What is the value of Australia's National Broadband Network (NBN) - 2021 - 2041?

2018-04-27T05:29:36Z (GMT) by Richard Ferrers
<div>Versions:</div><div>V2 - now with V3 of Submission doc.</div><div>V2 - now with V4 of Submission doc.</div><div>V2 - now with V4a of Submission doc. (close to final, due tomorrow).</div><div>V2 - final submission now added here and at: https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/National_Broadband_Network/Businesscase/Submissions</div><div>V3 - added Heatmap of %NBN houses, %gigabit houses, % customer satisfaction, %FTTN abandoners at End of Life (as html and pdf image). 20.4.18</div><div>V4/5 - added Heatmap V3, with 20% invest in FTTN upgrade, and 40% gigabit take-up vs CSAT, FTTN abandon, %giga. 27.4.18</div><div><br></div><div>CORRECTION: A calc error in V5a (as submitted) has been corrected in V5b (linked below). The CAPEX calculation omitted a check for CAPEX falling below $0. When NBN profits went negative, CAPEX as a % of profits also went negative. When subtracting CAPEX from cash, this effectively added back CAPEX. This only occurred in significantly negative outcomes of value of NBN, but was large in magnitude. So $63B losses became $20B losses. Positive NBN values appear unaffected. 24.4.18</div><div><br></div>BACKGROUND<div>This record documents a submission to Australian Joint Parliamentary Inquiry into the Business Case of NBN (the National Broadband Network). Inquiry home is at: https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/National_Broadband_Network/Businesscase.</div><div>Submissions are due 29 March, 2018.</div><div><br></div><div>Since only 4 weeks was provided to produce a submission, the model created is a rapid-prototype, and has not been exhaustively tested. No current errors are known. Where found, errors are documented in the top of the model page.<br><div><br></div><div>OUTPUTS</div><div>Attached is a draft submission (V2), explaining an online model created to calculate the value of NBN over 20 years (post build; 2021 - 2041).</div><div><br></div><div>An image of the starting point of the analysis, the estimated cash profit of NBN at 2021 is provided (NBN Financial 2016-2021), shows an estimated cash profit (EBITDA) of around $2.5B in 2021. Projected to 20 years, (ceteris paribus), this means NBN raises $50B cash, paying off $20B debt, and leaving surplus value (Cash at Yr 20) of $30B, as a Base Case.</div><div><br></div><div>A pdf print of the model page (V5a - no explanations) is attached to show the levers available and default lever positions, showing NBN value at $31B. Cells within the Notebook, can be selected and opened to see the calculations within, like a spreadsheet. A user may change cells (assumptions or formulae) or levers (the sliders) to change both the value calculation, and the graph of cashflow. A user may adjust, for example, the life of FTTN from current 10yrs to 20yrs. Some assumptions are hard-coded into formulae.</div><div><br></div><div>Two images (png) show analysis levers (sliders) which impact calculations. See Model Variables below.</div><div>Further documentation is available, especially in V5 of the model, including: Disclaimer (what model doesn't contain), aim of the model. Now added jpg, so Figshare can preview picture.</div><div><br></div><div>EVOLVING ANALYSIS</div><div>See links below for the online version of the evolving model, from V1 to V5, and precursor models: NBN Business Case Financials (2021) and NBN Assets/Earnings Overview 2014-2021.</div><div><br></div><div>METHODOLOGY</div><div>The Model is built using an online javascript tool, similar to a Jupyter Notebook (see examples at: https://github.com/jupyter/jupyter/wiki/A-gallery-of-interesting-Jupyter-Notebooks), called an Observable Notebook (https://beta.observablehq.com/collection/introduction).</div><div>Currently an Observable Notebook can only be viewed at its online home, and not in a standalone format, though this is planned in the future. Thus links to the online homepage of the model is attached below, but not the files to the model itself.</div><div><br></div><div>The model calculates the value of NBN as the un-discounted cashflows over 20 years. A DCF (discounted cashflow) is also calculated (with variable interest rates).</div><div><br></div><div>MODEL VARIABLES</div><div>The levers in the model include:</div><div> <ul> <li>time to repay NBN’s debt, </li> <li>impact of more NBN customers switching away to mobile services, </li> <li>cost and time to replace FTTN with either FTTC or FTTP (including at different times), </li> <li>financial impact of not replacing FTTN, and FTTN users leaving NBN as FTTN gets to the end of its useful life</li> <li>financial impact of household and business takeup of gigabit services, and </li> <li>financial impact of changes in NBN customer satisfaction. </li></ul><div>Other sliders include; </div><div>* interest rate for discounted cash flow calculations</div><div>* number of years of analysis (up to 40)</div><div><br></div><div><br></div><div>MODEL OUTPUT; the value of NBN</div><div>The Base Case model; values NBN at $31B. Variations in the lever settings can adjust NBN from -$23B to $171B. I hope the Model helps clarify some of the ways that the NBN value can be greater or lesser.</div></div><div><br></div></div><div><br></div><div><p><strong>Aim of the model (from V5; link below):</strong> This page projects forward NBN Financials after the Build Phase of the NBN, with seven user selectable options: </p><ul><li>users switching away from NBN to mobile only</li><li>takeup of gigabit services on FTTC, HFC and FTTP,</li><li>upgrading FTTN to FTTC or FTTP (and choosing either/or both),</li><li>paying for FTTN upgrade by using a portion of cash generated each year</li><li>paying off NBN debt by using a portion of cash generated each year</li><li>consequences of FTTN reaching end of life, and a % of users switching off, and</li><li>impact of customer satisfaction; when good as returning customers, more gigabit use, and when poor, falling revenue and more leaving customers. <br><br>The main outputs of the model, are:</li><li>NBN yearly sales and (EBITDA)profit ($Billion), (either with or without an FTTN upgrade) and</li><li>end of analysis period (up to 40 yrs) and by year, amount of cash on hand ($Billion).</li><li>value of NBN (and discounted future cashflows for period of analysis). See note on NPV discounting in Disclaimer.</li><li>total GDP impact of NBN ie Revenue plus expenses plus profit.</li></ul></div>