AFR: NBN hoplelessly behind targets

When Stephen Conroy and Kevin Rudd announced the NBN in April 2009, they promised that it would be “operated on a commercial basis… and involve private sector investment.”  

In mid-2010 Conroy abandoned the commitment to private sector investment – after receiving advice in the McKinsey-KPMG Implementation Study that private investors would regard the project as too risky and hence taxpayers would need to provide one hundred per cent of the equity.

But when NBN released its first Corporate Plan in December 2010, it purported to show that a commercial return (of 7 per cent) could be achieved  - based on the plan’s projections for “premises passed” by the network through to 2021, and the revenue to be generated from those premises.

NBN Co released the Second Corporate Plan yesterday – and it confirmed what objective observers have long suspected.  NBN Co is hopelessly behind the targets set in that first Corporate Plan – and the signs for the future are getting worse, not better. The first Corporate Plan promised that by 30 June 2012 there would be 317,000 premises passed or covered on the fibre network; the actual number is 39,000.  There were supposed to be 137,000 premises with active service; the actual number is 3,500. 

NBN Co has delivered much less than it promised to date – and it plans to spend much more in the future than it originally disclosed.

The company will now spend $4.6 billion more in capital and operational expenditure by 2021 than it proposed in the first Corporate Plan; yet in the same period revenue is now going to be $600 million less.

Taxpayers are now going to be up for equity contributions of $30.4 billion by 2018 – an increase of almost $3 billion on what was projected in the first plan.

It is instructive to compare NBN Co’s performance with what Optus and Telstra achieved with their HFC networks. 

The Optus HFC network was announced in 1994, and a roll out to over 1.4 million households was completed by the late nineties at a cost of around $4 billion. Telstra rolled out a larger HFC network (to 2.5 million households) in roughly the same time frame.It has been over three years since Labor announced the NBN, and we now have the grand total of 3,500 premises taking a fibre service.   To achieve this outcome has required taxpayers to date to contribute $2.8 billion of equity to NBN.

If NBN were funded by private sector investors, the CEO would probably have been fired by now - and the rollout might already have been shut down or seriously scaled back.

The problems starkly revealed in the second Corporate Plan reflect the chaotic circumstances of Labor’s politically driven announcement in April 2009 that it would build a national fibre to the premises network.

This followed the collapse of Labor’s previous plan, announced in March 2007, to build a fibre to the node network in a joint venture with a private sector company, with the contribution from taxpayers to be a mere $4.7 billion.

There has always been a fundamental tension between Labor’s claim that this network would be built and operate on commercial principles - and the many politically driven decisions which have bedevilled its operation. 

These have included starting the network build in Tasmania (where incomes and computer usage are lower than the national average); and Julia Gillard’s promise, made to win the support of the independents following the 2010 election, that she would “ensure that priority is given to regional Australia as the NBN is built .“

The Coalition believes strongly in the need to upgrade Australia’s broadband infrastructure.  But as the disclosures in the second Corporate Plan confirm, Stephen Conroy’s NBN is a really bad way to achieve that policy objective – as well as a terrible investment for taxpayers.

Paul Fletcher is a Liberal MP