I tried to crank up a few figures over at Catallaxy and since then I think I have finessed the overall cost and expected return. I’d be happy to hear what other people think and if any of my assumptions are too generous, too skimpy out of whack
I’m take Rudd at his word that in fact they will try to sell the network after a period of time so I’m assuming it’s supposed to be a commercially and economically based proposal.
Rudd has said the total cost of the project will be $43 billion of which I believe after reading a few contradictory pieces, the original promise of $4.8 billion that was supposed to be used to sweeten the winning bid will be the equity portion of this new deal used to anchor the project.
I have avoided discount cash flow projections because I can’t be bothered as today’s Dollar will suffice.
Total cost of the project is $43 billion
Total borrowing cost on $38.3 assuming a 6% interest
coupon on the bonds issued 2.3 billion
Estimated operation costs 1.5 billion
Depreciation: 20% per year based on the standard depreciation
allowance for high tech equipment. I have also assumed that
$15 billion of the costs represents cap ex. 3 billion
Estimated minimum return based on the sales to net profit
margin lifted from Telstra’s projected earnings in 2010 which
are around 20% 1.7 billion
Sales needed to meet these objectives $8.5 billion
The planned project has to make $8.5 billion in sales to reach some sort of commercial viability. I honestly can’t see how this project could even be considered viable. In fact the only way it can is that they will allow the project to cannibalize sales in the private sector obviously ably assisted through legislative fiat.
Telstra has said it could provide an identical service at 100 Mbps to 2.7 million customers simply by reworking the current Foxtel cable at a third of the price. I bet that will be legislated out as a possibility or hamstrung through regulation.
Judging from these numbers the country will end up with a huge albatross that is way over-extended in terms of our needs and can only be supported through laws that restrict current entrants from competing.
This is going to be a wholesale provider so the expenditure (without even taking into account the retailers margin) will be around $425 per man woman and child at the wholesale level.
Another useful project that will only lower our living standards