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NBN fibre upgrade 'essential'

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David Braue and Lucy Battersby

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NBN Co's long-term profitability will be restricted without a full fibre network in coming years.

NBN Co's long-term profitability will be restricted without a full fibre network in coming years. Photo: iStock

NBN Co’s long-term profitability will be restricted if the Coalition’s proposed mix of cable, copper and fibre networks is not replaced with a full fibre network in coming years, government briefings reveal.

A draft confidential NBN Co report, prepared for the incoming government during the caretaker period and obtained by Fairfax Media, warned that it was "essential" for the Coalition to factor the cost of upgrading to a fibre-to-the-premises network into its financial forecasts.

The absence of high-capacity services on a fibre-to-the-node network would compromise NBN Co’s ability to achieve the 3.5 per cent growth in average revenue per user target set by the Coalition in its April 2013 broadband policy.

The revenue hit would be potentially so problematic for the Coalition’s policy, the NBN Co report warned, that the government should start planning for its own full-fibre rollout in its financial modelling.

"If adopting a long-term horizon, currently FY2040 in NBN Co’s business model, then a likely significant transaction to [fibre to the premises] will need to be factored into the model … to maintain growth," the report warns.

It would be essential for the Coalition to consider future upgrades in technologies if it wanted to achieve its target of 3.5 per cent annual growth, NBN Co found.

A major aspect of the Coalition’s policy has been to reduce the capital cost of building the network. However, the NBN Co report warns that long-term revenues were more important than short-term capital savings. The Coalition's policy calls for node designs to be ''upgradeable'' and for consumers to be given the option of paying for their own fibre connection, but does not include these costs in its financial forecast. 

A spokesman for Communications Minister Malcolm Turnbull said the strategic review currently before the minister will consider these matters in detail. The yet-to-be-released report was handed to the minister by NBN Co earlier this week.

Ian Robinson, deputy secretary at the Department of Communications, last week confirmed to the NBN select Senate Committee that ‘‘there are products that could be offered and are being offered on fibre-to-the-premises networks that probably cannot be offered on fibre-to-the-node’’.

NBN Co expected consumers to buy more and faster broadband services over time on a fibre-to-the-premises connection, with businesses expected to spend about seven to 10 times more than households.

Labor justified the NBN project on 30-year forecasts that predicted 60 per cent of the network’s revenue would come after the fibre rollout was completed in 2021. NBN Co projected annual revenue growth of 6.5 per cent, but the confidential report notes it was seeing growth of 4 per cent in real terms due to rollout delays.

Last week, Fairfax Media revealed the Coalition’s proposed alternative NBN model could reduce revenues by up to 30 per cent by mid 2021 because high-value customers were likely to look for faster and more capable services from competing private infrastructure.

"The drivers of [revenue] for NBN Co are higher speed tiers, which relate to increased usage profiles and therefore greater revenues," it warns.

"Achieving a level of [revenue] that will allow NBN Co to generate a profitable level of revenues is likely to take longer in a fibre to the node scenario … As the FTTN network provides lower speed and reliability of services, customers will be less likely to migrate to faster services."

62 comments

  • Well how surprising. Not. Why should the public pay for the Govt Fraudband that is already considered slow and out of date in other parts of the world.

    The only reason Abbott wanted a different service to Labor's was political, was to be negative. He is now, or rather his hapless Minister Turnbull is, having to defend the indefensible.

    Fibre to the Premise is a total crock and Turnbull should have the guts to come out and say that "look, hey, now that we are in Govt, we should do the right thing by the country and build the proper service that Labor was going to".

    Or maybe he should resign and just say that he can't stomach lying about it all the time and make a challenge for the leadership from the back bench.

    Commenter
    Rosko
    Location
    Hobart
    Date and time
    December 04, 2013, 2:47PM
    • With you all the way Rosko, but will Turnbull have the strength of character to admit he was wrong and switch to the Labor policy? I don't think so. He has made a Faustian pact with Abbott and I doubt he has the courage to break it.
      Paul Keating in his recent interviews talked repeatedly about the courage required to implement large scale changes in policy direction. In these times it is even more critical when an entire country's technological competiveness can be decided by one man who up till now has not displayed the foresight or the courage to change.
      This report covers costs and revenues over time, but no report has yet looked at how future Software applications will deliver services across the Internet. It is an absolute certainty in the web development environment that Internet Latency (the speed with which requests to and from servers are processed) will become a bigger problem on poor performing Internet networks than download speeds. Turnbull's focus on costs and download speeds is a completely misguided understanding of future Internet network requirements as it creates a mammoth Latency bottleneck.

      Commenter
      De Ja View
      Location
      Melbourne
      Date and time
      December 04, 2013, 5:03PM
    • Oops, you mean fibre to the NODE is a total crock.....

      Commenter
      Col'n
      Date and time
      December 05, 2013, 5:56AM
    • The saddest thing is, Turnbull knows better, but has to remain loyal to the boss or else.

      Commenter
      Scotty16
      Date and time
      December 05, 2013, 8:10AM
    • maximum profits to the service providers does not equate to good value for customers.Quite the opposite actually, despite their (obviously biased)protestations.

      Commenter
      Kane
      Date and time
      December 05, 2013, 11:51AM
    • 30% less revenue at 1/3 the cost.

      Commenter
      James
      Date and time
      December 05, 2013, 3:48PM
    • I think NBN would have been more profitable if they targeted the areas where take up would be instant: e.g. more populated, dense areas.

      Of course, as more rollout continue, and as Internet becomes indispensable to everyone, take-up will improve in other areas too.

      The risk has always been that the NBN could have been rolled out in metro areas and then canned for the rural areas - but if you start in places where people don't want the NBN - you aren't going to get more than the 1/3 that you've got now.

      Google Fibre, as a comparison, targets areas that REALLY want the network, and is profitable for every rollout. In fact they don't even start work without telling the entire neighbourhood that it's coming, and you can even get free 5mbit internet for life if you cough up the $200 installation fee to your home. Of course, as time goes on that won't be enough, and homeowners will upgrade to paid plans to get better service and that is a lot easier on a line that's already installed.

      The government wants to tackle the NBN that's all well and good. But if I hadn't seen Google Fibre I would have thought that a private company couldn't do it. Obviously that's not the case. A private company can do it, do it faster, and do it profitably.

      Commenter
      John
      Date and time
      December 05, 2013, 9:36PM
    • Yes!! Ooops!! Fibre to the Node is a total crock!!

      Commenter
      Rosko
      Location
      Hobart
      Date and time
      December 06, 2013, 9:20AM
  • So why are we doing this again?

    Commenter
    Maddi
    Location
    Melbourne
    Date and time
    December 04, 2013, 2:53PM
    • The Coalition wont care as their primary aim is to save money in the short term. It's incredibly short sighted, but their entire platform is based on scaring people into thinking they're saving the public money.

      Ultimately though, the Australian tax payer cops it, as the work will need to be done again at twice the cost when they're booted out of Government.

      Commenter
      Matt
      Location
      Melbourne
      Date and time
      December 04, 2013, 2:57PM

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