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The NBN debacle · What the Flux

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  Speaker 1: This is What The Flux. I'm Larissa and it's Friday
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  Speaker 1: the 14th of August. Here are the three biggest news
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  Speaker 1: stories today. For our first story, canvas shares are being
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  Speaker 1: sold at a 28.5% discount after recent reports of slowed growth.
• 0:19
  Speaker 1: Canvas shares are allegedly being sold on a private broker
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  Speaker 1: marketplace called Hive. For our next story, Spotify's adding AI
• 0:25
  Speaker 1: persona labels to profiles that appear to be AI generated.
• 0:29
  Speaker 1: The labels will flag whether an artist's identity is AI generated,
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  Speaker 1: not if the music itself is. And for our final story,
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  Speaker 1: Q Clothing, the iconic Australian fashion retailer, is being prepped
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  Speaker 1: to be sold just 16 months after British asset investor
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  Speaker 1: Hilco acquired the clothing brand. In this series, Going Deep,
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  Speaker 1: we'll be doing bite-sized explorations into the most interesting industries, businesses,
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  Speaker 1: and economic events in Australia and around the world. For
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  Speaker 1: today's episode, we're looking at the NBN, Australia's national broadband network.
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  Speaker 1: In particular, how a $ 43 billion promise to give every
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  Speaker 1: Australian world-class internet became a $ 57 billion lesson in what
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  Speaker 1: happens when you over-promise and under-deliver. In this episode, Brett
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  Speaker 1: and Justin explore what was originally promised, what actually got built,
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  Speaker 1: what it's cost us, and whether Australia can still claw
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  Speaker 1: its way back to where it should have been all along.
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  Speaker 1: Over to you, Brett and Justin.
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  Speaker 2: Thanks, Larissa. B-Man, cast your mind back to 2009. Kevin
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  Speaker 2: Rudd is Prime Minister, and we're fresh off the pain
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  Speaker 2: of the global financial crisis. And the government announces one
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  Speaker 2: of the biggest public works programs in Australian history. They
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  Speaker 2: began dropping big words like fiber optic cable, gigabit speed,
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  Speaker 2: future-proof the country for decades.
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  Speaker 3: This, of course, was the National Broadband Network, or NBN,
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  Speaker 3: as it's not so affectionately known. It was announced on
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  Speaker 3: April 7th, 2009. A genuine big swing.
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  Speaker 4: Yep.
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  Speaker 2: The original plan was to run fiber all the way
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  Speaker 2: to your house in 93% of Australian homes, schools and businesses.
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  Speaker 3: The promise was 100 megabyte per second download speeds, which
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  Speaker 3: was faster than most countries were offering at the time.
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  Speaker 2: For context, in 2009, most Aussies were stuck on ADSL
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  Speaker 2: and struggling to download music off Napster.
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  Speaker 3: They were getting download speeds around 8 to 12 Mbps.
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  Speaker 3: So this was a promise to get 10x speed and
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  Speaker 3: up to 100x speed.
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  Speaker 2: Budget? $ 43 billion.
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  Speaker 3: Timeline? Complete by 2020.
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  Speaker 2: The pitch was that it would pay for itself through
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  Speaker 2: wholesale revenue.
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  Speaker 3: Go on.
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  Speaker 2: Well, a government-owned company called NBN Co. would own the pipes,
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  Speaker 2: and then retailers like Telstra and Optus would pay NBN Co.
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  Speaker 2: to access their pipes... and on sale to consumers.
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  Speaker 3: Okay, so by 2013, the size of this mammoth project
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  Speaker 3: was getting quite concerning for the government, so the NBN
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  Speaker 3: got completely rejigged. Yeah, the argument was that full fibre
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  Speaker 3: to the premises, which was originally committed, was going to
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  Speaker 3: blow out to 70 plus billion dollars and wouldn't be
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  Speaker 3: done until the mid 2020s. Too slow, too expensive.
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  Speaker 2: Enter the new model, a multi-technology mix.
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  Speaker 3: This would mean building part of the cables with fibre
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  Speaker 3: to the node.
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  Speaker 2: And that means?
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  Speaker 3: Running fibre to a green box on your street. Then
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  Speaker 3: old copper wire will carry the signal to your house.
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  Speaker 2: And copper degrades over time, so the further you are
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  Speaker 2: from the box, the slower your connection would be. The pitch?
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  Speaker 4: $ 29.
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  Speaker 3: 5 billion and done by 2019.
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  Speaker 2: Minimum 25 megabytes per second to all Australians by the
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  Speaker 2: end of 2016.
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  Speaker 3: So spending 29 and a half bill for double or
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  Speaker 3: triple the 2009 speed.
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  Speaker 2: The problem was though, not one of those numbers came true.
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  Speaker 2: Not one.
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  Speaker 3: By 2019, the costs had blown past 51 bill and
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  Speaker 3: the government was still in the middle of paying for it.
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  Speaker 2: Meanwhile, the rest of the world kept building a full
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  Speaker 2: fiber to the premises. Flux Fam, today we're excited to
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  Speaker 2: have Andrew Kenobi, Director of Australia Fixed Income at Franklin Templeton,
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  Speaker 2: join us again on the pod. Today, we're going to
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  Speaker 2: dive a little deeper into fixed incomes. Andrew, welcome back
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  Speaker 2: to What The Flux.
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  Speaker 4: Hey guys, great to be here.
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  Speaker 2: So we spoke a lot about fixed income investments last
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  Speaker 2: time you were on the pod, but how does it
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  Speaker 2: actually work mechanically? You know, we're speaking coupons, yield to maturity.
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  Speaker 2: Can you break it down simply for someone who's never
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  Speaker 2: thought about it before?
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  Speaker 4: Yeah, great question. I mean, the thing about fixed income,
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  Speaker 4: which is part of its appeal to investors, is there
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  Speaker 4: is a cash flow return element to it. So whether
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  Speaker 4: you're investing for one, five, 10 years in a bond,
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  Speaker 4: typically there'll be an interest rate or coupon that's associated
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  Speaker 4: with that, which will pay you quarterly or six monthly,
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  Speaker 4: a regular cash flow. And so that's an important attribute
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  Speaker 4: for the asset class. That coupon or interest rate is
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  Speaker 4: different to yield, which is a different.
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  Speaker 2: Measure of total return.
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  Speaker 3: And when we talk about yield, people hear that word
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  Speaker 3: a lot. Sometimes they may glaze over a little bit.
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  Speaker 3: Not me, of course. Can you give us a really
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  Speaker 3: simple way to think about what yield is and why
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  Speaker 3: it really matters to an investor?
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  Speaker 4: I mean, I can show you two bonds that have
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  Speaker 4: the same yield to maturity, but very different coupons. So
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  Speaker 4: one could have a price of $ 100 and a coupon
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  Speaker 4: of 5% and a yield of 5%. One could have
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  Speaker 4: a coupon of 1% and a price of 90-something dollars
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  Speaker 4: and a yield of 5%. So they will both deliver
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  Speaker 4: the same total return over a given time horizon. One
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  Speaker 4: will give more of its return from the cashflow coupon interest.
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  Speaker 4: The other will give you the same return, but it'll
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  Speaker 4: be a combination of a small amount of coupon interest
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  Speaker 4: and some capital gain as that bond moves from its
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  Speaker 4: $ 90- something position to its $ 100 face value.
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  Speaker 2: And Andrew, there's obviously a whole range of different fixed
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  Speaker 2: income products on the market, but what are the benefits
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  Speaker 2: of an active approach to fixed income investing as opposed
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  Speaker 2: to a passive or set-and-forget type of approach?
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  Speaker 4: Great question. I mean, with equities, generally speaking, the indices
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  Speaker 4: are constructed on a market cap weighted basis. So the
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  Speaker 4: bigger the company becomes, the more it is a constituent
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  Speaker 4: of an index. So in some ways, the indices are
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  Speaker 4: naturally solving for the most successful members. With the bond market,
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  Speaker 4: the indices have a similar weighting approach, but what you
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  Speaker 4: end up with is the most indebted or the biggest
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  Speaker 4: issuers of debt become the biggest components of the index.
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  Speaker 4: So if you think about a global bond index, not surprisingly,
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  Speaker 4: what are the biggest components of that? It's the US
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  Speaker 4: government and it's the Japanese government. Most people would agree
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  Speaker 4: that both of those two governments are running structural fiscal deficits.
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  Speaker 4: They're issuing a lot of debt. That means their position
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  Speaker 4: in the index is growing and growing. Now, look, our
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  Speaker 4: approach is basically you want to build a portfolio that
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  Speaker 4: has exposure to the right issuers, be they government or corporate,
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  Speaker 4: in the right part of the curve, giving you the
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  Speaker 4: right return, as opposed to the ones that the index
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  Speaker 4: tells you are the biggest and most indebted. And that's
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  Speaker 4: really the simple argument, I think, for an active approach.
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  Speaker 2: And for an individual investor to do that themselves is
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  Speaker 2: pretty complicated, isn't it?
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  Speaker 4: Yeah, I think the challenge for individual investors is... You know,
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  Speaker 4: there are plenty of folk around the world who will
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  Speaker 4: do this directly and that's fine. But particularly when you
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  Speaker 4: get away from government bonds and you go to something else,
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  Speaker 4: you need to understand the risks very carefully.
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  Speaker 2: Andrew, a lot of our audience are early to mid
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  Speaker 2: in their career. So I want to know, where does
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  Speaker 2: fixed income actually fit in for someone who is still
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  Speaker 2: decades away from retirement when fixed income is often being
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  Speaker 2: considered a bit more of a safe or retirement style product?
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  Speaker 4: Yeah, yeah, sure. Assuming that I'm not supposed to give
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  Speaker 4: investment advice, so I will try not to do that.
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  Speaker 4: I mean, I think what I say to young people,
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  Speaker 4: including some of my kids is, the younger you are,
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  Speaker 4: the more risk you can afford to take. And so
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  Speaker 4: generally you want portfolios that have that growth orientation. That
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  Speaker 4: logically means the defensive component bonds is probably going to
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  Speaker 4: be smaller than someone who's either approaching or in retirement.
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  Speaker 4: But it doesn't mean that it should be zero. And
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  Speaker 4: what I would say is, think of that component of
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  Speaker 4: your portfolio as giving you optionality, because you may not
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  Speaker 4: need income, you may not need a very defensive portfolio
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  Speaker 4: at your stage of life. But if, as we will
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  Speaker 4: do and do experience every few years, you get a
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  Speaker 4: significant shock to markets and you want to take some
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  Speaker 4: of that defensive part of your portfolio and reinvest it
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  Speaker 4: in the stuff that's been thrown out in the sell-off,
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  Speaker 4: then that's part of the rationale for having a bond allocation.
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  Speaker 2: Andrew, thanks again for joining us on Want the Flux.
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  Speaker 2: Always a wealth of knowledge and Going to have to
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  Speaker 2: dig a little bit further into my fixed income portfolio.
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  Speaker 3: Sounds great.
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  Speaker 4: Thanks, guys.
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  Speaker 3: Really appreciate it. Alrighty, so Jazzy Boy, where are we
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  Speaker 3: at today?
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  Speaker 2: Well, I'm glad you asked. The NBN is now connected
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  Speaker 2: to more than 12 million Australian premises with a total
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  Speaker 2: cost to date of, drumroll, over $ 57 billion. Marvellous.
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  Speaker 3: And the final tally heading towards $ 70 billion once the
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  Speaker 3: remaining copper upgrades are done.
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  Speaker 2: And B-Man, for those playing at home, the cheaper model
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  Speaker 2: proposed in 2013 has actually ended up costing more than
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  Speaker 2: the original plan was ever going to.
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  Speaker 3: But our internet is very quick, isn't it?
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  Speaker 2: Not quite, speed-wise. Australia ranked 61st globally for fixed broadband
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  Speaker 2: as of early 2025. Singapore is top three at 348
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  Speaker 2: megabits per second median.
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  Speaker 3: We were averaging just 97. We've since improved.
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  Speaker 2: We're now rated around 43rd globally, next to Cambodia and
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  Speaker 2: Latvia just ahead of us. And B-Man, as of mid-2025,
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  Speaker 2: Only 2.6 million premises are genuine, full fibre to the premises.
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  Speaker 3: Out of 12.1 mil connected, that is around 22%.
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  Speaker 2: They promised 93% in 2009. We are currently at 22%.
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  Speaker 3: So what's actually broken? Let's break this down.
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  Speaker 2: Okay. Well, first there's the copper problem. The fiber-to-the-node connections
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  Speaker 2: were supposed to deliver fast speeds, but the ACCC found
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  Speaker 2: they were actually delivering less than committed.
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  Speaker 3: And then, of course, there's NBNCO's massive financial hole.
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  Speaker 2: Yeah, it posted a net loss of $ 963 million in FY25.
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  Speaker 3: And, Jazzy Boy, this isn't just one bad year. It's
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  Speaker 3: a company that has never made a profit.
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  Speaker 2: And why is that?
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  Speaker 3: Well, the cost of building the network... had to be
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  Speaker 3: absorbed into wholesale pricing.
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  Speaker 2: Which retailers pass on to you, the consumer.
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  Speaker 3: So prices stay high because the debt has to be
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  Speaker 3: serviced somehow.
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  Speaker 2: And that's the trap. The NBN needs high prices to survive.
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  Speaker 2: High prices push customers towards alternatives.
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  Speaker 3: And alternatives are arriving fast.
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  Speaker 2: Enter Starlink. Elon Musk's SpaceX's low-Earth orbit satellite, which launched
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  Speaker 2: in Australia and already has over 200,000 households connected instead
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  Speaker 2: of NBN.
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  Speaker 3: Mainly in regional and remote areas where NBN is not available.
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  Speaker 3: Then you've got 5G home wireless. Telstra, Optus, TPG, all
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  Speaker 3: offering home internet over their mobile networks.
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  Speaker 2: No copper, no NBN, often cheaper and speeds that even
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  Speaker 2: beat a standard NBN plan.
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  Speaker 3: And about 500,000 Australian households have already ditched the NBN
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  Speaker 3: entirely for 5G home wireless.
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  Speaker 2: And that number is growing every single quarter.
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  Speaker 3: So Jazzy Boy, the uncomfortable question is whether NBN actually
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  Speaker 3: has a future at all.
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  Speaker 2: Well, B-Man, there is a real scenario where the Australian
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  Speaker 2: government finishes spending $ 70 billion on this fixed line network
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  Speaker 2: and then a big chunk of the population don't use it.
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  Speaker 3: The NBN was built for a world where fibre to
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  Speaker 3: your house was the only way to get fast internet.
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  Speaker 2: But that world lasted about a decade.
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  Speaker 3: the decade that it took Australia to build this.
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  Speaker 2: And now NBN is being stress tested by competitors it
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  Speaker 2: was never planning or designed to face.
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  Speaker 3: So is there a world where our NBN does survive
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  Speaker 3: and even thrive? Well, it is possible because full fibre
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  Speaker 3: is still the most reliable fixed line tech available. And
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  Speaker 3: as data usage doubles every few years, then a fibre
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  Speaker 3: to the premises network will still matter. But Bayman, the
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  Speaker 3: more probable option, we're about to finish a 70-bill infrastructure
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  Speaker 3: project into a market that has already moved past it.
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  Speaker 3: So the NBN has become a cautionary tale about what
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  Speaker 3: happens when you spend too much money and time in
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  Speaker 3: a very fast-changing tech landscape.
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  Speaker 2: Fluxam, we hope you enjoyed this deep dive on the
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  Speaker 2: demise and debacle that is the NBN. On Wednesday, we'll
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  Speaker 2: be doing a deep dive on price gouging in the
• 10:59
  Speaker 2: supermarket industry. We've watched Woolies and Colts pocket billions in
• 11:02
  Speaker 2: profit during a cost-of-living crisis, and the regulators are starting
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  Speaker 2: to catch up. We'll explore how two supermarkets came to
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  Speaker 2: control two thirds of what Australians eat and whether the
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  Speaker 2: laws that we're now writing will actually be enough to
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  Speaker 2: stop it happening again. Thanks for listening and we'll see
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  Speaker 2: you on Friday.