NBN narrows in on rollout cost, future revenue

Cuts maximum forecast of rollout cost

An update to NBN’s corporate plan reveals that the worst case scenario for completing the National Broadband Network rollout is somewhat better than it previously expected. Although NBN still expects peak funding for the rollout to be $49 billion, ­the worst case scenario is $54 billion, compared to $56 billion in the previous corporate plan .

The figure is still substantially higher than that the estimate contained in a review of the NBN rollout conducted after the Coalition won the 2013 election. That review, used to justify a switch from an all-fibre network, estimated that a 'multi-technology mix' (MTM) NBN could be rolled out by 2020 with peak funding estimated at $41 billion.

The update to NBN’s corporate plan has also revealed that the company's expected internal rate of return (IRR — a figure that indicates a return on investment) is between 3.2 per cent and 3.7 per cent. The 2016 corporate plan included a projected IRR of 2.7-3.5 per cent.

The updated plan for the first time includes revenue projections through to the expected completion of the rollout in 2020. In FY20, NBN expects revenue of $5 billion and EBITDA of $2.2 billion (discounting payments to Telstra and Optus to migrate their customers to the network, which reduces EBITDA to $700 million).

Average revenue per user (ARPU) on the network is expected to grow from $43 in FY16 to $52 in FY20, the corporate plan states.

An expected increase in user consumption of data is a key driver for ARPU, NBN CEO Bill Morrow said today. The company has revised upwards expected downloads per user.

“As it stands right now today, users on the NBN network download 131 gigabytes per month per end user,” the CEO said. “That’s an increase from what we thought – 98 gigabytes. So that’s a substantial increase.”

Morrow said increased usage will help drive down the per megabit per second capacity charge levied on retail service providers — NBN’s CVC (Connectivity Virtual Circuit) charge — under the network operator’s dimension-based discount scheme.

“Retailers can therefore push more data and make it more affordable to end users because they will have a lower unit price as they go forward,” Morrow said.

In addition to data consumption growing, Morrow said that NBN was looking to increase its revenue from business services.

“With the further research that we’ve been able to do, there is interest from our retailers [in] us providing the infrastructure to serve the business community,” the CEO said.

“We expect that business end users will be about 10 per cent of the final footprint in the year 2020. Now this business segment ARPU is naturally much higher than you’ll find in the residential side. And of course we will continue to evolve the development of our products to make sure that it meets what our retailers need to serve those business customers.”

Funding the rollout

The corporate plan does not go in to detail about how NBN will bridge the gap between the $29.5 billion peak funding commitment from the government and the total cost of the rollout. The company has previously indicated it is confident it will be able to raise debt to cover the gap.

The government’s equity cap is expected to be hit at the end of the current financial year.

“During the rollout period nbn will seek to raise debt to complement Commonwealth equity,” the updated corporate plan states. “Following completion of the rollout, nbn’s Board, in conjunction with the Commonwealth, will consider the optimal capital structure.”

“Management, in consultation with the Shareholder Ministers, continue to review nbn’s debt funding options in anticipation of debt funding requirements by the end of FY17,” the document sates. “Market capacity, and the risk appetite of debt investors from time to time, may limit or increase the amount of debt that nbn can actually raise. Any such variation would require revising the funding plan at the time.”

“NBN is fully funded for this entire financial year and we are already in the process of securing external debt as we speak right now,” Morrow said today.

“We have already contacted the credit rating agencies to get a credit rating, which is naturally the first step in raising any sort of debt,” the CEO said.

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