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Budget blowout kills Australia’s FTTH network

13 Jan 14

Australia’s plan for a national fibre to the home network is dead in the water following a change of government and revelations form the company charged with building the $A44b network that it is 66 percent over budget and well behind schedule.

When Techday last reported on Australia’s National Broadband Network back in October a Liberal/National Coalition Government had just been elected and was taking the first steps towards fulfilling its election pledge to scrap the former Labor Government’s plan to provide fibre to 93 percent of Australian premises. It favours instead a mixture of FTTH, fibre to the node and existing hybrid fibre coax networks.

The new communications minister, Malcolm Turnbull, had already sacked the board of NBN Co, the government-owned company set up to build and operate the network. He had directed NBN Co, under its new interim CEO and executive chairman Ziggy Switkowski - a former CEO of both Telstra and Optus - to undertake a strategic review within 60 days.

NBN Co had engaged three external advisors, the Boston Consulting Group, Deloitte and Korda Mentha to help with the review, which it duly delivered on 12 December.

NBN Co’s report of its strategic review painted a grim picture of progress and projections on the FTTH rollout. NBN Co said the rollout would miss its completion date by three years and would cost $A73b, compared to the $A44b estimate in its August 2012 corporate plan. It predicted that, by June 2014, the rollout would pass only 357,000 brownfields premises against the plan’s target of 1.129 million.

NBN Co claimed that it would be able to deliver download speeds of 50Mbps to about 90 percent of fixed line connected premises and 100Mbps to 65-75 percent by the end of calendar 2019 using FTTP to 20-26 percent of premises, fibre to the node/distribution point/basement to 44-50 percent and hybrid fibre coax to about 30 percent, for a cost of $A41b.

For NBN Co to proceed with this plan it needs an updated statement of expectations (SOE) from the Government and will then develop a revised corporate plan. The SOE is unlikely to be forthcoming for several months.

Following release of the strategic review the government issued a statement saying: “The advice contained in the strategic review will be a crucial input into Government policy.

"The Government remains committed to completing the NBN as quickly and cost-effectively as possible and managing this taxpayer-funded project with complete transparency.”

On the same day the Government announced the creation of an expert panel “to conduct an independent cost-benefit analysis of broadband and review of the regulatory arrangements for the National Broadband Network.”

The panel comprises: former Victorian Treasury secretary, Michael Vertigan; economist Henry Ergas; Alison Deans, the first CEO of eBay in Australia, and Tony Shaw, former chairman of the Australian Communications Authority.

It is required to “to analyse the economic and social costs and benefits (including both direct and indirect effects) arising from the availability of broadband of differing properties via various technologies, and to make recommendations on the role of Government support and a number of other longer-term industry matters.”

The panel has six months in which to deliver its findings. The Government will then have to review these and, if it accepts them, instruct NBN Co accordingly. NBN Co will then have to renegotiate its contract with Telstra under which Telstra agreed to disconnect its copper access network and make its ducts and exchange facilities available for the NBN rollout.

Delays in negotiating that $A11b contract set the initial NBN schedule back by 12 months. No wonder that some observers hold out little hope for faster broadband any time soon for the majority of Australians.

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