FttN NBN needs customers more than coverage: NBN Co report

Fibre-to-the-node (FTTN) technology might be faster to deliver in its early days than fibre-to-the-premise (FTTP) technology, a confidential NBN Co report has advised, warning that lower revenues from the Coalition's national broadband network (NBN) strategy mean "it will be important to prioritise activations over...any coverage objective."

“While FTTN architectures typically have a reduced construction period compared to the rollout of FTTP architectures, ramping up to a volume rollout of FTTN architecture will take time,” the report – prepared by NBN Co during the caretaker period to form part of the incoming government brief given to incoming communications minister Malcolm Turnbull – warns.

Noting that FTTN's limited product set would restrict the possibility of offering high-value services over such a network, NBN Co warned that the government would need to ensure that large numbers of users were switched over to any FTTN NBN as quickly as possible, so as to maximise revenues.

This would be important because the NBN has been costed based on the idea that rapid growth in the number of users would generate a revenue stream that would help fund the ongoing network rollout.

The speed at which the NBN can generate its own revenues is directly related to the amount of money the venture will need to borrow to complete its rollout. In modelling around the FTTP network, NBN Co advised, extending the rollout by two years "resulted in lower funding requirements, assuming everything else remained unchanged."

“This is because areas which have already become profitable can start to lower the peak funding requirement once a certain level of revenue contribution from these areas is achieved.”

"If lowering the peak funding requirement remains one of the main policy parameters, then it will be important to prioritise activations over and above any coverage objective."

Rollout speed has been a key aspect of the Coalition's broadband policy, which has been built around delivering a minimum of 25Mbps to all Australian premises by 2016 and at least 50Mbps to 90 percent of fixed services by 2019.

Rushing to meet these objectives – without ensuring a high activation rate – would lead to a revenue shortfall that would need to be made up for in the form of additional debt, NBN Co advised, noting that debt would be increasingly difficult to pay off given the reduced revenues of the FTTN model.

“Profitability will be achieved earlier if the period between the rollout of the network and the activation of end-users is reduced,” the report warns.

“However, if the time between network construction and end-user activations is extended, then peak funding requirements would likely be materially higher. This is particularly acute in the early years of the rollout as a number of elements of the NBN Co infrastructure are put in place.”

Implementation of the NBN transit network, fixed wireless and satellite networks, “high risk” IT systems, other “common capital expenditures” and “the buildup of NBN Co's overheads to support the rollout” would all impose a significant funding burden that could, the company advised, only be met if the FTTN rollout were to ramp up its revenue generating capabilities as quickly as possible.

That means maximising the number of subscribers on existing infrastructure in limited areas rather than funding the rollout of the entire network from the start, then waiting for subscriber numbers to build over time.

“In other words,” the report notes, “if lowering the peak funding requirement remains one of the main policy parameters, then it will be important to prioritise activations over and above any coverage objective; or, at least to maintain a close alignment between construction and end-user activation.”

Former NBN Co CEO Mike Quigley addressed the concerns in a recent speech in which he warned that the government should not let politics distort the costing and rollout of the network.

Turnbull has previously dismissed the report as “totally political” and out of date – despite subsequent evidence to the contrary – and has promised details of his network's cost and technological models will be revealed soon.

Turnbull recently received the findings of the strategic review but has delayed its release and defied calls by the Senate to make the document public. Turnbull's office has advised the report will be released before the end of the year.