Budget 2012: govt's NBN liability hits $1.8b

Summary:As the National Broadband Network (NBN) roll-out ramps up, the cost to cancel associated contracts has hit almost $2 billion.

As the National Broadband Network (NBN) roll-out ramps up, the cost to cancel associated contracts has hit almost $2 billion.

As part of the 2012-13 Budget, the government has outlined the financial risks associated with the current projects it has undertaken, and the impact that these risks could have on the Budget bottom line, including those surrounding the NBN.

NBN Co has signed a number of construction, satellite, fixed-wireless and other deals in the last few years as the NBN started its roll-out across the country.

Due to the uncertainty around whether a change of government would lead to a massive change in policy that would lead to the cancellation of these contracts, the government is liable for costs associated with the termination of those contracts.

According to the budget papers, NBN Co's termination liabilities as of 31 March 2012 are estimated at $1.8 billion.

As part of NBN Co's $11 billion agreement with Telstra to lease ducts, pits and dark fibre, the government is also liable to pay Telstra up to $500 million if the deal is changed as a result of a change in policy.

As of 31 March 2012, NBN Co estimates that it would be liable to pay Telstra $209 million if the roll-out is terminated.

The Coalition has indicated that it would seek to renegotiate the government's deal with Telstra, aiming to obtain part of Telstra's copper network so it can roll out a scaled-back fibre-to-the-node network, instead of the fibre-to-the-home approach that NBN is taking today. Telstra CEO David Thodey has said that he would be willing to negotiate with the Coalition, but has warned that he will have the interest of shareholders in mind in any such negotiations.

As of 30 March 2012, the government has paid Telstra $321.55 million as part of the $11 billion deal.

The $800 million Optus deal is also listed as a potential risk if it is terminated, but the papers indicate that as of 31 March 2012, there is no financial risk from this deal.

In the 2011-12 financial year, the government funded NBN Co with $2.1 billion, with $1.7 billion funded through Aussie Infrastructure Bonds. This is less than the $3.4 billion forecast in last year's Budget, because delays to the signing of the Telstra deal delayed the roll-out of the NBN.

In 2012-13, NBN Co is set to receive $5.8 billion in funding from the government, followed by $6.6 billion in the following year, $4.1 billion in the year after and $3.6 billion in 2014-15. Of the total $20.1 billion, $9.9 billion will be spent on the fibre roll-out, while $2.2 billion will be spent on the fixed-wireless and satellite portions of the roll-out.

To "improve public understanding, address misconceptions and provide updated information about the National Broadband Network", the government also spent $20 million in funding in the last financial year.

As part of a broad-ranging trial of telehealth services over the NBN in a number of different agencies, including the Department of Human Services (DHS) and the Department of Veteran Affairs, the government has allocated $22.2 million over the next three years. The government initially announced this package in January, and indicated funding in forward estimates.

The NBN is also being used as a cost-saving measure for the government. As it pushes towards a $1.5 billion surplus next year, it is planning on making $11.2 million in savings by not upgrading ICT infrastructure for Australian government agencies stationed on Christmas Island. Instead, this service will be provided by NBN Co's satellite operation by 2015.

Meanwhile, $2.4 million has been set aside over the next two years to provide online remote access to "national cultural institutions" to help demonstrate the opportunities offered by the NBN.

According to the Budget, visitors will be able to take virtual tours of the institutions via a mobile robot.

Topics: NBN, Broadband, Optus, Telcos, Telstra

About

Armed with a degree in Computer Science and a Masters in Journalism, Josh keeps a close eye on the telecommunications industry, the National Broadband Network, and all the goings on in government IT.

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