NBN risks: Can NBN Co scale up the rollout?

Industry analysts have provided their opinions on NBN Co's updated corporate plan

The biggest risk to the National Broadband Network (NBN) in the next two years will be the ability of NBN Co to scale up the pace of the rollout, according to an Ovum analyst.

“That’s going to mean getting access to a lot of workers [and] training those workers … [The] question will be how quickly can they actually scale up to reach peak rollout?” David Kennedy, research director and principal analyst at Ovum, told Computerworld Australia.

“Going from a fairly small scale rollout to mass rollout is a big task.”

Kennedy said he was unsure about how quickly NBN Co could scale up the rollout and cited the questionable take-up of higher speed services on the NBN as another potential risk factor for NBN Co.

The comments follow the release of NBN Co’s revised corporate plan today, with NBN Co acknowledging concerns over scalability.

"A focus for NBN Co as it ramps up its rollout activities will be its efforts to benchmark, validate and improve the quality of processes to achieve scale," it stated in its revised corporate plan.

The updated plan also includes details on a $1.4 billion increase in capital expenditure for the network to $37.4 billion, with Kennedy stating the increase in capital expenditure is normal for projects the size of the NBN.

“The fact that they’ve got cap ex increasing at only 3.9 [per cent] is actually pretty good and it does show that there must have been some significant offsets in terms of costs in areas like equipment,” he said.

However, Paul Budde, telecommunications analyst at BuddeComm, told Computerworld Australia he was surprised by the expenditure increase, and although 3.9 per cent is not a large percentage, it equates to a significant dollar amount – $1.4 billion – on a project the size of the NBN.

Speeds

NBN Co also detailed information in its revised plan on the speeds commercial customers are signing up to, with the company finding consumers are tending to opt for higher speed connections.

“We’ve put a greater proportion of customers in our plan on the 100/40 and 25/5 services than we had in the original plan because that’s what we’re now seeing is happening in the marketplace, which means less on the 25/10 and less on the 50/20 service,” Mike Quigley, CEO of NBN Co, said today at a media briefing.

However, Kennedy said there is still uncertainty over the eventual number of people who will sign up to high speed services on the NBN. He said while there have been higher than expected numbers of people signing up to 100Mbps plans in early rollout areas, they tend to be consumers who want high speed broadband regardless of how it is delivered or how much it costs. The real statistics on what speeds consumers want remain to be seen, Kennedy said.

“We’re not really going to know the take-up of high speed broadband on the network until we start seeing some mass migration – and we haven’t seen that yet. We’re not really going to know what that is until 2013 at the earliest,” he said.

This mass migration will occur when the copper network is shutdown, according to Kennedy. The “laggards” who then sign up to the NBN when the copper network is deactivated will most likely sign up to entry level plans, he said.

Build Drop

NBN Co also announced a shift from a Demand Drop method to a Build Drop strategy.

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, while the Demand Drop method would connect customers to the NBN when an order is received from a retail service provider.

Kennedy said while he wasn’t predicting this change, it is a sound strategy as it reduces the need to carry out drop connections on demand and while it increases capital expenditure, it reduces long-term operating expenditure.

“I believe given that the migration is basically mandatory in the end [with the deactivation of the copper network], I think that it makes a lot of sense,” he said.

“So instead of having one team who are doing the rollout down the street and a completely separate team who are going from house-to-house doing drops on a demand basis, it’ll mean they’ll be able to integrate all of the construction of the drops into the original street rollout.

“I think that’s going to be a lot simpler and a lot easier to manage, so it’s well worth the additional cap ex.”

While Quigley did not reveal how much the Build Drop strategy would cost, he did rate it in the top three capital expenditure costs.

"If I speak to people, which I did, for example, in British Telecom or other places, they said if your take-up rate is above 20 or 30 per cent, it’s smarter doing Build Drop," he said.

"...It’s not [going to cost] billions, but it’s not a few hundred million either."

Delays

While the NBN has been plagued by a nine-month delay due to a longer-than-expected approval for the $11 billion definitive agreements between NBN Co and Telstra, Kennedy said there is now an effort being made by NBN Co to get back on track.

“For example, if you look at the termination for the rollout it is quite close to the original termination date. [While] there have been a number of delays, they’re going to ramp up rollouts … to compensate, to some extent, for those delays,” he said.

The delays are also unlikely to have any long-term impacts on operating expenditure or capital expenditure, according to Kennedy, with capital expenditure being driven by changes in network distances and the cost of equipment.

“None of those have anything to do with the delays. I don’t really see much impact from the delays here other than in the time profile of the expenditure. Obviously that’s been pushed back into the future and we’re seeing higher rollout speeds in the middle part of the program than we were originally.”

Budde said now that NBN Co has a more solid and accurate corporate plan than the one released in 2010, the company will be a lot more accountable for its actions and further delays will not be acceptable.

“From now on there can’t be any further excuses for [a] delay in the roll out,” he said.

Follow Stephanie McDonald on Twitter: @stephmcdonald0

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