In a report released on Wednesday that reverberated throughout the telecommunications industry and in Canberra, S&P said official forecasts for the take-up of the NBN of between 73 per cent and 75 per cent by 2021 will be "difficult to achieve", raising the prospect the government will be forced to slash the value of the asset on its books. It cited the NBN's controversial pricing structure, and rapid advances in mobile technologies - which could enable people to abandon fixed line internet connections -as the factors behind a write-down, which would be politically sensitive and potentially affect the federal budget. "We believe it is getting harder for the government to stand behind the presupposition that NBN Co

will generate a commercial return on investment," S&P said in the report. "NBN Co's unusually complex pricing model is part of the problem." Finance Minister Mathias Cormann rejected S&P's analysis. He said in a statement the government was not considering a write-down of the NBN and remained confident it would reach its take-up forecasts.

Minister for Finance Mathias Cormann is confident there will be no write-down. Credit:Alex Ellinghausen Opposition communications spokesperson Michelle Rowland said the government's multi-technology policy meant the NBN was "over budget, costs more to maintain, generates less revenue and is more exposed to wireless competition". “[Prime Minister Malcolm] Turnbull fleeced the nation under the false pretense copper and HFC would be faster and cheaper - it wasn’t. It has been slower and more expensive,” she said in a statement. NBN has been roundly condemned for the high wholesale prices it charges its telco customers such as Telstra and Optus. But cutting those prices could result in lower revenues, in turn hurting its ability to generate returns. The NBN is classified as a 'Public Non Financial Corporation' under budget accounting rules, because it is currently forcecast to generate returns for the government. This means government funding for the project is classified as equity - an asset in the budget papers, rather than spending.

"Any shortfall in NBN Co's revenue target raises the prospect of a write-down and additional government funding to support the company, potentially in the form of debt relief or direct subsidies," said S&P. Mr Cormann said: "We remain confident that the federal government’s equity contribution to NBN will continue to be treated as equity and not a grant." The notion that mobile services could compete with the fixed-line NBN is controversial, and S&P said "we do not anticipate mobile networks to completely supplant the NBN anytime soon". However, there is a growing view within the telco industry, and among analysts, that 5G could emerge as a viable threat to the NBN at the cheaper end of the market. Telstra chief executive Andy Penn expects wireless only households to increase. Credit:AAP

For example, in June, Telstra CEO Andy Penn said the proportion of wireless-only households in Australia could double under 5G, from 15 per cent currently to as much as 30 per cent. "NBN subscribers are not as "sticky" as once thought," S&P said in its report. "The worst-case scenario is that the NBN will be relegated to the network of last resort." Rapidly advancing mobile technologies are a "global phenomenon", S&P said. But many of the problems afflicting the NBN are "uniquely Australian", including "a retrograde technology mix, political involvement, rollout miscalculations, cross-subsidisation of unprofitable regions, as well as convoluted pricing structure". The prospect of a NBN write-down has been discussed for months. In October last year, the competition regulator questioned the NBN's financial model and said the government might need to write down the asset, a move that could enable it to charge lower wholesale prices.

Analysts from JPMorgan also said in December that an NBN write-down was "likely". Loading S&P said there was "ample justification" for additional financial support for the NBN from the government due to the broader social and economic benefits the project would deliver. But it was not yet clear whether the government would be able to recover its investment through an eventual sale of the network.