Coalition NBN to cost $41bn, miss delivery dates

The Coalition is already predicting an $11.5 billion blowout to the cost of building its version of the national broadband network, but says it will still cost less than Labor's scheme.

The 132-page strategic review (pdf), approved by NBN Co's board today, paints the former plan as headed for massive cost and time overruns, including a $19 billion overrun in capital expenditure and a three-year delay to the planned completion date.

However, the Coalition's own pre-election pledges proved overly optimistic, with costs expected to come in at "around" $41 billion rather than the promised $29.5 billion. 

The 2016 forecast to bring 25 Mbps to all Australians has also been canned. Instead, the Coalition predicts it will be able to bring download speeds of up to 25 Mbps to 43 percent of premises in Australia's fixed-line footprint by that time.

The Coalition's approach "should also be able to deliver access to wholesale speeds of up to 50 Mbps to 90 percent of Australia's fixed-line footprint and wholesale speeds of up to 100 Mbps to 65-75 percent by 2019".

The Coalition will only guarantee these speeds to NBN Co's wholesale customers — internet service providers. There will no longer be a guarantee of what each end user will see in terms of speeds delivered to the home.

Communications Minister Malcolm Turnbull blamed Labor for the blowouts and optimistic delivery schedules promised by the Coalition.

"The massive financial commitments inherited from Labor, continued deterioration in the rollout schedule, the time needed to pilot new technologies and the restructuring of NBN Co required to address the problems detailed in the review have significantly increased the cost of a viable alternative approach to the NBN," Turnbull said.

He told journalists the Coalition's policy "was written without access to what was happening in the NBN Co itself." 

"It was a very good effort given the circumstances in which we found ourselves," Turnbull said. "The situation in the company is far worse than what we had assumed [pre-election]."

Turnbull said the government would work with NBN Co to "search for ways to accelerate the rollout in its early years" as a concession for not being able to meet his 25 Mbps by 2016 pledge.

Switkowksi told journalists today the review was "not a business plan. That [will] follow from the government's response to the strategic review," he said.

A revised statement of expectations from government is expected, as is a corporate plan before the end of the financial year.

The new plan — and assumed start dates

Interim NBN Co CEO Ziggy Switkowski said the company would invest in "the right technologies at the right time, by translating a long-term milestone into a rolling series of realistic and actionable near term plans".

He characterised the approach as MTM — multi-technology mix — which he said would consist of "a network of networks".

A "high-level assessment" of the technology mix shows fibre-to-the-node or basement is likely to account for between 44 and 50 percent of premises in the fixed-line footprint; FTTP would cover between 20 and 26 percent of premises; and about 30 percent would stick with hybrid-fibre coaxial (HFC) connections.

FTTN deployment is expected to start in the second half of calendar year 2015, according to the review. Work will start "with a small trial and then scale up to full rollout speed by early calendar year 2018".

Vectored VDSL deployments are likely to begin in the second half of calendar year 2016. FTTP rollout to brownfields premises will continue as far as calendar year 2018. After that, fibre will be reserved for greenfields areas and "fibre-on-demand" — which will allow users to pay for last-mile fibre connections.

Fatter contingencies

Turnbull attributes part of the expected cost increase for the Coalition's network to a rise in the contingency on all capital expenditure, from 10 percent to 20 percent.

"The higher contingency reflects the inherent risk and complexity associated with projects of this size and scale as evidenced by global experience, and the findings of the [review]," the strategic review states.

The independent assessors of the current NBN raised concerns that a 10 percent contingency was a "significant risk" on such a long-term project, where "cost overruns and delays are the norm".

Job cuts?

The strategic review foreshadows job cuts at NBN Co, though Switkowski indicated it may not necessarily result in job losses. NBN Co has 2956 staff split across six offices.

"The question is how far can we grow into that headcount," he said. "I don't anticipate any near-term action around headcount. That is not our big problem."

The review said NBN Co "is currently carrying a level of overhead and headcount which is in excess of current requirements as they are predicated on the achievement of the corporate plan".

Interviews with staff by KordaMentha found NBN Co "had attracted a committed, motivated, generally capable group of people who want to do important, meaningful work."

"NBN Co staff often speak about 'living in the political and media fish bowl' and it is clear that this has adversely impacted the organisation," the review noted. "NBN Co would benefit from being allowed to focus on its core task away from the political spotlight."

"The culture of the organisation is widely seen to be a problem."

Cultural issues uncovered by the auditors included "fears of contradicting senior staff and mistrust in the motives of some leaders".

The auditors also "observed that a fear of being blamed for mistakes has generated a lack of willingness to accept responsibility in some functional groups".

The review criticises the rigour of "hiring processes" and the organisational structure.

By contrast, the review finds no "fundamental shortage of labour" in the market to be able to build out the network.

Redactions

Several parts of the 132-page report are blacked out. They include reasons for setbacks to construction of the current NBN, including "delays in dealing with Telstra".

Also redacted are expected costs per premise under the Coalition's rebooted NBN strategy, as well as costs per premise for fixed wireless and satellite under the previous NBN scheme.

Direct operating expenses compared to actuals in the corporate plan is completely cut, as is an entire section relating to contractors and disputes they are embroiled in with NBN Co, including with Visionstream in Tasmania.

Costs to remediate Telstra's copper network to make it FTTN-ready are also removed.

Turnbull said the "number of redactions are very modest" compared to documents prepared under the former NBN.

He said the government had not sought any redactions, and that redactions included were all sought by NBN Co.

"We persuaded the company not to press for all of [the redactions they wanted], so there are fewer redactions there than what NBN Co would actually have liked".

"The minister's attitude to redactions was to publish the whole report, unredacted," Switkowski confirmed.