Budget Review 2013–14 Index

Matthew L. James

The broadband system

The NBN is one of Australia’s most significant infrastructure projects, and its initial establishment is a major source of government expenditure. It is an investment in infrastructure to provide high capacity data communications across the nation, serving both individuals and organisations alike.

Just as the old but long-serving copper wire telephone network represented the technology of its day, so too do today’s digital systems. They offer the opportunity to greatly increase data transmission rates, providing what is termed a high capacity broadband service. The NBN aims to enable more online connectivity and interactivity, and to improve the productivity of the growing ‘digital economy.’ However, rapidly changing technologies require a careful initial selection.

The NBN system consists of the provision of broadband services over a mix of three technologies: optic fibre, fixed wireless, and next-generation satellite. Some 93 per cent of Australian homes, schools and businesses will have access to the NBN through optic fibre to premises, perhaps initially capable of providing broadband speeds of up to 100 mega bit per second (100 Mbps or one hundred million data units per second).[1] Speeds of one gigabit (1000 Mbps) per second may later become available[2]. Such capacity allows simultaneous multiple speech, video, audio and data transmissions to users. The remaining group of premises will access the wireless and satellite networks at up to 12 to 25 Mbps (12 to 25 million data units per second).

The NBN is being developed as a wholesale service which in turn is accessed through retailers. NBN users will subscribe to the system through broadband retail service providers, in much the same way that computer users currently use an internet service provider to access the Internet. A feature of the system is that the wholesale access price of NBN services is to be the same across all three technologies, being set at $24 a month per user for a basic service, with speeds of 12 Mbps download and one Mbps upload. As well, there is no NBN fee for a new standard connection or line rental charge.

Administration

The project is managed by the NBN Co Limited (NBN Co), a government-owned entity which is classed as a government business enterprise (GBE). The Commonwealth established NBN Co to design, build and operate the network. The company sits in the Broadband, Communications and the Digital Economy portfolio, reporting to the Minister for Broadband, Communications and the Digital Economy, Senator Stephen Conroy, along with the Minister for Finance and Deregulation, Senator Penny Wong. An NBN legislative framework sets out the structure:

The regulatory framework for the National Broadband Network (NBN) is established through the National Broadband Network Companies Act 2011 (NBN Companies Act) and the Telecommunications Legislation Amendment (National Broadband Network Measures—Access Arrangements) Act 2011 (NBN Access Act) which add to the existing generic telecommunications regulatory framework. The Acts were passed by the parliament on 28 March 2011 and received royal assent on 12 April 2011. All of the provisions are now operational.[3]

These provisions allow for the company structure and ownership, competitive access arrangements, industry codes and standards. The NBN Companies Act provides that the Australian Government will retain full ownership of NBN Co until the national broadband network rollout is complete.[4] These arrangements are further elaborated upon in the NBN Co's Statement of Corporate Intent, which was tabled in Parliament on 9 October 2012.[5]

NBN Co is expected to generate money for the government in the future, so the funds given to it now are viewed as an investment in terms of the Budget, and the money spent does not fall within the budget accounts. Rather, as a GBE, the NBN Co produces its own annual reports in much the same way as Australia Post.[6]

Funding

The initial expected NBN funding arrangements were outlined in a Statement of Expectations, dated 17 December 2010, provided to NBN by the two responsible ministers:

The Government will enter into an equity agreement with NBN Co for the rollout period with equity funding based on the expected $27.5 billion funding requirement advised by NBN Co. This agreement will be reviewed annually. The Government envisages that this will provide NBN Co and the market with the certainty required to enter into the long term commercial contracts needed to deliver the Government’s NBN policy objectives. The Government envisages that any equity agreement entered into with NBN Co will be linked to the performance and coverage objectives agreed as part of the NBN Co Corporate Plan. Any variance to equity requirements will require Government approval.[7]

The expenditure figure of $27.5 billion has now risen to an expected investment of $30.4 billion by the Commonwealth Government, for the total $37.4 billion investment, as recorded in the current 2013–14 Budget: 

 $21.4 billion in equity funding to the NBN Co over the Budget and forward years. These are further instalments of the $30.4 billion equity commitment of the Australian Government, starting at $5.1 billion in 2013-14, peaking at $6.3 billion in 2014-15, before reducing to $5.3 billion in 2015-16, then $4.7 billion in 2016-17.[8]

These amounts represent a deferment of some initial expenditure, as compared to the same statement made a year ago in the Department’s Portfolio Budget Statements 2012–13, which said:

$20.1 billion in equity funding to the NBN Co over the Budget and forward years. These are further instalments of the Australian Government’s equity commitment to the NBN Co, starting at $5.8 billion in 2012-13, peaking at $6.6 billion in 2013-14, falling to $4.1 billion in 2014-15 and $3.6 billion in 2015-16.[9]

Over the past year, the equity allowed was $2.6 billion, rather than the previous estimate of $5.8 billion.[10] For the year ahead, the equity is $5.1 billion rather than $6.6 billion. The current statement explains that:

Administered funds can be provided for a specified period, for example under annual Appropriation Acts. Funds not used in the specified period with the agreement of the Finance Minister may be moved to a future year.[11]

The Minister attributes the lower equity expenditure to a slower network rollout than expected:

The facts are NBN Co's equity is appropriated each year and then drawn down as required. In the current financial year, equity requirements were less than anticipated, reflecting the reforecast rollout schedule. The Budget reconfirms the total government equity contributions to NBN Co will be up to $30.4 billion.[12]

However, the Opposition maintains that equity deferments give rise to increased interest expenditures as the government still pays interest on the funds injected into NBN.[13]

Rollout

The network is to be constructed over a decade and construction began with a trial rollout in Tasmania in July 2010. The NBN Co website provides an interactive rollout webpage map that states ‘the NBN is planned to reach all Australians by 2021’.[14]

As the election approaches, a key difference between the parties appears to be their preferred approach to the rollout of the NBN.

While the Government prefers the provision of Fibre-To-The-Premises/Home (FTTP/H) to apply to 93 per cent of suitable household and businesses in Australia, the Opposition proposes instead that services are enabled by Fibre-To-The-Node (FTTN) in the vicinity of household and premises, which would also involve lower capacities from 25 to 50 Mbps:  

Families and businesses will enjoy significant increases in bandwidth given that download rates in Australia currently average less than 5 megabits per second. Under the Coalition’s NBN all premises will have access to download speeds 25mbps to 100mbps by the end of 2016. The minimum speed will rise to 50mbps by the end of 2019 for 90 per cent of fixed line users.[15]

Over the near future, a keen watch will be kept on progress with deployment of the NBN and actual take-up rates by new customers. Once the NBN is fully operational, it can be sold and the government could recoup some or all of its costs:

NBN Co must remain in full Commonwealth ownership until the Communications Minister declares that the National Broadband Network is built and fully operational. A sale of NBN Co can only occur after a Productivity Commission inquiry into the NBN regulatory framework has been considered by a Parliamentary Joint Committee.[16]

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