MARK GREGORY. AUGUST 30, 2019
Trouble ahead: The new NBN Co Corporate Plan charts a course through doomed waters
The NBN is in trouble and the problems are highlighted in the NBN Co Corporate Plan 2020-23. Rollout delays, cost blowouts and an admission that it will not become cash flow positive until 2023 are the tip of the iceberg for the government business enterprise charged with building Australia’s largest infrastructure project.
Over the past five years, NBN Co has been guilty of minimising or lowering rollout and financial projections, missing or delaying revenue targets and failing to provide consumers with a reliable, future-proof NBN that will meet consumer needs beyond 2030.
Having projected the cost of the now obsolete copper based multi-technology mix NBN at $51 billion, NBN Co has once again failed to indicate where the $14-16 billion needed to upgrade the NBN to an all fibre network will come from.
NBN Co has now projected that it will be cash flow positive for the first time in the 2023 financial year. This is based on a reduction in the number of activations from 7.5 million to 7 million in FY20 and an increase in capital expenditure in FY22 from $1.2 billion to $1.4 billion.
The EBITDA projections highlight the downgrading of the financial results forecast. In FY21, the EBITDA projection has reduced from $1.3 billion to $0.8 billion and for FY22 the EBITDA projection is now $2.4 billion, a reduction of $100 million.
The financial projections for FY20 and FY21 have been lowered to $3.7 billion, reduced by $200 million, and $4.9 billion, reduced by $300 million.
Last year, NBN Co projected that the average revenue per user (ARPU) would rise from $44 to $51 by FY22. In the new corporate plan, NBN Co has projected “residential ARPU is expected to grow from $44 in FY19 to $49 in FY23.”
The ARPU reduction highlights the financial problem facing NBN Co.
To paint a rosy picture, NBN Co has been steadily reducing financial projections and delaying outcomes. NBN Co has loudly spruiked that it beat its FY19 financial projection, however, this was the result of earlier projections being downgraded.
NBN Co chief executive Stephen Rue told analysts that “we don’t intend to break out business ARPU as we do not believe it is meaningful on a per-premises basis.”
“What we concluded was actually having an ARPU on a per-premises basis for business was increasingly a meaningless number, and a much better number to give people visibility – and this is more transparent frankly – is to lay out the actual revenue from business.”
What this really means is that NBN Co is making a concerted effort to shift the goal posts. If you cannot achieve figures provided in earlier corporate plans, you ditch the figures and come up with new projections that cannot be challenged.
NBN Co’s 2019 review of products and pricing is expected to be completed in November, and the anticipated result will be the introduction of a 100/20 Mbps product that is priced between the existing 50/20 Mbps and the 100/40 Mbps.
It is hoped that by introducing the inferior product that some consumers will be convinced to pay more for 100/20 Mbps.
However, service providers are already screaming about the high wholesale prices for NBN Co’s products and how this is detrimentally affecting the industry as a whole.
The discontent with the unreliable, obsolete and slow copper-based technologies has led to a rise in the number of small network providers offering FTTP and high-speed fixed wireless.
Whilst NBN Co acknowledge the growing number of consumers opting to go alternate network providers, a spokesperson has indicated that the leakage from the NBN is within current projections.
With 5G around the corner the number of disgruntled consumers opting to move away from the NBN could turn into a flood.
Whilst NBN Co spruiks the amount of optic fibre rolled out nationally at every opportunity, it remains mute on the amount of new copper purchased and rolled out in FTTN areas. The copper-based NBN technologies are largely obsolete and would have been replaced with fibre under the original plan to provide FTTP to 93 per cent of premises.
Amongst the OECD (developed) nations, Australia is now ranked last in figures recently compiled by the Commonwealth Parliamentary Library. Australia has fallen to 36th place in affordability rankings.
Based on international experience, if the Coalition government had continued with the FTTP rollout to 93 per cent of Australian homes, the rollout should have been completed in June 2020 at a cost of $46 billion.
Based on NBN Co’s figures, consumers could be moving across to the NBN as late as early 2022, making a mockery of NBN Co’s claims that the NBN rollout will be completed by June 2020.
The New Zealand Chorus chief executive Kate McKenzie, who will leave Chorus at the end of the year to return home to Australia, recently said “As we complete the once in a generation fibre network build and begin the process of decommissioning the copper network over the coming years, our capital expenditure commitments will reduce markedly and we will therefore see a commensurate improvement in cash-flows. I am most proud of the culture change at Chorus.”
“Of course, my one regret is I’d love to take the fantastic Chorus fibre network back home with me, but yeah, that’s probably not going to happen.”
Chorus, the New Zealand equivalent of NBN Co, is set to write down its copper assets by FY25 and has achieved a UFB (FTTP) uptake that increased from 45 per cent to 53 per cent in the UFB areas during FY19.
Globally, the shift to FTTP is now on in earnest and Australia could have been at the forefront of this move. Now, it is likely that NBN Co will not be in a financial position to begin replacing the copper-based technologies until 2025 at the earliest and it could take as long as another decade for the nation to have an all fibre NBN.
Australia is now set to have high broadband prices, unreliable and slow connections for at least 15 years. It is time that the Government acknowledges the blunder made in 2013 and takes urgent action to correct its mistake.
The alternative is unacceptable as the NBN in its current state will detrimentally affect job opportunities in the global digital economy.
Mark Gregory is an Associate Professor in Network Engineering at RMIT University and is the Managing Editor of the Journal of Telecommunications and the Digital Economy