Let’s assume that the appropriate discount rate is the government’s cost of capital. We’ll assume that the coupon value of the ‘infrastructure bonds’ issued to fund the $43 billion is 6%. That’s a substantial premium to the current 10-year Australian government bond rate (about 4.5%). We’ll also assume that the revenue ($3.78 billion on our assumptions) is maintained in real terms—an unrealistically high revenue.
The 10-year IRR on this assumption is negative (-4%). The 10-year net-present value of the investment is also negative (-$14.7 billion).
As Turnbull acknowledges, it may be worthwhile to do this even if the result is a massive loss to the taxpayer. But the terms of the debate must be framed accordingly: should this choice be placed ahead of, say, roads or public hospitals, or more funding for universities?
Update: Former Optus director Paul Fletcher also thinks the Ruddnet proposal commercially unviable. He concludes it is a ruse:
Perhaps the real intent of the decision is to shock Telstra back to the bargaining table — in other words, the Government is still covertly following the second option which I identified. It will certainly work to get Telstra talking — although any serious discussions will be delayed until after the new chief executive is appointed.” Extract from Paul Fletcher in New Matilda
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