NBN BUZZ: The budget and the NBN

Malcolm Turnbull hums the same old tune about putting the NBN on the books as the bill to scrap the network crosses the $2 billion mark.

NBN Buzz is a weekly wrap up of everything that's going on with Australia's largest infrastructure project. For previous editions and the latest news visit our NBN Buzz page.

The budget and the NBN

Another budget and another promise by the government to ensure that the books are balanced and that all so important surplus is delivered come hell or high water. So what do the numbers revealed in the 2012-2013 Budget have to say about the NBN? Well for one thing we know how much it’s going to cost the Coalition to roll back with the current amount coming in at the $2 billion mark, although this figure is going to be a whole lot higher by the time the next federal election rolls in.

The other set of figures associated with the NBN is the millions set aside by the government to spread the NBN message far and wide. There’s the $20 million provided to improve the public’s perception of the NBN, especially in the regional and remote areas where access to the NBN will be provided through fixed wireless and satellite services. There is also another $20 million earmarked to create a “national online educational portal” to help students, families and teachers make full use of the network.

In addition, the government will spend $22.2 million over the next three years in a tele-health pilot program, $5 million over three years to pilot virtual English tuition for new migrants living in regional Australia and $2.4 million over two years from 2011‑12 (including $0.4 million in capital funding in 2011‑12 and $0.02 million in 2012‑13) to provide online remote access to national cultural institutions. The best part about that last bit of spending is the promise of virtual tours of these institutions via mobile robots. That’s right folks, robots, to show you around and impart all the important bits of information you need to know.

Creative accounting and swimming in a sea of red

Now, normally this is where the budget and the NBN would part company because most of the $36 billion cost of the network is not included in the budget. The government is expecting a seven per cent return on its investment so the NBN appears as an asset rather than an expense.

However, that hasn’t stopped shadow communications minister Malcolm Turnbull from taking the government to task for cooking the books. According to Turnbull, the promise of a $1.5 billion surplus rests on the shoulder of shifting $430 million of spending on the network from 2012-13 to the current 2011-12 financial year. The Department of Broadband, Communications and the Digital Economy (DBCDE) had increased its spending to $484 million in 2011-12, compared with previous estimates of $57 million but while the $430 million increase has been attributed to inducements provided by Telstra for its deal with NBN Co, Turnbull reckons the money shuffle is another example of the Gillard government’s ‘creative accounting.’ He also pointed out in question time yesterday that the 2012-13 budget would actually be sporting a $12 billion deficit, if the NBN was on the books.

While some may reckon it’s a valid point that merits consideration, I think the more pertinent question would be just what the Coalition and Turnbull aim to do about this. The accounting methodology utilised by the government is not under question but what we do know is that if the coalition decides to shake things around and the ROI is no longer guaranteed then we will be swimming in a sea of red in a blink of an eye.

Fine tuning the uptake message

The government is obviously cognisant about the uptake issue and a lot of the spending related to the NBN is geared to ensure that the public will jump on board once the network is available. The thing about uptake is that high fibre penetration doesn’t guarantee uptake. For example, 83 per cent of buildings have fibre in Singapore, but adoption rate is at eight per cent.

 According Frost & Sullivan’s vice president of ICT research for the Asia Pacific region, Andrew Milroy, the focus needs to be on applications and not speed and the government needs to encourage more industry drivers to monetise the network. Speaking at the Amdocs Insights Forum in Sydney this week Milroy said that the experience in high penetration countries - South Korea, Singapore – shows that uptake is often dictated by application. In the case of Korea, gaming and tele-health applications rule the roost, while in Singapore the tele-education benefits have proven to be more compelling to consumers.

There’s a clear message here for Australian service providers and the government, if you want better uptake you are going to have to give the public some very good reasons. You do get a sense of that in where the government is targeting its spending on the NBN. Tele-health, tele-education are two clear segments where the NBN can be a game changer and as the recent Forrester report highlighted the government could do well to start selling the message to businesses, many of which are yet to realise the full potential of the new network.

Beefing up the rollout roster and a satellite gateway in the outback

Selling the message needs to be a critical component of the government’s NBN strategy but for now the real focus is on the rollout, which is evidently gathering pace. NBN Co is looking to add more construction capacity and that means there’s a contract out there for one lucky construction firm. We don’t know how much the contact will be worth but if the last one is any guide it could well be in the billion dollar territory. Getting another builder to start rolling out thee fibre makes sense for obvious reason and a hefty long-term contract will just add to the termination liability costs for the Coalition. However, the contract negotiations will be interesting given the uncertainty around the future of the network.

Meanwhile, NBN Co is also hoping to tie up an infrastructure access deal with the New South Wales government by the end of June. The agreement sets the terms and conditions for access to infrastructure controlled and owned by NSW energy utilities. Elsewhere, Primus Telecommunications has been selected by NBN Co to test the software that will make life easier for service providers looking to offer traditional analogue services over the network.

Finally, the outback town of Bourke in the north-west of NSW has been selected as the location for a new facility that will help deliver high speed broadband to remote communities across Australia.

The satellite ground station gateway forms part of NBN's Long Term Satellite Service, designed to deliver broadband at speeds of up to 12 Megabits per second  to homes, farms and businesses in outback and remote parts of Australia, including communities in the Bourke Shire such as Louth, Gumbalie and Fords Bridge.

Construction is expected to begin next year with the facility scheduled to be up and running by 2015.

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