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NBN cost blows out by at least AU$10bn and FTTN isn't launched yet

Comms Minister Turnbull says it's taken two years to do the sums on true construction costs

Communications minister Malcolm Turnbull has presented a cost overrun greater than AU$10 billion in the National Broadband nNetwork's (NBN's) peak funding requirements as a win because the former government's plan would have been worse.

“The project we inherited from the Labor party in 2013 had failed,” he said, discussing the new corporate plan for the company building the NBN. “Construction had stalled, if not stopped, in many parts of the country.”

Releasing the 2015-2018 corporate plan (PDF) that accompanied this morning's financial results, nbnTM, the company building the NBN, told journalists that by 2018 it expects to need at least $9.6 billion in peak funding beyond what the government is prepared to tip into the can in the form of equity or grants. By 2017, therefore, the company will be looking for lenders to support that debt.

The maximum “peak funding” – that is, the deepest the red ink gets before the business expects to have cash to pay it back – will be in the range $46 to $56 billion, but nbnTM says it's more likely to be $49 billion.

That's far more than the $43 billion the previous government allocated for the old “failed” project, but the government's review into the NBN had found it would cost around $30 billion more than that figure, Turnbull said.

Over the period of the current three-year plan, nbnTM CEO Bill Morrow said the network will reach four million premises, of which 20 per cent will be FTTP, compared to 72 per cent on fibre-to-the-node (FTTN) and hybrid fibre-coax (HFC).

That assumes that by 2018, 1.67 million premises will be activated on FTTN, along with about a million HFC premises, and 1.3 million on the by-then-tapering-off FTTP rollout.

Asked whether the blowout meant nbnTM's forecasts have a credibility problem, Turnbull said: “Under the Labor party neither the company nor the Labor government actually knew what it would cost or how long it would take to complete the project.

“We're confident that the numbers are now right,” he said.

Commencing the next election campaign or re-enacting the last, Turnbull told the press that the member for the seat of Eden-Monaro's Mike Kelly, in asking for fibre rollout, was asking for the rollout to be “delayed for six to eight years”.

“The cost differential … is about $30 billion but the time delay is larger,” Turnbull said.

Morrow attributed the change in the company's financial position to different predictions about HFC revenue, greater than forecast operational expenditure, and an extra $4 billion set aside for capital expenditure.

Given the scale of the project, Morrow said an eight billion departure from forecasts was not unusual.

Morrow assured the media that the current FTTP rollout – around 1,500 premises ready for service per day – could not be bettered with that technology, whereas each node connected to fibre serves the roughly 150 premises connected to it.

+Comment: Since the HFC networks require more upgrades than construction, and the data for FTTP is now based on more than 700,000 premises, the FTTN part of the network appears (to El Reg) to carry the greatest risk for future blowouts in the future.

However, neither Turnbull, Morrow, or CFO Stephen Rue see it that way. Turnbull noted the year's work preparing this corporate plan.

Rue said “We have done substantial trials in fibre-to-the-node. We've built nodes, so we know the cost of doing that.” Similarly, “We have equipment supply … and construction partner agreements in place”.

Morrow said “we have over 200,000 premises on FTTN”. The Register has sought clarification on this point from nbnTM. ®

Update: The company has backed Morrow's statement that 200,000 FTTN premises have been installed in advance of the commercial launch of the service. Another 400,000 on 2,000 nodes are under construction. ®

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