NBN rollback to cost taxpayers at least $1.8 billion

By James Hutchinson, Ry Crozier on May 10, 2012 8:20 AM
Filed under Communications

Network harder to cancel, Budget documents reveal.

The Federal Government has revealed taxpayers would be liable for at least $1.8 billion, should the National Broadband Network project be culled in the future.

Risk statements (pdf) released with the 2012-2013 Budget overnight revealed the figure as a termination liability for the $27 billion project as at the end of March this year.

It indicated the Government's equity funding agreement with NBN Co commits it "in the event of a termination of the NBN roll out, to provide sufficient funds to NBN Co to meet its direct costs arising from the termination".

The liability assessment comes as the Coalition continues to consider its policy position on the NBN in the event it takes power at the next election.

Given that election is due for November 2013, termination liabilities for the network are likely to be significantly higher than the $1.8 billion detailed in budget papers last night.

Although it has not fully detailed its policy, the Coalition is known to be reconsidering the rollout of fibre to 12 million homes in favour of a more technologically agnostic mix of copper, cable, wireless and satellite.

Areas already connected to the NBN at the time of a Coalition victory would remain on the network but forward-looking rollout plans at that time remain uncertain. NBN Co has committed to have work "underway or completed" at 3.5 million homes by 2015.

Shadow communications minister Malcolm Turnbull would conduct a cost-benefit analysis of the current project, with an aim to potentially renegotiate major contracts and cancel some agreements where financially viable.

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Telstra CEO David Thodey told the Coalition last month that a future government would not have to completely rewrite contracts hatched between Telstra and NBN Co in order to facilitate a revised NBN model.

The incumbent telco has an $11 billion deal to provide NBN Co with access to its pit-and-pipe infrastructure and for the migration of Telstra's copper and cable broadband customers onto NBN fibre.

The Federal Government indicated NBN Co's liabilities to Telstra under that agreement currently sat at approximately $209 million, though they would increase "progressively during the roll out of the network".

NBN Co is obligated to pay a termination fee of $500 million to Telstra if the contract is cut after the network has reached more than 20 percent of premises.

Turnbull refused to comment on the liability assessment this morning but Liberal sources referred to the inclusion of the figure in budget papers an attempt by the current Government to make a "political straw-man" of the Coalition's broadband policy and curry favour with voters.

Prime Minister Julia Gillard has repeatedly pointed to the differences between Labor and Coalition policies on the NBN as a choice between "broadband or no broadband".

Legal rollback

An assessment of a future Coalition government's ability roll back Labor legislation surrounding the NBN has also provided a bleak view of any future attempts to roll-back current plans.

Corrs Chambers Westgarth special counsel Andrea Kennedy, writing for legal monthly Internet Law Bulletin, said any change to the plans would "require the Coalition to assess the Government and NBN Co's ability to modify existing contractual arrangements".

She pointed to a requirement to repeal or modify complex regulatory arrangements in Parliament, as well as those enacted by the competition watchdog in anticipation of the network being built as currently planned.

"Exactly what aspects of Labor's NBN legislation would be changed is uncertain," she said.

"It is unclear how the retention of the [Telstra structural separation] fits with the Coalition's intentions for Telstra's HFC network. And presumably other NBN regulation would need to change."

Kennedy noted that future legislative change would likely require support from the Greens, which has typically supported the current NBN model, potentially forcing "political compromises" from the Coalition.

She said the issues were "surmountable" but that "legal and contractual constraints may mean that at least some aspects of the current NBN reforms will manage to survive" under a future non-Labor government.

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NBN rollback to cost taxpayers at least $1.8 billion
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