Ruddweb : does it even make sense from a commercial stand point?

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

22 thoughts on “Ruddweb : does it even make sense from a commercial stand point?

  1. Some people seem to think the objective is to provide the nation with broadband services. Perhaps. However I suspect that a major motivation is also to stimulate the economy via Keynesian pump priming, create jobs and save Rudds bacon.

  2. Total Telco in Australia is around $40 billion. Telstra has 25 billion of sales and they’re 60% of the market I think.

  3. Dudd is also forgetting that apparently we have a serious shortage of the skilled workforce needed to install this.

  4. It’s OK, part of that $47bil is set aside to research robotic overlords to build it for us

  5. Thanks, Steve. I was worried for a while, but robotic overlords sounds like fun!
    Will they come in two colours, and be safe for kiddies? And what will we do with Rudd and the other parasites if we have government by robots? I think he hasn’t thought this one through!

  6. If they have Asimov’s three laws of robotics, you can say good-bye to liberty:

    1. A robot may not injure a human being or, through inaction, allow a human being to come to harm.

    2. A robot must obey orders given to it by human beings, except where such orders would conflict with the First Law.

    3. A robot must protect its own existence as long as such protection does not conflict with the First or Second Law.

    That first one’s a doozy: “or, through inaction, allow a human being to come to harm” – they won’t let us to anything harmful!

    We couldn’t even demand they destroy themselves… even though our order (law 2) overrides their sense of self-preservation (law 3), they may deem it not in our interests to do so (law 1).

  7. I must admit that does seem like a rather disappointing list for someone of Asimov’s standing – it basically says super intelligent robots should rule us all for our own good, even if their logic is radically different from the humans it’s protecting, and the human’s are trying to destroy it in desperation! Let’s home humanity never designs a robot like this, lest we all be doomed to a life of enforced mollycoddling by that all-powerful robotic overlord.

  8. Ever watched the movie “I-Robot” staring Will Smith. An excellent story about keeping humans safe and demolishing freedom.

    The movie is based on one story out of a book of short stories by Asimov (the book was called I-Robot also). Asimov may have written the book series with the three robotic prime directives but that does not mean that he personally advocates the framework. Certainly no more than Steven King advocates crimes of horror.

  9. Many of his stories did in fact deal with logical issues raised by interpreation of the three laws – that’s half the fun – but I got the sense he actually supported them in principle. Indeed, the goodie robots even explicitly determine a “zeroth law” – a generalisation of the others: “A robot may not harm humanity, or, by inaction, allow humanity to come to harm”

    Asimov was a lefty, after all… he probably found the idea appealing. I’m an avid sci-fi reader, and enjoy the books for what they are, but it’s surprising the number of people who, as Michael says, quote these rules and take them seriously.

    I’d also add that the movie is more “inspired by” rather than “based on” the short story.

  10. it basically says super intelligent robots should rule us all for our own good, even if their logic is radically different from the humans it’s protecting,

    Mick; is there a difference between this and the current bureaucracy?

  11. In terms of the governments proposed fibre network I suspect that before it is finished ADSL will be going 100Mbit/s anyway. See the following from two years ago. It should be commercialised soon enough.

    In effect they will be digging up my driveway for nothing.

  12. I’d change the depreciation schedule. Bandwidth on fibre optics rises over time due to improvements in switching gear. Bandwidth on copper rises too, but a) starts from a lower base and b) has much stricter limitations on distance due to noise.

  13. jc

    Telstra has $26bn of revenues, 90% of which comes from Australia. its not unrealistic to assume that a national broadband network can generate well in excess of $8.5bn of revenues. however it will have to cannibalise much of telstra’s business – a strange strategy given how many small TLS shareholders there are.

    this strikes me as another example of a headline grabbing, economically-illiterate pump-priming scheme from Rudd to ‘be seen to be doing something’.

  14. Yes, I agree pom. I think it will have to cannibalize the private firms business to make themselves look good which of course is easy to do if you have the ability to pass laws.


    Thanks Jacques… I actually wasn’t thinking of the fibre line when I estimated depreciation as I reckon that could actually have a 50 year life. I was thinking of all the switching equipment etc.

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