Can the NBN survive the recession?

Summary:In times of financial crisis, it's inevitable that companies reassess their financial plans.

In times of financial crisis, it's inevitable that companies reassess their financial plans.

AAPT, in a significant step, has decided to pull out of the Terria consortium; Terria recently said the financial crisis would force it to re-evaluate its finance options; and the big-money financiers in the Acacia consortium must be having a few sleepless nights considering the way world credit markets are plunging into the pit of despair.

You know things are bad when Telstra has apparently decided the best way to raise a bit of extra dosh for the roll out is to break into movie-making, with plans to turn that cute kid and his lovable-oaf dad from the BigPond "rabbits" commercials into mega-superstars.

stock price

Chasing the markets
(Credit: T. Al Nakib, Royalty free)

Heck, it could work; people love compelling dramas with a bit of comic relief added in. Consider that The Dark Knight has grossed more than US$526 million, and will likely more than double that when the DVD comes out, and maybe Telstra is on to something.

All it has to do is throw in a few superheroes, a smart-but-tough love interest, and maybe do some viral marketing to encourage repeat attendance by the thousands of workers at its new call centre in the Philippines, and it will be able to make enough from the movie to help fund, say, 2 per cent of the roll out.

Let's see if Titanic can stay afloat in this particular Big Pond.

Jokes aside (and there are many), it is ironic that Telstra is reportedly looking for millions in public support for the movie through various government film-production avenues.

This is the same Telstra that made a religion out of slamming Optus for angling for government funding for Opel; the same Telstra that bagged Terria for erecting a billboard at Canberra Airport instead of investing in more network gear; the same Telstra that spends millions each year on naming rights for major stadiums in Sydney and Mebourne; and the same Telstra that is now fighting tooth and nail for $4.7 billion in NBN handouts.

While something about glass houses and stones comes to mind, suffice it to say that the structure of finance in Australia means that very little of consequence happens without government support and intervention.

Companies and people that want money have to meet certain criteria, accept certain requirements, and weigh the risks of the change those requirements mandate against their need for the money. And, right now, everybody needs the money.

In this case, the government has a very strong card to play: the fact is that the current global credit crisis is going to cause problems for all sorts of major infrastructure projects, the NBN included, and this is going to change things dramatically.

Terria is determined to rock on with its bid (and Conroy believes them), but as the crisis deepens it's likely that all NBN bidders could run into funding trouble: leery, risk-pressured outside investors may sit down at the table, but their due diligence may well uncover an NBN process that is masked by too many variables for comfort.

In a worst-case scenario, I could even see the government suspending the NBN until financial conditions improve: after all, a $4.7 billion investment is a sizeable chunk of change, and Senator Conroy has previously shown he's willing to axe investments if the money can be used elsewhere.

Of course, he has also shown he's willing to increase spending where it isn't necessary, as when he disbanded the Coalition's digital television task force, then made up his own and tacked about $10 million onto its budget. Even Prime Minister Rudd isn't afraid to smash the piggy bank, distributing $10.4 billion this week to ensure everyone has a happy Christmas.

If I can go a bit Adam Smith for a moment, however, the free market will always find its way. What concerns me more about this whole thing is that the free market has shown a disappointing tendency to ignore the 80 per cent of Australia that is not located in capital-city metropolitan areas.

That the NBN is being touted as a cure-all for rural Australia's broadband problems is hardly news, but this week's final report of the Regional Telecommunications Review raises additional concerns: Conroy has pledged $400 million to address the findings of the review, which were — wait for it — that regional Australia's telecommunications infrastructure is basically as appealing as a bucket of salmon left behind a furnace for a month.

More about that review in a subsequent column, but the bottom line here is that — with all of this financial turmoil forcing major telcos to reassess their priorities and NBN strategies — the bush is in very real danger of being left out, yet again. Terria has already publicly said its roll out will start in the bush and work into the cities — an admirable stance that contrasts with Telstra's capital city-based roll out — but this idealistic approach is going to come head-to-head with harsh fiscal reality before too long.

The NBN, after all, also depends on an investment by a huge percentage of rural residents. And, as factories are closed, jobs are lost, bankruptcies declared, and farms and homes repossessed, people are going to care less and less about their broadband, and more about the simple things. Like eating. And, no matter what the rabbit guy thinks, you just can't eat YouTube.

What do you think? How can the bidders keep the value alive? Or will the recession make the NBN unattainable?

Topics: Telcos, AAPT, Broadband, Government : AU, NBN, Telstra

About

As large as the US mainland but with a smaller population than Texas, Australia relies on ICT innovation to maintain its position as a first-world democracy and a role model for the developing Asia-Pacific region. Award-winning journalist David Braue has covered Australia’s IT and telecoms sectors since 1995 – and he’s as quick to draw le... Full Bio

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