Capital cost of the NBN increases $1.4 billion

The NBN has experienced a nine-month delay due to the slow approval of the $11 billion Telstra and NBN Co agreement, NBN Co has stated

The capital cost to build to National Broadband Network (NBN) has increased $1.4 billion to $37.4 billion, according to a revised corporate plan by NBN which was released today.

The company detailed financial figures for the NBN, such as the 3.9 per cent increase in capital expenditure, as well as a forecasted revenue drop of $600 million to $23.1 billion and an increase of $3.2 billion in operating expenditure to $26.4 billion for the FY2021.

Mike Quigley, CEO of NBN Co, said the increased cost of the NBN was a result of the inclusion of an $800 million agreement between NBN Co and Optus, which involves steady payments to Optus for migrating its customers to the NBN.

Quigley also cited the additional costs being due to anticipated technology upgrades to the fixed wireless and Long Term Satellite Service End-Users in regional and remote Australia; implementing the government’s New Developments policy; and moving to a Build Drop method.

The Build Drop method would connect premises to fibre at the same time as construction of the distribution and local segments of the NBN fibre.

"Build Drop is when a fibre drop cable is installed from a connection point in the street (aerial or underground) to the nearest practical and safe installation point on the premise during the initial construction phrase," Internode states.

This compares to NBN Co’s previously stated method of Demand Drop, with customers connecting to the NBN when an order is received from a retail service provider.

Capital expenditure has also been impacted by increased assumptions for network distances, according to NBN Co, which states assumptions are now more accurate than previously stated in the 2010 corporate plan.

The covered road distance for the network has increased 18,000km from 130,000km to 148,000km. The Gigabit-capable Passive Optical Network (GPON) physical distance has increased 25,000km from 181,000km 206,000km.

"Where prudent, we have built in additional costs to the plan but these are largely offset by savings we have made elsewhere. In areas where we are spending more it is generally because there are long-term benefits to NBN Co,” said Robin Payne, NBN Co chief financial officer.

The company also predicts its return for the network will be 7.1 per cent, slightly higher than the 7.0 per cent previously stated.

Funding

In its revised corporate plan, NBN Co states the total forecast peak funding requirement of the NBN will be $44.1 billion (including funding costs). This will be made up of around $30.4 billion of peak government equity and around $13.7 billion of peak debt funding.

In its 2010 corporate plan, NBN Co stated the network would have a total funding requirement of $40.9 billion (including funding costs), comprising around $27.5 billion of government equity and around $13.4 billion of debt funding.

This equates to $3.2 billion in extra funding requirements.

“It is expected that total external funding would contribute up to 31 per cent of the total funding to FY2021,” NBN Co states in its revised corporate plan.

Quigley today stated NBN Co would start seeking debt funding in 2015.

Premises connected

NBN Co increased its forecast for the total number of fibre premises connected for the FY2021 to 8.5 million, up from 8.3 million forecasted in NBN Co’s 2010 corporate plan.

NBN said construction has commenced or will be completed on around 758,000 premises by December this year, which Conroy had stated at an earlier media briefing event.

Around 3.5 million premises are expected to be passed by mid-2015.

Delays

The NBN has experienced a nine-month delay, which NBN Co has attributed to a delay in the approval process by the ACCC of the definitive agreements between Telstra and NBN Co, an $11 billion agreement which resulted in Telstra’s structural separation and the use of its network assets in the NBN.

The delay has resulted in NBN construction being extended by another six months.

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