The national broadband network will only be worth $27 billion when it is complete – less than half what it will cost to build, according to auditing firm PwC.
Infrastructure Australia on Wednesday released a report calling for the NBN's sale in the mid-term, arguing that doing so would boost productivity. As part of its work the group hired PwC to model its recommendations.
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Explainer: what will the NBN do for me?
The NBN says it will deliver fast broadband to every home and business in Australia, but when will we get it, what's the 'technology mix', how fast will it be â and how much will it all cost?
The auditor said selling and privatising the NBN would likely lead to a 5 per cent increase in productivity – one of the smallest of all the recommendations from Infrastructure Australia.
The NBN will cost up to $56 billion to build, and $29.5 billion will come from taxpayers. But the network's value will be just $27 billion by 2024-25, based on PwC valuations.
At the moment, the NBN's costs do not count against the budget deficit because it is meant to provide an eventual net profit to taxpayers, making it an investment rather than an expense.
If the NBN is sold at too low a price and without enough profits, it will have made a loss – potentially pushing the budget billions of dollars further into deficit.
PwC came to its valuation by taking the Vertigan Review's forecast earnings before interest, taxation, depreciation and amortisation (EBITDA) of $4.5 billion in 2024-25 and multiplying it by six.
The NBN is meant to be completed by 2020. This means that by 2025 it will have been the monopoly provider of Australia's fixed-line phone and internet services for several years.
Multiplying an asset's earnings is a common way of working out how much it would be worth to potential buyers. Page 17 of the 2013 NBN Strategic Review valued the project using the same formula, but with a different end date.
"The NBN 2013 Strategic Review uses an EBITDA multiple of 6.0," the PwC report said. "Recent articles have suggested the NBN could be privatised at a valuation 'as low as $20 billion', indicating the value may be higher than that and hence $27 billion seems plausible in this context."
"The privatisation of the NBN is estimated to generate gross domestic product per annum of $119 million in 2031 and $126 million in 2040."
Both Labor and the Coalition have pledged to sell the network without committing to a firm date. However, a document from The Treasury issued in 2011 noted plans to privatise the NBN within five years of its completion.
But an industry source with an understanding of the NBN, who declined to be named, disputed the $27 billion valuation. They told Fairfax Media that superannuation funds and international pension funds would likely compete to buy the network, thanks to its monopoly revenues.
They also noted that the valuation used by PwC was reflective of the NBN as a whole, including the rural and regional assets that were loss-generating.
"The unprofitable parts like [the] satellites could remain in government hands while the other stuff with better multiples could be sold," they said. "All the cost is in the rural areas but none of the revenues are in the rural areas.
"But nobody knows how this is going to play out."
A spokesman for NBN itself said it was confident of "building an asset of great value", adding the company was focused on completing construction by 2020.
New Street Research senior telecoms analyst Ian Martin, who spent two months seconded to the NBN in 2013 to help with its strategic review, said it was difficult to provide an accurate valuation for the NBN.
"Making a judgment now on what the NBN is going to be worth in 2024 is pretty problematic and little more than an educated guess," he said. "Who knows what the operating environment is going to be by then, or what the migration rates are going to be from fixed-line to wireless.
"It's a fair estimate at this stage but no one would put their money on it. I was thinking of the $56 billion that the [NBN] is spending, that they'd be writing about $20 billion of that off."
Then communications minister Malcolm Turnbull questioned the plausibility of NBN Co's forecasts under Labor at The Australian Financial Review Infrastructure Summit in June 2015.
"Its [internal rate of return] relied on very large revenue increases and thus operating margins in the future, coupled with a hefty multiple on the project's terminal value 30 years hence," he said at the time.
Under the Coalition, the NBN's internal rate of return has fallen to between 2.7 and 3.5 per cent.