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07 Apr

NBN needs another $20 billion of public money to finish rollout

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In the pipeline: NBN won’t be profitable until 2022. Photo: Glenn Hunt NBN chief executive Bill Morrow. Photo: Supplied

The federal government will have to plow another $20 billion into the national broadband network as it battles higher than expected costs next year.

And NBN Co has been forced to change plans for 1.5 million households to avoid a potential cost blowout.

Originally designed as 93 per cent fibre network, NBN was changed by the Coalition government to incorporate existing infrastructure to save time and money. However, it now appears fewer people are signing up to the NBN than expected and that the Coalition under-estimated the costs of connecting old cables.

While there should be 8.1 million active customers each providing about $52 of monthly revenues by 2020, the government-owned business won’t be profitable until 2022.

The Finance and Communications Ministers have released a new Statement of Expectations on Friday removing a requirement NBN Co build the network “within the constraints of a public equity capital limit of $29.5 billion”.

This limit will be reached next year and the government will have to provide a further $20 billion for total contribution of $48.6 billion by 2020 as NBN Co is unlikely to be able to borrow money on its own.

However, the government is committed to funding the project.

“The government has not yet determined what form this support would take if it were required and continues to assess a number of options to ensure the best possible value for taxpayers is achieved,” Finance Minister Mathias Cormann said on Friday.

A new corporate plan on Friday revealed 55 per cent of premises would now get fibre to the node, 27 per cent cable, and 21 per cent fibre (of which nearly half are yet-to-be-built new housing).

The company is meeting rollout forecasts it set itself last year.

“The NBN rollout is on track and on budget, having now built more than a quarter of the network,” a Communications Minister Mitch Fifield spokeswoman said on Friday.

However, NBN Co underestimated the cost of using existing hybrid-fibre coaxial [HFC] cables laid by Telstra and Optus in the 1990s. Last year it calculated an average cost of $1800 per house. But detailed field work discovered the cost was actually $2300.

“In April we signed a delivery agreement with Telstra utilising their vast knowledge and experience in hybrid fibre coaxial [HFC]. We have learned more about the complexity and costs of the HFC rollout,” a spokeswoman said on Friday.

NBN also discovered it was completely uneconomical to connect 1.5 million of the 4 million premises within the HFC footprint. Those premises will now be connected using fibre-to-the-node technology [FTTN], which may have slower download speeds.

In 2013 the Coalition estimated FTTN connections would cost about $900 per premise and this was raised to $1997 in a 2014 strategic review, and raised again in 2015 to about $2300.

The Coalition also estimated $29.5 billion of public money would last until NBN could borrow on its own, but the faster FTTN roll out means NBN Co is running out of money quicker than expected.

Earlier this week Australian Federal Police raided offices of Labor Senator Stephen Conroy looking for the source of leaks from NBN Co.

A spokeswoman for Senator Fifield said: “The Australian Federal Police operates independently from government”.

Meanwhile Labor’s Communications spokeswoman Michelle Rowland said the Coalition had “grossly underestimated the cost of having different technologies”.

She expects the operating costs for a network with FTTN and HFC to have much higher operating costs than the majority-fibre network planned by Labor.

She also claims a Labor-run NBN Co would have been able to borrow money already, saying the “internal rate of return would have been sufficient for us to be able to finance any shortfall”.

In 2010 Labor predicted NBN Co would start borrowing money in 2015. In fact, Labor expected NBN Co to get 33 per cent of its funding from debt markets by 2021 with an internal return of return of up to 8.8 per cent. On Friday NBN Co chief executive Bill Morrow revealed the current rate of return was 3.7 per cent.

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