NBN’s unfinished line

Communications minister and former Optus executive Paul Fletcher is in a $51 billion game of chicken with the telco industry he used to work for, as the wholesale NBN Co clambers towards profitability on the back of retailers like Telstra, which reported a 40 per cent dive in earnings this morning. Imagine the conversations going on behind the scenes… Releasing NBN Co’s financial results for 2018–19 overnight, chief executive Stephen Rue defied calls to lower its wholesale charges to telcos – which would trigger a massive writedown in the value of the publicly owned network – insisting instead that the company must remain “financially strong”. But there is a big number missing from the coverage of NBN’s results today, and that’s how much it will cost to fix. From the minute the NBN rollout is completed – if the forecast is right, that’s June 30 next year – the question on customers’ lips will be: “So, when do I get fibre?”

Rue is insisting that the rollout of the NBN to standard premises (excluding new or heritage buildings, for example) will be finished next year “on time and on budget”. Never mind that at a budgeted $51 billion the cost of the NBN is almost twice the original $29 billion estimated when then communications minister Malcolm Turnbull imposed his mixed-technology solution in 2013 – and $10 billion more than the forecasted cost of Labor’s fibre-to-the-premise network.

The NBN has hit peak capital expenditure, and for the first time recurrent earnings are in the black, so full credit to the NBN staff who have worked to get it within striking distance of completion. Interviewed on the ABC’s AM this morning, however, Rue stopped short of an outright denial that the NBN might ask the government for a top-up to get the job done, answering: “We are confident that we will complete the build next year. We continue to grow a great business, and that $51 billion is the funding required to do that.”

Nine Media reported today that “upgrade paths to higher speeds are expected to become an increasingly urgent focus for NBN after the roll out is finished”. Perhaps that should be underlined with a crayon, because there are credible estimates the cost of upgrading the NBN will run to many billions of dollars. NBN needs to keep its prices high in order to be able to fund the upgrades that it knows will be coming, and to stay off the government’s books so the politically vital budget surplus is not threatened. Any writedown will be a matter for the board, on standard accounting principles, but you can bet the directors are highly aware of the wishes of two stakeholders – minister Fletcher, and Finance Minister Mathias Cormann. Retailers can bleat all they want: Fletcher is well used to staring down Telstra. In a joint statement today, the ministers welcomed the results, and Fletcher said that the NBN was “powering towards completion of the network build next year”.

But even if the NBN rollout is completed next year, it will need to be upgraded straightaway. As Labor has pointed out, Infrastructure Australia’s national audit this week gave Turnbull’s supposedly cut-price NBN a very poor report card, observing: “The Fibre to the Premises (FTTP) focus has moved to what is now called a multi-technology mix. This different mix has altered projected infrastructure costs. For example, the need for upgrades to Hybrid Fibre Coaxial (HFC) connections under the current plan drives up capital costs and operating expenses.” Shadow communications minister Michelle Rowland has the killer line: “The Liberal Party promised its multi-technology would be faster and cheaper, yet they have delivered a network which costs more to build, costs more to run, and does less.”

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