Has Labor found the smoking gun that proves the Coalition’s NBN plans are about to fall in a heap? Or is it just another political beat-up?
When then-NBN Co under the former Labor government secured an $11 billion deal with Telstra to migrate its ADSL and cable internet customers over to the NBN, it also signed an $800 million agreement with Optus to shut down Optus’ cable network and migrate customers onto the NBN.
Optus and Telstra built the cables in Sydney, Melbourne, and Brisbane in the 1990s for pay television before eventually using them to deliver broadband faster than that on ADSL. The two sets of cables combined cover around 3.2 million premises, but there is a lot of crossover because the two companies were vying for the same customers.
None other than Malcolm Turnbull, who was opposition communications spokesman at the time, slammed the announcement that Optus would shut down its cable (also known as HFC, or hybrid fibre-coaxial) network. Turnbull argued Optus could have easily upgraded its cable network to compete against the NBN, and viewed paying the company to effectively shut down what he saw as a still-viable network was a waste of taxpayers’ money — although it would eventually be paid back through NBN revenues.
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At the time, though, Optus told the competition regulator it had effectively written off the cable network as an asset and had no plans for major upgrades to the HFC network even if the NBN did not buy it out. Tech media reported the network would need significant upgrades in technology in order to be competitive with the fibre-to-the-premises NBN.
Now, under the Coaliton’s “multi-technology mix”, both Telstra’s copper and cable networks and Optus’ cable network will be used to provide broadband services on the NBN. Negotiations to change the contracts signed under Labor with both companies were finalised in December last year, although Crikey understands the agreement with Optus was finalised well before the complex re-negotiations with Telstra were completed. Optus was keen to get out of the cable business and, for its part, is not receiving any more funding from the government to hand over ownership of the network instead of shutting it down as originally planned.
NBN has yet to launch services on the cable network, but it has trialed using the Optus cable network in Redcliffe in Queensland to 4500 premises. The company has said in trials it has recorded speeds of up to 100 Mbps (megabits per second) for downloads, and 40 Mbps for uploads.
Just before question time yesterday, Labor communications spokesman Jason Clare released a document (conveniently after Fairfax had been given the document) outlining potential issues with the Optus cable that could cause a cost blowout for the HFC component of the network by up to $375 million, and a delay out past 2018 for customers in the Optus HFC area to be connected to the NBN.
The “HFC Plan B: Overbuilding Optus” internal presentation dated November 3 states that the Optus cable network is “not fully fit for purpose” and is currently oversubscribed, with interference, and much of its equipment reaching the end of its life. Up to 470,000 premises that the Optus HFC network covers but are not covered by the Telstra HFC network might need to be connected instead by the Telstra HFC network being extended or using fibre-to-the-node using the existing copper lines.
The idea scenario, using a mixture of the above two options, would cost NBN between $150 million and $375 million more than originally planned. If NBN were to go full fibre-to-the-premises, as Labor had originally planned for those areas, it would cost an extra $600 million, according to the document.
NBN is downplaying controversy claimed in the document, stating it is a risk-mitigation presentation that is designed to prepare the company should it run into trouble connecting customers to the Optus network, and said there had been no issues in the Redcliffe trial, so far.
NBN boss Bill Morrow has always argued that taking ownership of the cable networks for the multi-technology mix, rather than shutting them down, gives the company the option to use those networks if required. If it turns out that the network isn’t fit for purpose for supplying at least 25 Mbps download speeds, the company will not use it.
Additionally, in the company’s three-year plan released just weeks before Turnbull became prime minister, the company forecast that the cost to build the network had gone up from $41 billion to between $46 billion and $56 billion. Blowouts such as those flagged in the presentation were accounted for in that forecast, NBN has said.
At the time, Turnbull told Crikey that there was still a lot of risk associated with the project.
“It’s a big, risky project. Which is why the government shouldn’t have done it in the first place. But it is too late to cry over that.”
Clare also asked the Prime Minister a question about the network just after the publication of the document — just his fourth or fifth NBN question since becoming shadow communications minister more than two years ago. Turnbull, not being across the document, deflected, defending the current work of the NBN. Communications Minister Mitch Fifield also appeared to not be across the issue in Senate question time yesterday.
Former communications minister Stephen Conroy, who keeps a close eye on all things NBN with a view to protect his legacy, relished at the leak of the document, telling the Senate:
“Now we are getting all of this debacle coming home to roost. How could a board make a decision to switch to a $56 billion network without knowing the costs at the time? How could the CEO today say that the board members did not know the costs when the board made a decision to shift to a network that is now costing $56 billion? This board was one of political hacks! They were incompetent and they did not know what they were doing.”
Conroy told the Senate the cable network was not up to the task:
“There is a reason we were going to close it down — that is, because it was not fit for use. We knew it, Optus knew it, and the whole country knew it, but not Prime Minister Turnbull. He decided he knew better than all of the engineers and all of the experts in the country, and Optus today are laughing all the way to the bank.”
A spokesperson for Optus said in a statement that the company had always said upgrades would be needed.
“Optus and NBN have always acknowledged that parts of the HFC network would need an upgrade to support the NBN’s product set. In advance of handover there has been and continues to be major investment into the HFC network to manage subscriber growth and capacity demand.”