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Turnbull welcomes NBN 'to the real world'

Communications minister Malcolm Turnbull announces "the truth" of the broadband rollout according to the new strategic review of the NBN.

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A $29 billion blowout in the funding needed to complete the original national broadband network has forced Communications Minister Malcolm Turnbull to abandon election promises, admitting the company would no longer be able to finish the first stage of the network by 2016.

Initial plans to limit network construction costs to government funding may also be threatened, with new funding models put forward by NBN Co looking much like Labor’s current estimates.

Malcolm Turnbull.

Malcolm Turnbull. Photo: Rob Homer

In a much anticipated strategic review released publicly for the first time on Thursday, NBN Co said it would cost $33 billion to roll out a mix of technologies, slightly less than the existing $37.4 billion project.

But in a damning assessment of the former NBN Co management and Labor’s policy, the company argued that the current financial estimates were wrong, and that the project would cost $72.9 billion in funding – instead of $44.1 billion - and take three extra years to complete.

The review provided the first full assessment of the state of the massive infrastructure project and recommended steps to complete the project, but revealed for the first time holes in Labor’s broadband policy, and cast doubts over NBN Co’s ability to meet the Coalition’s broadband policy assumptions.

The 134-page document, written by NBN Co’s new management and consulting firms, was critical of its predecessors, saying that, while there were no “material issues” with the company’s financial accounts, the plan relied primarily on “blind faith” and was extremely optimistic.

It said that, whereas the current plan was to spend $37.4 billion in capital expenditure on the project, it would actually cost $55.9 billion. The $44.1 billion in peak funding previously estimated by NBN Co would need to increase to $72.9 billion to finish the project by 2024 due to construction delays and decreased revenues.

Much of it, the assessment suggested, would come from debt funding which it said would be nearly impossible to attain without a government guarantee.

“Based on overseas experience it is possible to radically redesign the NBN Co FTTP deployment to reduce the cost per premises,” the review said.

Consultancy KordaMentha, which conducted an independent assessment of NBN Co’s financials, primarily blamed NBN Co’s management.

It also suggested that the 3000 staff currently tied directly to NBN Co were significantly more than required.

“The Independent Assessment found that NBN Co has attracted a committed, motivated and generally capable group of people who want to do important, meaningful work,” it said.

“It concluded that the culture and leadership of the organisation are widely seen to be a major problem and that the organisation is currently carrying a level of overhead and headcount predicated on the achievement of the corporate plan, which is in excess of current requirements.”

Reviewed outlook

The review, which appeared designed primarily to justify the Coalition government’s preferred technologies, suggested it would switch to a mix of technologies in a bid to complete the network by 2019.

In addition to the existing fibre cabling being directly connected to homes and businesses in some areas, NBN Co would roll out fibre to the node technology, using Telstra’s existing copper network.

It would also retain the cable broadband networks owned and operated by Telstra and Optus, upgrading them to pass 3.4 million homes and attain faster speeds than currently available.

The revised plan would cost $33 billion in capital expenditure, up from the $20.4 billion the Coalition assumed in its April policy, and required peak funding of $41 billion, nearly identical to the $44 billion Labor said it would require for its own project.

The Coalition admitted that its previous goal of providing a minimum 25 megabits per second broadband speeds to all Australians by 2016 would not be achieved.

“We need to start now. There is nothing that can be delivered by 2016 by anybody,” NBN Co executive chairman Ziggy Switkowski said.

The strategic review recommends NBN Co begin immediately to seek new interim arrangements with Telstra on the use of its copper network and prepare for re-negotiations with Optus, Telstra and NBN Co’s construction partners.

NBN Co itself will have to change many of its processes, including operational functions, procurement, delivery and operations, the report says.

The report says a “major transformation” of NBN Co is required to improve coordination between the different segments of the business.

“Clear executive accountabilities are required, combined with a strong transformation infrastructure which actively manages an integrated program of work,” the report reads.

The review said it could optimise the rollout and reduce the cost of rolling out fibre to the home. However, selective redactions from the report meant NBN Co did not release its estimates for a lower-cost fibre rollout.

Mr Turnbull said the government had requested no redactions from the document while Dr Switkowski said it was looking to keep commercially sensitive numbers from public view.