Should Labor lose power at the next election, what will be the impact on NBN Co if the Coalition stops funding it relatively early in the build-out?

Technology Spectator

Coalition leader Tony Abbott’s famous directive to his communications minister Malcolm Turnbull to ‘demolish the NBN’ seems a distant memory as we head into an election year. However, it would be nave to think that the pugnacious leader of the opposition has had a complete change of heart on the NBN. So what will a Coalition victory mean for the project and NBN Co?

There is no denying the time and effort Turnbull has expended off late in softening the Coalition’s stance. The NBN isn’t going to be sent to the gallows, the fibre isn’t going to be ripped out of the ground and the apocalyptic bluster has been replaced by the "cheaper, sooner” mantra. This message may seem more palatable but is no less dangerous given that it could well straddle us with a decidedly second-best broadband option for some time to come.

Provided there is a change in Canberra in 2013, there is a good chance that the Coalition will press pause on NBN funding, while the economics of the project are presumably subjected to Joe Hockey’s fiscal calculations.

Some insight to the Coalition’s thinking was provided recently by Business Spectator's Rob Burgess (What's behind Hockey's fiscal nightmare? December 4):

"The Coalition, to date, has said it will cut spending and deliver tax cuts if it wins power in 2013, and stop issuing so many Commonwealth government securities – Malcolm Turnbull's 'cheaper, sooner' broadband plan is just one example of how this will be done.

"That gives voters a clear choice at the next election – a government running a 'tight' fiscal policy that raises only 22.1 per cent of GDP in taxes, but manages a highly geared, and probably not very efficient Australia Inc on the side ... or one that shuts down quite a bit of Australia Inc, and runs an even tighter fiscal policy.

"It sounds like a no-brainer – surely we don't need to keep borrowing to build inefficient state-owned enterprises? And if we sack a few thousand public servants and use the money for tax cuts, won't that money be spent by the private sector on investment/consumption?”

So what will be the impact on NBN Co if the Coalition stops funding it relatively early in the build-out?

Here are a few points to ponder:

– Sunk costs can't be unspent and existing debt will have to be repaid, possibly very quickly.

– Deployed services, infrastructure and installations could remain in service.

– For the project to proceed, new sources of funding, debt or equity would be needed. So, could NBN Co issue its own bonds? If so, what rate would the market demand? Would it be able to fully fund the project?

– If the Coalition prematurely offered an NBN Co sale, would they sell the whole company, at firesale prices? Would they offer 25 per cent to 33 per cent each to Optus and Telstra?

Killing projects early usually doesn't leave much of value. Think of a city skyscraper that is barely built to street level. A huge amount of money has been spent in digging the hole, setting foundations and forward ordering long-lead time items. If the project is abandoned, it can't even be sold for land value: it will cost a new owner dearly to demolish what's there and restart.

This is an important contingency and one that NBN Co must plan for in detail before the 2013 election. Hopefully by the time the polls are in the fixed wireless and satellite components will be fully deployed, or already paid for and able to be completed. Regional backhaul is already in place and the 121 Points of Interconnect must be in construction now

Another thing to keep in mind is whether the Gillard government will allow NBN Co to publish, in whole or part, its contingency plan for a Coalition funding pause.

I hope communications minister Stephen Conroy allows this as it may influence some voters: the wilful destruction of a once in a generation infrastructure refresh and deliberate waste of some billions is an "interesting" political act. To some, it will be as heinous and long-remembered as Meg Lees backflip on the GST, the cause of the demise of the Democrats.

Any NBN Co statement will need to answer an important question: how much value is the Coalition prepared to destroy for the sake of an ideological position?

Given the Coalition’s current bout of economic rationalism one would assume that the deliberate waste of up to $10 billion of public money, just to win political points, would be unthinkable.

Turnbull could – but on past performances don't expect it – conduct talks with NBN Co prior to the 2013 election on how to maximise their value under a Coalition administration. That would show real concern for minimising waste of public monies, not blindly following an ideological position.

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