to determine appropriate service standards and innovate. This would occur as nbn would continue to recover the bulk of fixed wireless and satellite losses from its own fixed line customer base, where it faces long-term and declining price caps.

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