Can the NBN survive the recession?

Can the NBN survive the recession?

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

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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, Broadband, Government AU, AAPT, Telstra, NBN

About

Australia’s first-world economy relies on first-rate IT and telecommunications innovation. David Braue, an award-winning IT journalist and former Macworld editor, covers its challenges, successes and lessons learned as it uses ICT to assert its leadership in the developing Asia-Pacific region – and strengthen its reputation on the world stage.

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Talkback

14 comments
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  • Beggars can't be choosers.

    David very thought provoking questions. Terria is history. Telstra must consider the sensibilities of the NBN build in light of the devastation of the world credit crisis.

    Can Australia afford world class Broadband? I believe that Telstra could deliver the NBN build with required Government regulation to ensure Telstra an adequate ROI.

    The Rudd Government did promise Australians a high speed national broadband but considering the carnage that is about to be delivered to our Nation may need to reconsider.
    anonymous
  • NBN

    Its a white elephant in the first place, merely enabling the delivery of greater amounts of garbage at a higher speed into our homes, at a much higher cost to the end user.
    Additionally although we will be building what is technically an infrastructure project, it wont be of much benefit to Australia as the companies supplying the equipment and doing the building are French, American and Swedish.
    Rudd's recent utterly wasteful $10bn giveaway this week shows he unfortunately doesnt have a clue about applying Keynesian (an thoroughly discredited economic ideology anyway) practice in the effective areas
    anonymous
  • Cheaper option

    Conroy needs to renege on his decision to renege on OPEL. He needs to resurrect the plan that would have brought high speed internet to the areas that truly need it and leave the NBN until a later time when the country can afford it. Metor areas already enjoy speeds higher than the minimum NBN speed requirement. Bring OPEL back and let the underserved people get the same for much less money. NBN can be done later when the country can afford it, and when the issues associated with it can be properly and timely reviewed instead of rushed through on Conroys ridiculous timetable. Singapore took 3 years to do what Conroy wants to do in one. No prize for guessing who will achieve the best outcome.
    I am curious what role you will get in the Telstra movie Sydney? Surely they will have one for Telstras most one eyed supporter. The fathers love interest perhaps? It is the 21st century after all ;)
    anonymous
  • @ OPELess!!!

    "Conroy needs to renege on his decision to renege on OPEL"

    You guys are still crying over what will go down as a turning point (no cushy free rides any more under Liberal)in the Telco industry.

    Senator Conroy made a correct & courageous decision!!

    What this country needs is "True Competition" not the regulated stuff OPTUS has come know & love under HOWARD/Coonan!!!
    anonymous
  • What a laugh

    It's good to see that Sydney Lawrence Marketing is still in business.

    "Can Australia afford world class Broadband? I believe that Telstra could deliver the NBN build with required Government regulation to ensure Telstra an adequate ROI."

    I take that to read that Telstra will continue to carve their pricing model on what the dummies in the telecommunications market are prepared to pay instead of something a little more reasonable. It knocks me off my feet when I see people like Sydney Lawrence wanting the Commonwealth to protect Telstra's wishes to drum up new ways to keep inflation high.

    It is important to remember that as a company with a nation-wide presence, Telstra's unreasonable pricing has a large impact on the cost of living.

    I don't see why Telstra, above any other entity, should be allowed to charge anything they want simply because it is legal to do so.

    I don't use Telstra for any of my telecommunications needs. I get good service from a range of other companies that are a hell of a lot more prepared to consider the needs of their customers.

    Look at Vodafone - they've just lowered the pricing of their mobile broadband products and the PCMCIA or USB (your choice) modem is free, or at least absorbed into the monthly pricing. What does NextG charge for equivalent plans? A hell of a lot more I do think and you have to cough up something like $300 for the modem too. That is just one of hundreds of examples. Why would Telstra's approach to the fibre rollout be any different.

    Telstra constantly claims to be the good guys but at the end of the day they are just a wolf in sheep's clothing.
    anonymous
  • People Power.

    Mel Sommersberg casts unsupportable aspersions on the Australian consumer with his claim that Telstra services do not deliver value for money to Australians.

    If his claim is a fact how is it that Telstra survives and prospers and is Australia's first choice as Internet provider. Our free competitive market will always decide who provides the best value for money.

    The market has spoken and selects Telstra as a winner. Concerning NBN it is a fact that with a large investment, return on that investment is critical and he can rest assured that Telstra will keep the cost of the NBN for Australian consumers to the absolute minimum.
    anonymous
  • large investment

    correct sydney, it is a large investment, some 20 billion if you will, and telstra wanting a 17% return on it, a large investment, and a large return, almost a 1/5th of their investment, (4 billion), so telstra want to charge everyone enough to make $24 billion in 3 years, so roughly 8 billion a year has to be brought in, bit expenisve... but after the 3 year mark, when they've paid off there NBN... are they going to drop the prices so they dont make 8 billion a year anymore?
    anonymous
  • lol

    oops wrong forum post, ah well, i stand by what i said >.<
    anonymous
  • Someone living in the city

    It's easy to pick and choose from multiple providers that only service major metropolitan areas and who will not offer a decent service to 45% or more of the population. Telstra asked to be permitted to charge based on geographic location to encourage better competition in the bush but what did the government (aka ACCC) say? ... NO ... why? ... because other then wholesale ULL & transmission Telstra is forced to charge a single consumer 100km from their neighbor the same rate as a high density inner CBD appartment.

    Does that make any sense? ... NO
    Does that encourage competition in the bush? ... NO
    Did Optus have the rights USO only to realise it was not profitable and then they gave it back forcing Telstra to resume as the USO operator? ... YES
    Without the offer of $4.7B would anyone bar Telstra invest beyond the major cities? ... NO
    Would Optus or Vodaphone have planned to increase their mobile 3G coverage if they were no losing business to Telstra? ... NO

    Mel ... get off you stupid price focused high horse and come up with some serious argument that doesn't have more holes then a doughnut factory.
    anonymous
  • 17%

    The 17% is based on the cost over it's operational life (about 20 years) which translates to about $800M per year (assuming 10% servicing cost on a $15B network). Add another $200M to run it each year they would want to get their $1B pa cost returned plus $170M in profit from the infrastructure. If they have 3 million active services that would tanslate into under $400 per service per year WHOLESALE. Then you add your services over it such as internet, voice, video, security and more on a retail level then the actual retail price could range from $50 to $500 per month depending on the chosen service options.

    For those who wish to maintain their $20 per month ADSL running over a $3 copper pair they can but for those who want to spend the money for a more flexible service they can.

    It's easy to use a few irrational comments to scare people but when the facts are presented the reality doesn't seem so bad does is?
    anonymous
  • my bad

    oh im sorry, its just the blog post i read from andrea grant said telstra wants to make it all back in 5 years... silly me,
    anonymous
  • I live outside Sydney (no relation)

    I live in a rural area of NSW and I have a choice of about 12 ISPs with a range of technologies, mostly ADSL/ADSL2+ but also 3G and satellite. Anonymous troll, you need to do a little more research before renewing your subscription to the Lamebrain Cliche Club.
    anonymous
  • Power of the advertising dollar more like

    Sydney you have been well known for uneducated and uninformative comments in the past but this one just about takes the cake.

    For a start, Telstra is the incumbent provider. It is only natural that for a time after the introduction of competition (long or short) that the incumbent would continue to enjoy a commanding market share.

    However it is important to note that since Bob Hawke and Paul Keating privatised Aussat to create Optus, and thence allowed other new companies to enter the fray, Telstra's market share has been slowly eroded by the free competitive market you mentioned. I'll add that Bigpond wasn't thought of and started by Telstra. It was born out of a takeover of the Microsoft Network in Australia and I still remember Bigpond's online content deal with 9MSN that continued for a few years after the takeover.

    Despite Telstra's ravenous appetite for market share, it has in fact been in slow but steady decline since competition was introduced.

    Another reason why Telstra remains popular with some people is because they are prepared to continue issuing quarterly bills instead of requiring punters to pay by credit card - a device that not all people possess for a number of reasons. Most small ISPs require credit card as the payment method.

    Regarding value for money, I cannot think of one single product offered by Telstra that gives a bigger bang for buck than offered by someone else. This includes not only Internet access but also products that exist in truly competitive environments because there is more than one network, such as VOIP, mobiles and wireless Internet. Visit some websites, do some research and then come back with some hard evidence that Telstra spews all this value for money that you claim.

    If Telstra is the most suitable company to build an FTTN network then why are they the only bidder claiming that costs have risen? By the way, that 17% ROI that you claim Telstra is seeking is actually 28% according to reports on this website. That said, both figures are far too high to afford consumers an affordable avenue into the next generation of Internet access.
    anonymous
  • but wouldnt that mean theyd lose business...

    Hi Mel, although yes it is likely that the incumbent Telco would retain a dominant market share, you'll note that "retain" is the key word there. If they are bloody awful, then attrition would mean theyd lose market share. As far as I can see, hasnt Telstra gained market share?
    anonymous