NBN Co used extra $700m CapEx in final year of 'initial build'

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NBN Co used extra $700m CapEx in final year of 'initial build'

Says spend is a 'timing' issue.

NBN Co’s capital expenditure for the past year came in $700 million above forecasts, money the company said it brought forward from future years to perform network upgrades and connect up more premises during COVID.

The network operator produced revenues of $3.8 billion, slightly above the $3.7 billion forecast.

NBN Co also “surpassed activation forecasts by more than 250,000 premises and exceeded premises ready to connect forecast by more than 230,000 at 30 June 2020," it said in a statement.

But the larger premises count led NBN Co to exceed CapEx forecasts by some $700 million, clocking in at $5 billion instead of the forecast $4.3 billion.

CEO Stephen Rue said the additional CapEx investment was to be expected.

“When you connect more premises than the plan and where you obviously build out more premises than the corporate plan [targets], you spend more CapEx. You’d expect that,” he told a financial analyst briefing.

“In terms of the timing of CapEx, you will see a fall off of CapEx clearly in future years with the completion of the initial build.”

Quizzed later in the call on whether the extra $700 million spend amounted to a further "blowout" of the total cost of the network - which last increased to $51 billion in 2018 - Rue indicated this was not the case.

“There's always lots of ‘timings’ in our plans,” he said. 

“There's timings on revenues being better than what we said and on OpEx being better than we said, and there's a lot of timing in terms of things like … capital spend.

“What you see is the timing of expenditure between years. We are on target for what we laid out in the 2020-23 Corporate Plan.”

Rue’s comments appeared to indicate that the next Corporate Plan - which could arrive as soon as the end of this month - will come with some rebalancing of CapEx between forward years to 2023.

However, as was the pattern at NBN Co’s last quarterly results outing, Rue deflected a number of questions around financial projections, saying he would only answer them when the new Corporate Plan is released.

This included questions around the future profitability of business services as well as the rebalancing of CapEx.

It’s worth noting NBN Co has previously described CapEx fluctuations as “timing” issues, such as last year when there were arguments over the status of $200 million in planned wireless CapEx.

Bandwidth bonus will end 

On a different topic, Rue used the results call to confirm that NBN Co will discontinue bonus connectivity virtual circuit (CVC) arrangements later this year.

The up to 40 percent bonus has shielded retail service providers (RSPs) and end users from extra costs and performance issues when broadband usage substantially increased due to COVID-related lockdowns.

Rue made the case for the bonus to end in part by arguing that data demand was increasing even without COVID, meaning usage and costs would have been expected to rise anyway.

He also said it was important for NBN Co to revive the revenue stream from CVC essentially, so the “business [can] make a sufficient level of return.”

“We will continue to work with the industry on this, but frankly what we will be doing is taking off the 40 percent very short term temporary measure, and we will look at the best way to support obviously our needs for a strong cash flow with the industry needs as well and the needs of consumers,” Rue said.

“We'll certainly be working with retailers in the coming weeks and months around those topics.”

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