BUDGET 2013: Should the NBN escape budget scrutiny?

The government may claim to have made the tough decision with this year's budget, but its refused to make a call on whether the NBN is too much of a burden on the nation's bottom line.

With a budget deficit of $19 billion now announced – and forecast budget revenues slumping by tens of billions of dollars – Australia’s politicians have some tough spending decisions to make – not least over the funding of the controversial $37.4 billion National Broadband Network (NBN).

The real question now is whether politicians – Labor or Coalition – will hold their nerve on funding the hugely expensive NBN when there are so many other competing funding demands on the budget?

Both are already committed to funding the National Disability Insurance Scheme whilst Labor must finance the Gonski educational reforms and the Coalition its Paid Parental Leave scheme.

The government has already pumped around $7.5 billion into the Fiber-to-the-Premise (FTTP) NBN – which is being principally funded by the sale of government bonds – but the deployment of the core FTTP network remains in its infancy with only around 1 per cent of premises passed.

So far, the NBN has escaped close budget scrutiny, principally because as a Government Business Enterprise (GBE) it is being kept off budget, a move sharply criticised by the Coalition which has promised a cheaper Fiber-to-the-Node (FTTN) based NBN costing $20.4 billion.

However, even if Labor pulls off an upset win in September the worsening economic conditions and wide array of urgent spending priorities – not to mention the sluggish NBN rollout pace – will make it politically tough to keep pouring money into the NBN in its current form.

If Labor did have to scale back the NBN then the most obvious choice would be to eat a huge portion of humble pie and rollout FTTN in areas where FTTP is too expensive to deploy – thereby removing a sizeable amount of civil works from the cost of the project.

This would require Communications Minister Stephen Conroy to eat a super-sized ‘shit sandwich’ but he would at least be able to argue that the project was being scaled back for economic reasons beyond his control and for the wider good.

However, such a move would infuriate passionate backers of the NBN who consistently point out that according to the NBN Co.’s Corporate Plan that the network – when completed – should fully return its cost to the government.

For his part, should – as expected – Malcolm Turnbull take over as Communications Minister post-election then he will likely come under pressure from some in his own party room to reduce government spending on even his own scaled back NBN.

Many ‘free market’ Liberals remain appalled at governmental intervention in the telecoms market via the NBN and want to find a way to not just reduce government spending on the project but to get the government out of it altogether.

Turnbull’s options for scaling back his version of the NBN are limited given he has already taken out much of the cost by deploying FTTN rather than FTTH, although one option would be to reduce the number of nodes deployed, a move which would lower the speeds offered on the network.

Another option would be to not deploy FTTN at all in areas where HFC networks are already deployed and instead finance an upgrade of these HFC networks, whilst an even more radical move would be to decrease the FTTN footprint and replace it with an increased fixed-wireless deployment.

The other way in which Turnbull could consider reducing government exposure on the project would be to bring in private investment– although this would not really be possible until the NBN has been more widely built.

The best way to do this would be to split the project into metro and regional parts, with the former attracting private capital and the latter remaining solely in government hands – a possibility already suggested by consultants Allen & Overy in a recent report.

Any of these moves would be controversial but having a government built NBN means it will always be vulnerable to the political tides of the day and with harsher economic winds now picking up it is not surprising that the NBN may have to bend to them.

Over the next couple of years – no matter who is in power – the government is going to have to make some tough choices on the NBN, does it plough onwards with the project despite the financial risks involved and potentially put the budget further into the red?

Or, does it decide to play cautiously and scale back its investment in the project on the basis that economic times have changed and every dollar not spent on the NBN can be spent on other more important budgetary needs?

In his stump speech on the last presidential campaign US Vice President Joe Biden would often quote a phrase used by his father, “Don’t tell me what you value, show me your budget, and I’ll tell you what you value.”

Indeed, over the next few years the choices made by our politicians will show us once and for all how much value – after all the hot air expanded this last six years – they really place on the NBN.

Tony Brown is a senior analyst with Informa Telecoms & Media. He is a key member of the Broadband and Internet Intelligence Centre team, covering the broadband and Internet markets of the Asia Pacific region.