The Australian: Broadband Network Rollout a Costly Failure

IN April 2009, the Rudd-Gillard government announced its plans to build the National Broadband Network. The fibre optic network is supposed to pass 12.2 million premises around Australia by 2021. More than three years later, as at June 30, 2012, it had passed just 38,914 less than one third of 1 per cent towards the finish line.

Yet NBN Co's corporate plan, issued in December 2010, promised to pass 317,000 premises by June 30, 2012. Another comparison: in 1994, Telstra announced it would build a national hybrid fibre coax network. By June 1997, three years on, the network passed 2.1 million homes.

NBN is doing equally badly on the number of services being delivered. There were 3867 fibre services in operation as at June 30, 2012; the corporate plan promised 137,000. More recent disclosures at estimates hearings in October show little improvement. One component of the fibre rollout, brownfields, had risen from 29,000 in June to 32,295 and fibre services in operation were at 6400. Broadband Minister Stephen Conroy and NBN Co have tried every trick in the book to disguise thepoor performance. They abandoned the original corporate plan and issued a new one in August this year. The goal of 317,000 premises passed by June this year was changed to 39,000. The goals for later years also dropped sharply. Originally the network was to pass 1.27 million premises by June 30 next year: that has fallen to 341,000. Next, they made comparisons as difficult as possible. The original corporate plan gave target numbers for five different categories of premises: three types of fibre, wireless and satellite. The new plan, and the 2011-12 annual report released recently, now gives numbers for two types of fibre and a merged number for wireless and satellite.

Third, they tried to shift attention away from hard numbers by introducing a new statistic: premises where there is construction commenced or completed. NBN Co's March 2012 media release promised that by 2015 "construction of the fibre optic component of the network will be under way or completed in areas containing 3.5 million premises". This statistic which is not used by private sector telecommunications companies such as Telstra and Optus is meaningless. They count a home as having construction commenced from the moment a contract instruction is issued to the contractor. But several further steps are required, including the Telstra commencement notice and the final contract instruction. On average, it will be 12 months before the work is completed. A fourth trick is to quote total subscriber numbers across fibre, wireless and satellite.

At the October estimates hearing, NBN Co said it had 24,000 customers. But of these, 17,000 were on satellite and more than half of them were customers of an existing government program, dating back to Howard government days, to subsidise satellite broadband in rural and remote areas. The rollout is chewing up taxpayers' money at an alarming rate. By June 30 this year, $2.832 billion of taxpayers' money had been put into NBN as equity; of that more than $900 million had vapourised in three years of accumulated losses. (In 2011-12 alone, NBN Co lost $520m.) Total equity contributions entirely taxpayer funded are projected to reach $30.4bn by 2021. This is almost $3bn more than the Rudd-Gillard government had previously disclosed. NBN Co is splashing around money with abandon. It pays extremely generous salaries. Average remuneration cost per head was $172,000 in 2011-12, more than 50 per cent higher than the comparable figure at Telstra.

Yet it has barely any customers and barely any revenue. It earned less than $2m from providing telecommunications services in 2011-12. As we have seen with the home insulation program, the school halls program and many others, the Rudd-Gillard government is hopeless at program delivery and financial management. We are seeing the same pattern with the NBN. Anyone who wants to see Australia's broadband infrastructure upgraded in an efficient, cost-effective manner should be very alarmed.