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NBN Cost Soar $4.6Bn, 13,000 ‘Active’ Users

Why?

Their public dissing of his pet project, the National Broadband Network, and Shadow Communication minister Turnbull’s repeated attempts to “sabotage” NBN plans were heavily criticised by Minister Stephen Conroy as he launched NBN Co’s latest plan in Sydney today.

“The NBN is a sound investment and will pay its way” Conroy told media at the launch of the NBN Corporate plan 2012-15, despite it being “consistently subject to misrepresentation” by the above parties.

The NBN’s latest corporate plan forecasts increases of almost $4.6bn, a 6 month rollout delay, and lower than expected greenfield rollouts, although it has been said the capital project will start paying dividends by 2022.

Forecast capital expenditure to the end of the construction period has increased by $1.4 billion (3.9%), while costs involved in operating the NBN has risen by $3.2 bn to the end of FY2021.

These changes in costs have been more than offset by forecast increases in revenues that are projected beyond the Fibre Construction period, leading to a marginal increase in the projects Internal Rate of Return from 7% to 7.1%, NBN Co confirmed.

NBN Chief, Mike Quigley, speaking at today’s press conference, said he was confident of the future of the NBN project, despite the 3.9% increase on previous pricetag attached to building the fibre broadband network, which now will cost $37.4 bn.

However, the minister insisted government borrowing (nor taxes) will rise following the increase, as It has been factored into current government forecasts.

The construction period is also set to extend by 6 months, due for final completion in 2021.

Minister Conroy and NBN Co also sought to fob off criticism (by Malcolm Turnbull in particular) that it has failed to meet its previous greenfield rollout target, blaming the sluggish housing market for the shortfall.

Conroy insists the NBN’s previous targets for the rollout to greenfield sites were based on new housing as predicted by the ABS, which have since fallen by 24.5%.

By the 30th of June, the NBN Co said it received 40000 less developer applications for premises to be passed through with fibre, insisting it was not to blame for the shortfall.

Conroy cited one development in Bunya, West Sydney, where 730 houses were to be built and although it installed the fibre in 2011, currently just 100 homes have been fully completed.

Additional labour costs, increased network distances, additional works involved in Customer Connect, multi-dwelling Units and to higher number of ‘Build Drops’ have been attributed to the cost increases, according to the Corporate Plan.

Under its new “must opt” service (rather than mandatory service for the end user) 50% of fibre end-users will elect for a Battery Backup Unit (BBU) for its premises, NBN Co predict.

However, NBN Co Chief dodged questions put to him by the media that NBN was an opt out service.

By 30 June 2012 construction had commenced or was complete on 305,000 premises approx, in all states and territories. By the year’s end, NBN Co forecasts this number will double to 758,000 premises, in line with the 12-month rollout, announced in February.

The NBN Fibre network rollout remains “on course” to reach 2015, Quigley insists and will be hitting 3.5 million premises by 2015.

However, a closer look at ‘active’ user numbers show some pretty tame figures – just 13,000 are active users on the NBN with another 500 on new Greenfield sites. It wont be for another two years until this figure exceeds half a million.

Price wise, wholesale and retail prices are “right where we want them” said Quigley, and as takeup increases prices will fall, he pointed out, which is one of the NBN Co’s primary aims, he admitted.

The Optus deal, which was recently approved by the competition watchdog, now means 500,000 new customers will be shifted to the NBN fibre network, which has also pushed capital and operating costs up further, Quigley admitted.

Demand wise, more customers are taking up higher speed broadband plans than anticipated – the 25Mbps and 100Mbps broadband plans proving popular than the lower tier speeds.

NBN Co also anticipates just 20% takeup of its fixed wireless services due to the emergence of other wireless services.

There are 500 NBN pricing plans on the market currently, and prices are “very competitive,” especially compared to ADSL2+ plans, said Minister Conroy, dismissing claims from Opposition Leader, Tony Abbott, that NBN broadband prices may be three times that of current prices, which he dismissed as “back of the envelope” calculations.

And he accused the Fairfax owned Australian Financial Review of backing up the Opposition’s claims at every turn.

NBN Co prices will continue to fall over time for the end user and also there’s no line rental fee, he added.

NBN Co has entered into agreements with more than 40 phone and internet service providers, representing 94% of the fixed broadband market and insists competition in the broadband market will increase in an NBN world- between fixed, wireless and satellite services covering over 90% of the population.

And Conroy is also looking to kill both Abbott’s and Malcolm Turnbull’s argument that a fixed wireless service would be far cheaper than the seemingly pricey $37.4bn fibre network.

“We need both networks but we need the NBN for capacity…its too expensive to provide capacity on a  mobile broadband network,” Quigley insisted.

“Should actual data usage growth exceed the assumed growth rate then NBN Co would be able to reduce wholesale broadband prices more quickly and still maintain the same overall return for Australian taxpayers.”