Australia - The NBN priority in the regions could affect its economics, but it appears to be largely unknown

[smh] Change in priorities could have an impact on NBN's economics.

IF YOU believe the federal opposition, and some industry insiders, the economics of the National Broadband Network has been turned on its head by the sudden need to prioritise the build in regional Australia.

One problem with this argument is that none of these parties would actually know.

One of the criticisms of the NBN is that little information has been made available about this huge project to allow proper independent judgment of its viability.

Few know the implications of Labor's deal with the independents, other than Communications Minister Stephen Conroy and NBN Co chief Mike Quigley.

Complaining about regional broadband services being made a priority also misses an important point: regional services is the NBN's raison d'etre. Aside from dismantling Telstra's monopoly on telecommunications services, providing future-proof broadband services to the continental fringes is about the only thing the NBN can deliver that private enterprise can't.

The cut-throat broadband competition in major population centres amply demonstrates the private sector's ability to make a business case in built-up areas.

Internet provider Dodo unveiled a three-terrabyte offering yesterday and cheekily committed to offering an unlimited download service once the NBN was up and running.

The NBN, if successful, will extend this competition to 93 per cent of households, along with new services that will hopefully justify the $43 billion price tag.

The NBN, by its very existence, recognises that urban telecom users will need to subsidise the unviable regional arms of the network - not much different to what Telstra does with its copper line service today.

So the independents' insistence on a single wholesale price across the country should not be too much of a surprise, especially since Conroy has actively championed this point himself. This isn't to say that re-prioritising the network build based on political considerations, rather than economic ones, does not have the potential to dramatically affect the network's economics. It could jeopardise the government's plans to use private enterprise to fund the back half of the NBN's rollout.

The idea was that revenue from parts of the network already built - presumably in viable urban areas - would provide enough income to raise debt from private sources.

Conroy says the change in priorities will not add to the network's eight-year implementation, or its $43 billion budget, despite the regional push potentially frontloading the cost of the unviable part of the business. But he would say that, wouldn't he?

If there is an issue, it should make for an interesting meeting next week when Conroy is expected to detail the new priorities with Quigley and square the circle.

It will be some time before independent analysts have enough information to give a proper verdict on the viability of the NBN. The meeting is not expected to include the government's formal response to the $25 million implementation study from McKinsey.

NBN Co needs Conroy's response to the implementation study before it can develop its three-year business plan, which will then be presented to the minister. For Telstra shareholders the only concern appears to be whether the government collapses and a fresh poll delivers the Coalition to power with an NBN-killing mandate.

The $11 billion carrot for its co-operation with the NBN is looking very attractive to investors who have watched the erosion of telecom's lucrative fixed-line business accelerate.

As telecom analysts from Citi put it recently: ''The cash-heavy deal provides support for earnings and dividends long-term in the face of an uncertain operational outlook.''

Telstra's negotiations with NBN Co and Conroy could be affected by the regional emphasis, but it's hard to say what the overall effect would be.

While a quicker regional rollout will open these markets to more competition for Telstra, it also means the telco will be able to scrap its copper network in these areas much more quickly, along with significant support and maintenance costs.

Viability on the line as regional deal throws NBN off balance