NBN nears finish line, but remains mired in controversy and red ink

Australia's NBN is close to completion but years away from profitability.

Robert Clark, Contributing Editor, Special to Light Reading

June 17, 2020

3 Min Read
NBN nears finish line, but remains mired in controversy and red ink

After ten years, 7 million connections, 30,000 kilometers of copper, A$51 billion (US$35.2 billion) and a petabyte of headlines, Australia's NBN is on the verge of completion.

The state-owned infrastructure venture passed 11.2 million premises in March and is in sight of its 11.5 million target by the end of this month.

NBN Co says it has deployed 280,000km of fiber cable, a fixed-wireless network with 2,200 towers and launched two satellites.

It says 68% of end users are now on a speed tier plan of 50 Mbit/s or higher, up from 58% a year ago.

However, it is still bleeding cash. The company recorded EBIT of A$3.1 billion ($2.1 billion) on revenue of A$1.8 billion ($1.2 billion) in the first three quarters of the current year. Thus far, NBN has cost A$51 billion ($35.2 billion), including A$29.5 billion ($20.3 billion) in government spending.

It has forecast it will be cash flow positive in three years from now, but most analysts believe it needs to be written down to allow it to cut prices and refinance itself.

That won't happen. Its accumulated losses are so large that any write-down would in fact require further state support.

The government instead has passed what has been dubbed a "broadband tax," effectively slugging retail providers for the cost of NBN's uneconomic satellite and fixed-wireless service.

True to form, the company continues to stir controversy. Earlier this year it had to back away from a plan to directly connect business customers that infuriated its retail partners.

Last month local media reported it had purchased a cumulative 30,000km in copper cable, most of which was being deployed as lead-in cable to homes.

The NBN's indifferent performance has prompted some state and city governments to start funding their own high-speed infrastructure.

Industry heavyweight Telstra has signaled it may deploy its 5G network as a fixed-wireless rival to NBN.

Now that the NBN is all but finished, a new debate on its future is underway.

Normally the conservative government would be keen to privatize such a large asset, but the NBN's financial position means it will remain in state hands until at least the middle of the decade.

Last month Telstra boss Andy Penn called for a long-term strategy for the telecom sector, arguing it was critical to the post-pandemic recovery. This would include a clear NBN upgrade path, setting out how it would deliver high-speed service to regional areas.

Meanwhile, the maturing of the NBN project seems to have led unintentionally to a realignment of the national fiber market.

In a turn of events that embarrass flat-footed Telstra, a small ASX-listed operator has become the industry's newest billion-dollar player after making a lightning raid on a larger rival.

According to the Australian Financial Review, Telstra had bundled up parts of its broadband business under the name "Project Velocity" and offered them to NBN.

But the wholesaler objected to the A$40 million ($27.6 million) price tag and Telstra turned to the industry. Melbourne-based FTTP specialist OptiComm was reportedly willing to pay A$70 million ($48.2 million).

But a small fiber and wireless operator called Uniti Group (no relation to the Nasdaq-listed property trust and tower owner) heard of the sale and wanted in.

Telstra thought it was orchestrating a two-horse race for Velocity. In reality, as AFR put it, "it was a one horse race for OptiComm; the predator was actually the prey."

Uniti acquired OptiComm for A$532 million ($368 million). Both parties declined to bid on Velocity and now a new midsized competitor is in the market to challenge Telstra and, in particular, NBN.

— Robert Clark, contributing editor, special to Light Reading

About the Author(s)

Robert Clark

Contributing Editor, Special to Light Reading

Robert Clark is an independent technology editor and researcher based in Hong Kong. In addition to contributing to Light Reading, he also has his own blog,  Electric Speech (http://www.electricspeech.com). 

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