Can the NBN thrive in the age of austerity?

Can the NBN thrive in the age of austerity?

Summary: As Labor's fiscal policy comes to resemble the hatchet job long promised by the Coalition, is it right to leave the NBN untouched?

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It was hardly a surprise that the Liberal Party's response to Labor's new Budget would mention the National Broadband Network (NBN) as an example of the financial chicanery of which it has been accusing Labor for years: "there would be no surplus if the NBN was on the books", the party's official budget reply noted. It is, like so much NBN opposition, like Groundhog Day all over again (last year's Budget also drove Malcolm Turnbull to slam Labor's NBN accounting "charade").

Yet, with the NBN firmly in business-as-usual mode, and its off-the-books treatment long ago given the tick of approval by economic powers much greater than Tony Abbott, these predictable responses mask a more uncomfortable truth: the Liberal Party faces a curious situation, where it has to criticise the same kind of razor-gang budget amelioration as it has staunchly advocated and promised, should it assume government next year. Recognising that he's in a difficult position, Tony Abbott spent more time attacking Craig Thomson in the press than discussing the details of the Budget — which is probably more like what his own would have been, were he in charge.


"Can we still build it, Julia?" "Yes, we can!*" *Subject to budget constraints, union action, skills availability and change of government.
(Screenshot by David Braue/ZDNet Australia)

By the day's end, Turnbull, as ever prone to casuistry, was talking about cookbooks — er, cooked books — and apparently forgetting himself as he attacked Stephen Conroy's department for a massive blowout because it brought forward $421 million in payments to Telstra (one of Turnbull's biggest arguments for his alternative NBN policy is that the Coalition will bring forward its payments to Telstra).

The relative merits and disadvantages of this year's Budget will be debated until the proverbial bovines return to their abodes. But the kind of budget-cutting that Labor has demonstrated has not only stolen the march on some of the Opposition's opposition, but has also suggested that the NBN is, and will continue to be, viable in a climate of careful attention to budgetary constraints. The rest of the IT industry may be in neutral, as far as the Budget is concerned, but NBN Co is continuing to go hell for leather to meet its build objectives.

Labor has effectively borrowed philosophy from Bob the Builder (and, perhaps, Barack Obama's 2008 election campaign). "Can we fix it?" Bob asks his team. "Yes, we can!"they shout, although, in the real world, their unqualified enthusiasm might be tempered by the ever-present threat of union action, project-management delays, budgetary cutbacks and vociferous opposition.

[Abbott's] predictable responses mask a more uncomfortable truth...

Nonetheless, despite its most severe belt tightening ever, Labor is determined to save room for dessert. And in challenging a Budget that both takes away from the public service and gives back to the public, Abbott may just have to pick up the fork and join in. What other options does he have? It's hardly politically palatable to argue that he would slash budgets further, lay off more public servants or delay or cancel more government programs — although Victoria's Ted Baillieu recently showed that to be an entirely possible course of action.

Such is budgeting in the new age of austerity — and it's not inconsistent with the general trends we have been seeing across the telecoms industry, which recognised the need for a new way of operating some time ago. The need to consolidate infrastructure, for example, is reflected in such telecoms seismic shifts as the Foxtel-Austar merger, iiNet's purchase of Internode, M2 Telecommunication's purchase of Primus and, most recently, the expanded facilities-sharing agreement between Optus and VHA.

Abbott's Liberals have decried such moves as indicative of the NBN's power to kill off competition in the sector, but competition is about a lot more than just ensuring that there are many small operators fighting each other tooth and nail to build unprofitable infrastructure. In a world where private-sector telecoms investment has dropped off, and entire countries are staring bankruptcy in the face, the survivors will not be those that doggedly press on with growth-era business strategies.

Like the government, the telecoms industry is in an era of downsizing and consolidation that is currently borne out of strategy, but will eventually, if things get worse, become a mark of desperation. At that point, will the NBN eventually have to follow suit?

Like the government, the telecoms industry is in an era of downsizing.

Arguments will be made both ways: Abbott's Liberals, for example, will likely argue that if the government were serious about its budgetary discipline, it would scale back its expenditure on the NBN, and extend the project's timeline or reduce its scope (of course, then they would turn around and say that it's taking too long, and that their alternative NBN will be faster and cheaper).

More telling still: figures in the Budget suggest that it would now cost $1.8 billion to cancel the construction of the NBN — a cost that Malcolm Turnbull would have to figure into his cost-benefit analysis, should he attempt to wind back the project in office.

It is, perhaps, a salvation for the industry that the NBN is being handled off the books, since Labor would otherwise have had no option but to scale it back within the context of its savage budget cuts. This would have been necessary in the spirit of equanimity — it's hard to justify paring back defence budgets, but leaving communications spending untouched — but by treating the NBN as an investment, the government has been able to leave NBN Co to its own devices. And that, given the constraints imposed by the new era of austerity, may be all that our telecoms industry could have hoped for.

What do you think? By sparing the budget rod, has Labor spoiled the NBN? Should it have scaled back the effort in the spirit of austerity? And how does this Budget change the game for the Coalition's opposition?

Topics: NBN, Broadband, CXO, Government AU

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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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15 comments
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  • It's simple really, all governments should use the accounting standards that private enterprise has to use. Then, if you own it, its accounts are consolidated with yours, no escape.
    Ringwizard
  • "By sparing the budget rod, has Labor spoiled the NBN? Should it have scaled back the effort in the spirit of austerity?"

    Spoiled in what way? Some rather esoteric questions there without really defining their meaning. But I'll try my best.

    1. The Budget is for one year. The NBN business case is over the next 10+ yrs.
    2. The NBN business case is based on a scenario that is independent of annual budgetary concerns. To link capital/investment expenditure on the NBN to the annual budgetary vagaries would mean re-appraising the business case of NBNCo for every budget.
    3. Essentially coupling the business case for NBNCo to an annual budget devalues the worth and integrity of the basic business proposition.

    As such the Govt is correct in distancing it's GBE from the vagaries of annual budgets. The business case is what it is, validated and confirmed. To do otherwise would be to discredit and devalue it's validity. The only thing that should impact on funding should be factors that materially affect the business case. No more, no less.

    (And apropos 'casuistry'. Like it and thanks. I'll remember that one.)
    Tailgator
    • Just a small correction. The budget is not for just 1 year. It is simply a yearly review of the budget of the federal government. If you ever hear the phrase (and you do a lot from pollies) "over the forward estimates", this is actually referring to changes for the budget past the next financial year. So for instance a lot of the spending and some of the cuts from this budget aren't due to occur for 3 or more years down the road.

      The reason they do this is so they can say things like:

      "The supplementary allowance and the family tax benefit A rises, worth a combined $2.9 billion over four years, will be funded by abolishing the $4.7 billion in company tax cuts that were to be funded by the mining tax." - Smh

      Note that in this case they even specify in plain terms that it's over 4 years, still $2.9 Billion over 4 years sounds better than $725 million...

      The reliable part of the budgets are generally viewed to be those within 5 years. This is meant to allow for longer term planning based on a time frame where the "rules" can be reasonably estimated.

      So i agree the NBN rollout shouldn't be affected by year-to-year budgets, but that's because it should be accounted for in advance. It should potentially change based on longer term assumptions rather than year-to-year.

      So it's right that there's no inital change to the NBN (as it should've been properly designed for the coming year in budgets past). Whether there should be a change to the future schedule is something for people with more information than what we have to decide.
      AWY-7dfd5
  • I live in hope that one day governments will move to accrual accounting as the private sector did centuries ago.
    But then what will we argue about? And how will websites such as this fill their pages when the NBN is successfully deployed and part of the furniture?
    Listohan
  • Paring back spending on the NBN would further delay the project. The rollout is going to take ten years as it is. If spending was cut back, the rollout could lose momentum and subsequent governments could well lose interest in its completion. Particularly at this early stage of the project, while it still has to prove itself to a section of the population, it is necessary for the rollout to proceed at maximum speed.
    ozimarco
  • Again, let's be realistic. Baring the second coming, the Labor Party will be swept from Office at the next election. Therefore we must concentrate totally on what the new Government would do with the NBN.

    It is time to insist that Malcolm Turnbull reveals, in more detail, exactly what he has in mind for the NBN. When this is revealed all those with an interest must apply pressure to have their concerns understood and debated. At the moment it would appear that Tony Abbott favours a FTTN application which would be possible for reduced cost, but admittedly the FTTN system would be an inferior product when compared to FTTH.

    The FTTN roll-out has many questions and many possible pitfalls. How would Telstra review the FTTN suggestion? How would the ACCC rule on Telstra retaining ownership and use of their copper from Node to customer? Would Tony Abbott be prepared to pay the gigantic price Telstra would ask for a sale of the copper to Government? How will the separation of Telstra be continued? What is the condition of the Telstra copper from Node to premises and what time span life is left in it?

    I could continue with the other 236 questions I have in mind but considering the advanced stage that the NBN Co in presently in, it may be better for Abbott and Turnbull take the safer path and let the FTTH roll-out proceed.
    sydneyla
    • Hopefully at least one of the other 236 do NOT include Telstra.

      But I agree sydneyla, wee need details not just about the NBN but detailed policies relating to everything else.

      At the moment Tony is playing on Aussies being uneducated and believing we are stupid enough to give him a blank cheque. I.e. they are no good we will do better.

      Well that's NOT good enough, we deserve detail.

      Is this government perfect? No far from it. But should we replace them with another who refuse to tell us what they will do with our lives and our families futures?

      IMO, as a swinging voter who voted for JH then KR and currently in the JG camp (primarily because of the NBN, lack of alternative policy and Abbott - whom I do not like) anyone who will vote for a party when they do not know what that party truly represents or are going to do once in power (and it's too late then - especially after the senate changeover, if a landslide occurs) deserve to be shafted.
      Beta-9f71a
  • Beta, even after all these years I still connot understand your paranoid dislike and constant hostility to Telstra. Whatever your problem it is an undeniable fact that Telstra will hold the key to any success that Abbott and Turnbull may attempt for the NBN.

    At a count my other 236 questions, which covered completely every participant in the NBN, a further 103 did refer to Telstra. As you would know Telstra and Governments (both the present Government and the future Government) would have had progressive and detailed conversations on what possibilities exist for the future of the NBN.
    sydneyla
    • Oh Sydney we have been here many times before. Are you really that thick (no need to answer - rhetorical).

      So once again wipe the Telstra driven dollar signs from your eye's and then see that one line only from my comment above, for what it really is. Simply a reply to your typically, irrational, Telstra greed driven comment before it.

      We are talking about the NBN and the oppositions alternative and what is best for Australia (not Telstra and your TLS shares). Yes that will include Telstra (especially if the opposition decide to throw our comms and competition plans out the window and hand everything back to Telstra AGAIN). But you asked 5 questions above, each pertaining to Telstra (the company you have a sizeable stake in). Not one question about the NBN or the opposition's plan and how they will impact Australia and Australians.

      Here they are again -

      "How would Telstra review the FTTN suggestion?"

      " How would the ACCC rule on Telstra retaining ownership and use of their copper from Node to customer?"

      "Would Tony Abbott be prepared to pay the gigantic price Telstra would ask for a sale of the copper to Government?"

      "How will the separation of Telstra be continued?"

      "What is the condition of the Telstra copper from Node to premises and what time span life is left in it?"

      Now look for the word Telstra, count them, then look for the word Australians and count them. Your tallies?

      Seriously not everyone like you is a slave to the TLS share price and most people seriously do not care about Telstra, in separation to any other company.

      Do I love QANTAS, Woolies, Telstra... no. I fly with QANTAS on occasion, shop at Woolies reasonably regularly and have some comms with Telstra. If they make profits and employ people, great. If they go bust, sorry bad luck (although I feel for the employees). But I'm sure their skilled workforce would be snapped up by competitors, so...

      The sooner you get it through your head that not everyone like you bows to the Telstra alter and prays to the Telstra gods every night, the sooner you will "hopefully" snap out of your greed stupor. And the same goes for your idiot NWAT mate.
      Beta-9f71a
  • What is the average cost of connecting a premise on NBN, anyone done the math? Its not hard, Number of Premises x $Average cost per connection.. Maybe its cheaper for us taxpayers to can it, lets see the numbers please!
    etsmith-f64b8
    • etsmith, I truly hope you are really not that thick that you don't understand the difference between a communications infrastructure, much like our road networks. Enabling many possibilities such as part time in the office part time at home. What was the cost of just the road in your street and your footpaths and kerbs and gutters?. The NBN will pay for itself, but not from the home user alone, they will only pay a part. The alternative FTTN is really only suited for the home user, movies and porn due to inadequate upload. I wonder why the Coalition is promoting that option as it will cost the taxpayer infinitely more long term with negligible benefit to the economy. Your question is better aimed at the coalitions option
      Abel Adamski
    • @ et,

      You could have just got the calculator out or said baa.
      Beta-9f71a
  • etsmith
    Excellent question. The NBN will cost about $7000 per household. Yes $7k. That figure was first released to the media a few years ago when someone from USA came to look at the NBN.
    Confirmed by back of the envelope.
    $48bn
    21 million people
    3 people per houshold
    7 million households
    48bn/7,000,000 = $6971 per household

    Given many households (like me) can already get 100 mbit internet via Telstra cable, why should the government be paying $7k for me to get what I already have?

    Dont get me wrong, I love my tech and am an early adopter. But the NBN does not make economic sense. I am already moving to wireless and get all me emails and half my internet access over wireless.
    I understand there are many areas particularly rural that dont get good internet speeds. Well just fix those.
    If the NBN wasnt coming, many more people would already have 100 mbit internet through expansion of Telstra and other ISP's services.
    The other point is that most people can already get a faster internet than what they presently have, they dont want to pay the extra. People want cheaper internet, so they can upgrade to a faster plan for the same price. The NBN will not give cheaper internet. The $7k per household has to be paid for somehow, most likely by the internet not getting cheaper over time as it would have without the NBN.

    Can we afford not to stop the NBN?
    JohnnyJC
    • Hi johnnyJC,

      $48B, nice figure plucked straight from the hat.

      Back of the envelope - do you really want to go there???

      You love your tech and have 100Mbps... cool, you are flying man.

      But you don't want anyone else to have it... understandable dude, ***k them eh.

      So fair enough you've convinced me... no NBN JohnnyJC said, because he is ok...

      Easy.
      Beta-9f71a
  • JohnnyC. MeMeMe.
    You have enlightened me, the NBN is purely for the home user with no other applications what so ever. So can it , we can all use wireless and cable. WOT not everyone has access to cable - NAH just a filthy commie lie. However good to see you believe in Billions per annum of taxpayer taxes will finally be used to bring the rural areas up to speed rather than wasting it on health, education, roads etc, all those things your heroes Howard and Costello also believed were a waste of valuable tax revenue.
    You really are a classic Liberal of the modern me me era
    Abel Adamski