Updated: NBN Co releases strategic review

New plan to cost $41 billion and will be delivered three years later than Coalition had pledged

NBN Co Chairman Ziggy Switkowski via broadband-enabled videoconferencing

NBN Co Chairman Ziggy Switkowski via broadband-enabled videoconferencing

At least 90 per cent of Australians would get broadband speeds of about 50 Mbps by year-end 2019 under a Coalition proposal to overhaul the NBN.

The recommendation was made in NBN Co's 60-day strategic review of the NBN, released today with redactions for commercially sensitive material. The review will be used in the NBN Co's next corporate plan, planned for release in the first half of 2014.

The goal marks a delay from the Coalition's goal of 25 Mbps speeds for all Australians by 2016. The NBN Co report said there was "no viable path" to achieve that target.

NBN Co said the new plan would cost $41 billion. In comparison, it said Labor’s plan would cost $73 billion and take until 2024 to complete, $29 billion more and three years later than Labor had forecast.

As expected, the new plan recommended a move away from a pure fibre-to-the-premise (FTTP) plan to one that includes fibre-to-the-node (FTTN) and fibre to the basement or distribution point (FTTB/DP).

"A multi-technology approach would deploy FTTP, FTTN, FTTB/DP and HFC in addition to fixed wireless and satellite," the report said.

The plan envisions a split of 26 per cent FTTP, 44 per cent FTTN and 30 per cent HFC.

The NBN Co said that would result in 40 to 45 per cent of the fixed line footprint with speeds of at least 25 Mbps in 2016, 90 per cent with speeds of 50 Mbps in 2019 and nearly 100 per cent of the footprint with speeds of 25 Mbps by the end of 2020.

Read: Bill Morrow new head of NBN Co.

Connections would be upgraded over time. “The Strategic Review expects that NBN Co would not need to upgrade to a second access technology sooner than five years after construction of the first access technology,” the review said.

Between now and the release of a new corporate plan – due by July 1 next year – the NBN Co will develop a revised statement of expectations (SOE). NBN Co will engage with government and stakeholders to develop the SOE, according to the review.

After the release of the SOE, contract renegotiation with Telstra, Optus, vendors, contractors and RSPs will commence.

The strategic review was conducted over a period of five weeks. Deloitte, KordaMentha and the Boston Consulting Group contributed to the review.

The full review is on the NBN Co website.

Copper is key

In a media conference, NBN Co Chairman Ziggy Switkowski and Communications Minister Malcolm Turnbull stressed that the plan’s reliance on a decades-old copper network to reach households and businesses is not a bad thing.

Turnbull said the mixed technology approach was faster and cheaper to implement than FTTP.

FTTP is a “great technology,” he said. “The problem is it takes a very long time and costs a lot of money.”

“Australia is an island, but we don’t live in some sort of hermetically sealed technology bubble,” he said. “There’s a lot going on in the rest of the world, and what we’ve seen is extraordinary advances in the use of hybrid fibre/copper technologies.”

Copper will only be used for the last 400 metres or less, he said. In addition, Turnbull said the strategic review was conservative in building in the costs of maintaining the decades-old copper network.

The NBN Co reviewers “paid a huge amount of attention to [the state of the copper] and have I might say extremely conservative assumptions about the levels of remediation that would be required.”

Switkowski said the multi-technology plan would bring “25, 50 and 100 Mbps wholesale services to the telco industry earlier than other alternatives at the lowest cost according to our calculations, with greatest flexibility and optionality.”

The approach of upgrading networks over time will save money, he said.

“It is economically more efficient to upgrade over time rather than to build a future-proof network ... in a field where fast-changing technology is the norm,” he said. Turnbull said higher maximum speeds offered by FTTP do not necessarily mean more value for users.

“Speed is only of value to a customer insofar as it enables him or her to do something, and additional speed is only important to them insofar as it enables them to do something they couldn’t do with a lower speed.”

“Carriers have struggled to get any premium for higher speeds. There is a point for every customer when the marginal utility for higher speeds goes to zero.”

'Blind faith’

The NBN Co review found the previous corporate plan under the Labor government was “extremely optimistic and very unlikely to be achieved.”

It said there was “blind faith” in achieving the plan, despite “clear factual evidence to the contrary.”

The review found the brownfields FTTP rollout to be 48 per cent behind the planned premises passed in the corporate plan as of 30 September. At that date there were 227,483 premises passed, with only 153,977 of them serviceable, it said.

The revised outlook predicted that there would be 357,000 premises passed at June 2014 compared to the 1,129,000 goal in the corporate plan.

Turnbull said the state of the NBN was worse than he and the Coalition expected, which is why the estimated time frame in the strategic review is also less optimistic than what the Coalition predicted in its own policy statement—at least 25 Mbps by the end of 2016 at a cost of $29.5 billion, he said.

The Coalition policy was “written by us without the benefit of access to distinguished consultants like this and more importantly without access to what was happening in the NBN Co itself,” he said.

“I have to say the situation is much worse in the company than we assumed. We assumed they would be further ahead on their own [FTTP] construction than they in fact are.”

“We also assumed that the company would be able to start large-scale [FTTN] deployment about a year earlier than is assumed in this study.”

Broadband for the Pragmatist

IBRS analyst Guy Cranswick said the plan recommended by the review is “a sort of pragmatist’s broadband.”

“It will make telecommunications purists despair and they will draft responses as to why it’s a waste of money in the long run. It is what we have been prepared to get for the last three years. It may suit most users and quell the lobby that don't like large publicly funded projects.”

“Whether it needs another revision in two or three years remains to be seen. With NBN revising the forecasts is an ongoing job. Today has made it quite clear that NBN is not going to yield a network benefit for Australian organisations for another five to six years."

Cranswick said the numbers in the strategic review seem accurate.

“The numbers in this review seem from on-going calculations to be about right in relation to the higher cost of the plan,” Cranswick said. “The additional cost and the slow pace of the roll out are real problems.”

“What has emerged is that across both sides of politics over promising occurs, or being overly optimistic about outcomes. The Coalition plan to 2016 is not achievable but in line with their ideology they will not add more government money but raise debt through the markets,” he said.

“The sum of money is enormous and at the current rate of roll out it will take more than 25 years to complete. NBN was mostly funded by debt but if these new timelines and returns on investment may make the debt market nervous.”

The Competitive Carriers’ Coalition said the release of the strategic review provided needed certainty for competitors to Telstra.

“It was important for industry confidence that there has been a renewed commitment to a structurally separated, wholesale-only national network, and a new timetable for its completion,” the CCC said in a statement.

Communications Alliance CEO John Stanton also voiced relief.

"We are still digesting the analysis and recommendations, but we welcome the frankness of the review and the pragmatic approach to assessing the re-engineering options that now lie before us," Stanton said.

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4 Comments

bluetie

1

Turnbull: “I have to say the situation is much worse in the company than we assumed."

He probably had that line written even before he announced the very independent inquiry.

Trev

2

"The goal marks a delay from Labor's goal of 25 Mbps speeds for all Australians by 2016."

Shouldn't that be Liberal, not Labor. Same in the title blurb.

huh

3

latency and low upload speed will kill this plan before it is at the 3 year point let alone 2019

Fourbypete

4

So Malcolm, how many adsl modems are going to land fill?

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