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Australia's NBN Cost Blowout

Robert Clark
News Analysis
Robert Clark
8/24/2015
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Australia's NBN Co will now need to find as much as A$26.5 billion (US$19.2 billion) from the private sector to complete the contentious rollout of its national broadband network after yet another restructuring of the project.

The latest plan scales back the fiber-to-the-home (FTTH) part of the project, and yet the overall cost has soared by as much as A$15 billion (US$10.9 billion).

The Australian government, which owns NBN Co Ltd. , has said it will invest no more than A$29.5 billion (US$21.3 billion) in the rollout.

But the latest NBN Co corporate plan, issued today, acknowledged that the network, which the government had costed at A$41 billion (US$29.7 billion), could now require "peak funding range between A$46 [billion, (US$33.3 billion)] and A$56 billion [US$40.5 billion]."

Just as bad, the internal rate of return, previously pitched at 5.3%, has now been lowered to 3.5%.

Without providing details, the company says it expects to raise private sector debt during the rollout, which it aims to complete in 2020. After that it will "consider the optimal capital structure" in conjunction with the government.

The corporate plan also shows it has rejigged the technology mix, with just a fifth of premises now expected to be fiber-connected. (See Australia's NBN Launches FTTB Service and NBN Digs a Hole for Itself.)

When the current government took office in September 2013, it scrapped the previous plan, which had promised to provide FTTH to 90% of premises, and replaced with a scheme foreseeing the use of various technologies, with FTTH accounting for 24% of premises, fiber to the node (FTTN) and hybrid fiber coax (HFC) another 69%, and satellite and fixed wireless the remaining 7%. (See Did Arris Just Upend Cisco for Major Oz Deal?)

Now the FTTH and FTTN components have been cut, while the percentage of premises that HFC will cover has been increased from 38% to 44%. Fixed wireless and satellite have also gained slightly in importance and are to cover 8% of premises under the new arrangements.


For more fixed broadband market coverage and insights, check out our dedicated Broadband content channel here on Light Reading.


The cost blowout has pitched the project back into the political arena. The opposition communications spokesperson has pointed out that the latest forecast is almost double the estimate of A$29.5 billion (US$21.3 billion) issued in April 2013.

It also raises the question: Was it worth slashing the previous fiber-heavy scheme? Not only are the FTTN and HFC technologies still not yet ready, but many of the extra costs are in fact a result of the shift to those different systems. Helpfully, NBN Co. has done the sums on that as well. It says the rejected FTTH scheme would cost a total of A$74 billion and A$84 billion (US$53.5 billion and US$60.7 billion) and take until 2026 to 2028 to complete.

Still, it looks inevitable that the NBN will become a political football once again, and almost as inevitable that the government will have to put its hands in its pockets once more.

As one financial columnist notes, it's "questionable whether NBN Co is capable of borrowing up to A$26.5 billion (US$19.2 billion) in its own right to fund a project that offers such a skinny return."

NBN Co says it has so far received A$13 billion (US$9.4 billion) in equity, and that capital spending over the last 12 months has totaled A$3.3 billion (US$2.4 billion).

Figures released today show the rollout is now covering as many as 2,000 premises and 1,300 activations per day and that 1.21 million of Australia's approximately 12 million premises are currently served by the network.

However, it is a long way from reaching scale as a business. Just 486,000 homes have activated a service, and revenues for the year ending June 30 were just A$164 million (US$119 million).

NBN Co is predicting that by 2018 annual revenues will have reached A$1.7 billion (US$1.2 billion), 9 million homes will have been covered and 4.4 million customers will have activated a service.

— Robert Clark, contributing editor, special to Light Reading

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