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Will the federal government privatise the National Broadband Network?

Media reports suggest the federal government is considering privatising the National Broadband Network (NBN), selling it off to large telecommunications companies.

The Australian Financial Review (AFR) says the Turnbull government is in talks with telcos about selling parts of the network, although the talks are at an early stage, and are unlikely to materialise before the next election – expected in October 2016, according to the AFR.

That’s nothing new though.

The sale of the NBN to telcos has been envisaged since the inception of the Labor government’s plan to connect every Australian household and business to a national fibre network.

Last year, the National Commission of Audit report made a number of recommendations, which included the sale of the National Broadband Network after offloading Snowy Hydro, Australia Post and other assets.

Australian Competition and Consumer Commission (ACCC) chairman Rod Sims also told a conference last year that the government needed to start planning now to split up the NBN and sold off in the interests of consumers and infrastructure competition. NBN Co’s business case is supported by legislation that prohibits companies from connecting users to their own high-speed broadband networks.

Telstra Communications Ltd (ASX: TLS) is the most well-placed telco and is expected to pick up the bulk of the NBN assets, although the price it is willing to pay will be interesting. Telstra signed over its copper network to the NBN in exchange for around $11 billion and agreed to transfer its customers off the old network and onto the NBN. Will Telstra be willing to pay more than $11 billion to buy the assets back? I highly doubt it.

TPG Telecom Ltd (ASX: TPM) has already begun rolling its own rival network to the NBN in capital cities (by exploiting a loophole in the law), and would likely be a keen bidder for some parts of the NBN, as would the combined Vocus Communications Limited (ASX: VOC) and M2 Group Ltd (ASX: MTU) entity. Both groups have significant fibre broadband infrastructure in place, and Vocus CEO James Spenceley has reportedly considered rolling out a similar competing high-speed network like TPG’s.

The sale of the NBN could generate a massive loss for the government, rather than bring in much-needed funds to shore up Australia’s budget. It could also result in a confusing and duplicated mix of infrastructure in some parts of our capital cities.

Foolish takeaway

A major risk for the NBN is if the telcos decide to push ahead with super-fast mobile networks instead. While they can’t currently compete with the internet speeds of direct fibre, that doesn’t mean that newer mobile technologies won’t in future. That would leave the NBN as a giant white elephant, something I warned about in January 2012.

 

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Motley Fool writer/analyst Mike King owns shares in Telstra, TPG Telecom, Vocus Communications and M2 Group. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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