‘A big, risky project’: Turnbull says NBN cost will be settled soon

How much will it actually cost to connect Australian households to the National Broadband Network? Estimates have varied wildly, but Communications Minister Malcolm Turnbull told Crikey we should have a pretty good answer to that question in a few weeks.

The company charged with rolling out the National Broadband Network has changed its mind on how much it will cost to actually build the network about six times since it was founded in 2009, but Turnbull is now confident that the figures produced by the company in its latest corporate plan are close to the truth.

In April 2013, then-opposition leader Tony Abbott and opposition communications spokesman Malcolm Turnbull said the “total funding” for the multi-technology mix model of the NBN — which would use parts of Telstra’s legacy copper network and the Telstra and Optus cable networks instead of a full fibre-to-the-premises rollout, as Labor had proposed — would be $29.5 billion. After coming into government, a short strategic review of the company increased the required funding to $41 billion.

The funding remained capped at $29.5 billion from the government, with Turnbull telling the government-owned company it would have to seek funding elsewhere to make up the shortfall.

Yesterday, in releasing the company’s long-awaited three-year corporate plan, that $41 billion number shot up to between $46 and $56 billion, with the company expecting it to be somewhere around $49 billion. This, in part, was attributed to a seven-month delay in using the cable networks owned by Telstra and Optus because the company is still working out how exactly to integrate the networks into the NBN.

Turnbull told Crikey that although this was the second set of numbers produced by NBN since he came into government, these were the first figures he had true confidence in.

“The strategic review took six weeks. This plan has taken a year, and so I think the line that this is a cost blowout isn’t really correct. I think the truth is, prior to this work being completed we didn’t really know how much it was going to cost. So much of the input was questionable,” he said.

“That’s basically the advantage of having a new competent management team and having really good CFO in Stephen Rue.”

Turnbull has said that according to the company’s own analysis, to continue with Labor’s version of the NBN — that is the full fibre-to-the-premises for 93% of all households and businesses — would cost between $74 billion and $84 billion and could take up to eight years longer to finish.

“Across the board the numbers the previous management had were not right. There were a lot of costs that weren’t accounted for, and there were a lot of things that were underestimated,” Turnbull said.

“The most egregious example was the company saying the average cost of rolling out fibre to the premises was $2200 to $2500. That was just simply wrong. It was never that figure. It’s not a case of it blowing out to $3600. It was always that number.

“This is really the first set of numbers we’ve had from the company that I’ve got a high level of confidence in.”

The first test of the new plan will come in a matter of weeks when the company begins its at-scale fibre-to-the-node network construction using the legacy copper network it will progressively acquire from Telstra. Up until now, NBN had been conducting small trials of fibre-to-the-node using, in many places, spare copper lines that might not be truly reflective of the state of the network as a whole.

“The only thing is the trials have gone very well, and the large-scale roll-out of fibre-to-the-node begins in a few weeks. We’re not going to have long to wait to find out exactly how it is going,” Turnbull said.

NBN boss Bill Morrow told Lateline last night that the company still didn’t fully know the quality of the ageing copper network and how much it would cost to remediate for the NBN to ensure that it can deliver the download speeds promised by the government before the last election.

“We had to get the agreements done with Telstra. They wouldn’t release information, and rightfully so; they shouldn’t until we had those deals done. And now we’ve been collecting data around the condition of the copper around the country and so we have a far better indication as to what it is,” he said.

“I’d say we’ve taken a pretty conservative estimate in terms of that remediation cost that we have to have.”

NBN is not bound to use the copper lines if the quality is so degraded that it is cheaper for NBN to roll out other technologies instead, but Turnbull says he believes much of the copper network will be “adequate” for the NBN.

“The copper network is undoubtedly very good in parts, very poor in parts, and probably very adequate for most of it. But it is like any linear network: it will have good bits and bad bits,” he said.

“It’s like the Curate’s egg; it’s good in parts.”

The minister acknowledges that there is still a large amount of risk associated with the network.

“It’s a big, risky project. Which is why the government shouldn’t have done it in the first place. But it is too late to cry over that.”

The government faces a decision over the next few months on how to fund the project after the equity cap of $29.5 billion has been reached. NBN will need up t0 $26.5 billion in additional funding in order to complete the project. NBN itself could attempt to raise this from banks or other sources as indirect government debt, or the government can up its funding for the project.

“I think the company can bear the debt,” Turnbull said. “You’ve got to remember this company will, once the network is built, it will throw off a lot of cash.”

It is unlikely NBN will be able to pass on extra costs to its customers, and it has faced pressure from retail service providers such as iiNet for years to reduce its wholesale bandwidth charges.

The corporate plan puts the NBN in an interesting position for the next federal election. Turnbull will no doubt quote NBN’s own figure for Labor’s mode daily in advocating his version of the NBN, and if NBN can gain momentum and roll out fibre-to-the-node to at least 3 million premises by the time of the next election, Labor could be reluctant to push for a quick return to what it is calling internally the “real NBN” of fibre-to-the-premises.

Labor has yet to say what it will do if it is returned to government after the next election. The party’s policy platform agreed to in July acknowledges that the goal would still be fibre-to-the-premises, but the roll-out would need to be completed in two stages rather than one to account for the changes implemented by the Abbott government since 2013.

This article was originally published on Crikey.