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Aug 9, 2012

Despite delays and blowouts, NBN remains broadly on track

The NBN is experiencing rollout delays and cost blowouts now, but as the project develops and efficiencies kick in these will be almost immaterial by the end of the 10-year project -- assuming it survives.

Given the delays and the changes to its original plan for the national broadband network, yesterday’s revised NBN Co corporate plan was always going to look significantly different to the one it released last year. Perhaps the most surprising aspect of it is that the NBN remains broadly on track.

It is behind schedule because NBN Co lost nine months between signing a definitive deal with Telstra last year and gaining Australian Competition and Consumer Commission approval for it. It also lost time because the federal government changed the scope of the rollout to include greenfields developments and the ACCC insisted on 121 points of interconnect for the network rather than NBN Co’s preferred 14.

It is also somewhat over budget, with increases in both the forecast capital and operating costs, some of which relate to the delays, the changes in the scope and nature of the network and the $800 million deal with Optus which will lead to the closure of its HFC network.

Neither the delays nor the increased costs, however, are particularly material in the context of such a large project with a decade-long construction timeline.

The delay, NBN Co’s Mike Quigley says, can be whittled back to an over-run of only six months by the time construction ends in June 2021 rather than at the end of 2020 as originally envisaged.

Capital expenditure is forecast to increase by $1.4 billion, or 3.9%, to $37.4 billion and operating costs by $3.2 billion to $26.4 billion. Some of that increase, however, relates to the Optus deal which will increase both capital and operating costs during the rollout phase but bring forward increased revenues.

NBN Co also gained access to more of Telstra’s infrastructure than it originally planned, which generates increased operating costs but lower capital expenditures while changes to the way customer connections are managed will also increase capital costs in the near term but generate longer term efficiencies.

As expected, NBN Co has also experienced some increase in construction costs but also some offsetting reductions in equipment costs.

Overall, one could conclude that in “net, net” terms, NBN Co is managing to stay more or less in line with its original game plan. Indeed, it is now forecasting a minute increase in the return it will eventually generate, from 7% to 7.1%, assuming the NBN rollout as NBN Co and the Gillard government envisage it is ever completed. Tony Abbott and Malcolm Turnbull may well determine that.

If the NBN is completed on the revised forecasts, the taxpayers’ equity commitment to the project will have risen from the original $27.5 billion to $30.4 billion because of the increased costs. The total estimated funding requirement for the NBN has been increased from $41 billion to $44 billion.

The delays mean that, as NBN Co disclosed when it released its three-year stage on rollout plans in March, the deployment of fibre is way behind the original schedule. By the end of this year it expects to have started or completed construction that passes 750,000 premises, compared with the original estimate of 1.72 million.

In fact very few premises will actually be passed or connected until the NBN starts gathering real momentum in 2014 — by the end of this financial year only 661,000 homes will have been passed and NBN Co is forecasting that only 92,000 of them will be connected with active services. By 2015, however, by which point the rollout would be running at its peak scale, it expects to pass about 3.7 million premises and have 1.6 million of them connected with active services. Today there about 13,500 premises connected to the network.

That would suggest that if the opposition wins next year’s election they would be able to halt the rollout and shift to their preferred fibre-to-the-node model, supplemented by alternate broadband technologies. By the time they would be in a position to do that, of course, there will be a lot of fibre and dollars sunk into the network.

Whatever type of network is ultimately built, there is more growth occurring in broadband generally and in fixed line broadband than NBN Co had originally assumed and its initial experience has been that customers have taken up services faster than it had expected. If those trends continue, it says they might enable it to reduce wholesale pricing earlier than it had anticipated.

The broad message from NBN Co’s updated corporate plan is that it is broadly on track despite some of the unexpected changes to the business plan. That is, it is on track unless or until it is derailed by the Coalition.

*This article was originally published at Business Spectator

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147 comments

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147 thoughts on “Despite delays and blowouts, NBN remains broadly on track

  1. floorer

    Anybody got any ideas / first hand knowledge of why it might be hard for the LNP to derail the NBN? Contract with Telstra etc? Presuming they win of course, better throw that in.

  2. Scott

    That’s a 13.8% increase in operating costs….
    Ignore the return on capital of 7.1%….its a rubbish figure, based on 30 year projections. They couldn’t even get projections right for connections a couple of years in the future so i would say this figure is rubbery at best.
    The only people who will be making money out of this thing are the vendors doing the rollout.

  3. Oscar Jones

    I’ve yet to find a businessman who doesn’t want the NBN yet to get them to go on the record is impossible.

    Critics of the NBN probably would have moaned about the laying of electric and telephone cables. Criticism of the NBN is a prime example of Tony Abbott’s inability to present any positive policies and his crazy habit of opposing every and anything.

  4. WTF

    Given that broadly speaking the aim of all Labor initiatives is to burn wast wads of other people’s money, I have to agree, it is broadly right on track.

  5. Suzanne Blake

    The cost blow out will be tens of billions, if it completes.

    Conroy FAIL, following a plan hatched by Rudd on the back of a coaster

  6. Hamis Hill

    A ten percent extension of services results in a four percent increase in costs and this is a “Blow Out”.
    We seem, in the midst of all this, to have reverted to a Medieval era of illiteracy and innumeracy.
    All learning of the part five centuries seems to be burning at the stake.
    With SB and company warming themselves in the heat. Ain’t that so Suzy?
    Not really Liberal is it. Have the real Liberals gone extinct?
    Leaving us all in Stooge World?

  7. Hugh (Charlie) McColl

    WTF, I love the way you lay vaste to Labor’s economic philosophy but I don’t get the “other people’s money” part of it. “Taxpayers'” money is paying for the NBN. Just like the Natural Heritage Trust (“burning” the Telstra sale money, a Howard era initiative), the NBN is ours and it is for us. We are the beneficiaries (well, 13,500 so far!), not some mysterious alien elite, resident who knows where. Think about the amount of money Australia will spend on Defense in the same nine years leading up to 2021. What will we have to show for it when that day comes?
    The NBN, even costing the unbelievable motza that it is, will be a fantastic renewable resource that will underpin the entire Australian economy and society. That’s nation-building isn’t it?

  8. Hamis Hill

    Don’t the Stooges realise that they lost the last election because of their Scheisegrupenfuhrer’s opposition to the NBN. No they don’t. What a sad lot of losers they are!

  9. Suzanne Blake

    @ Hugh (Charlie) McColl

    we could get a better, cheaper outcome with wireless.

    There is no way the NBN can be rollod out to the home in rural and regional Australia

  10. Hamis Hill

    @SB The NBN lost you the last election. It will lose you the next. Just keep opposing what the people want like the NDIS.

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