Turnbull breaks NBN promise: Less than half to get 25Mbps in 2016

NBN Co's strategic review has decided that a mixture of technologies, including fibre to the node (FttN) and use of existing hybrid fibre-coaxial (HFC), will help save an estimated AU$32 billion on the cost of the National Broadband Network (NBN) that was now predicted to cost AU$73 billion under Labor's plan.

The strategic review (PDF), released to the public by NBN Co and Communications Minister Malcolm Turnbull today, paints a dire picture of the state of the existing rollout. According to the review, the network would have cost AU$73 billion, and would not have been completed until mid-2024. This is in direct contrast to the final NBN Co corporate plan put together by the previous NBN board, which indicated that the network would be completed at the end of 2021, and would not cost more than the already estimated peak funding requirement of AU$44.1 billion.

"In a nutshell, you can see the project is in much worse shape than had been represented by the previous government," Turnbull said.

"You can see that what was happening before was as the rollout continued to disappoint, all that was happening was the trajectory was getting steeper so you could meet the date."

Under a new proposal, NBN Co will now look to deploy a "multi-technology model" combining around 24 percent of fibre to the premises (FttP), 41 percent on fibre to the node, and 28 percent on HFC, with the remaining to be served by fixed-wireless and satellite services, which will cost AU$41 billion, including AU$15 billion of investments already locked in.

NBN Co executive chairman Ziggy Switkowski said that the review showed that technology used in the NBN would not need to be upgraded for at least five years after construction.

"The NBN would not need to upgraded sooner than five years of construction of the first access technology," Switkowski told journalists.

"It is economically more efficient to upgrade over time rather than build a future-proof technology in a field where fast-changing technology is the norm."

In the government's first major broken promise on the NBN since the election, NBN Co has said that it will be unable to deliver 25Mbps to all Australians by the end of 2016, instead stating that approximately 43 percent of premises will have access to 25Mbps download speeds at the end of 2016, and 91 percent of premises will have access to 50Mbps by the end of 2019. The report estimates that between 60 and 75 percent of premises would have access to 100Mbps download speeds by 2019.

But NBN Co has said that the download speeds will no longer be guaranteed to end-user premises. In the press release accompanying the review, NBN Co said it would be designing a "new-look NBN" to provide the guaranteed speeds to NBN Co's wholesale customers, while end-user speeds will depend on factors outside of NBN Co's control, including end-user equipment quality, software, broadband plans, and the ISPs.

The review claims that under the current forecast, only 22 percent of premises would have had access to 25Mbps by 2016, and only 57 percent of premises would have had access to 50Mbps or 100Mbps by 2019.

Turnbull said that the broken promise was due to the Coalition not having access to the full detail of the state of the company prior to the election.

"Our policy was obviously written by us without access to what was actually happening in the NBN Co itself. It was a very good effort, given the circumstances we found ourselves. The situation is much worse in the company than we had thought," he said.

"We assumed they would meet their forecasts, and we also assumed the company would be able to start large-scale FttN deployment about a year earlier than this study."

Areas with worse broadband speeds in Australia could expect to see upgrades two years sooner than the current proposal, according to the report.

The report also censored the expected cost per premises passed for each of the different technologies, unlike the former government, which estimated that the cost per premises passed was AU$2,500. Turnbull said that the redactions were made at the request of NBN Co.

"The company requested a number of redactions; we requested none. There are fewer redactions than [NBN Co] would have liked. We persuaded them to live with less. This is a business, it has a lot of negotiations ahead of it, so there has to be caution there," he said.

Switkowski said that "no normal business" would have disclosed the cost per premises passed.

"The cost per premises multiplied by 10 or 12 million premises are billion-dollar variations, and have ramifications for the whole supply chain and our relationship with partners, which we are trying to repair and negotiate [with]," he said.

"I think the transparency should be evident in the documents you have access to. No normal business would disclose this kind of information. We've struck what we think is a reasonable balance."

The document estimates operating expenses for between AU$35 and AU$55 for each FttN premises per year, including between AU$10 and AU$20 for electricity and between AU$25 and AU$35 for remediation of the copper line. Turnbull said that the assumptions on copper remediation are "very conservative".

"It is quite clear from the document that the assumptions are very conservative. A lot of people were saying the Coalition have not given any thought to the remediation of the copper. We did, but this team have. They have approached it in a much more conservative way than BT's experience," he said.

NBN Co is expected to take a one-off hit of between AU$110 million and AU$180 million to fix the OSS/BSS systems to be compatible for fibre to the node, and a one-off hit of AU$70 million and AU$110 million to allow the OSS/BSS systems to be compatible with the HFC networks.

The report assumes that NBN Co will gain access to Optus' and Telstra's HFC in the second half of 2015, and will be worked on over the next four years. It also assumed that there will be a small fibre-to-the-node trial in the second half of 2015, with a full rollout by 2018.

The timing suggests that the premises that will have access to 25Mbps download speeds by 2016 will either be the existing houses covered by fibre to the premises and fixed wireless, or those covered by the HFC network.

Switkowski said he doesn't think that in the short term, there will be any redundancies in NBN Co, but he said that NBN Co would look to ensure that it has the right skill set for its workforce.

"I, for one, do not anticipate that there won't be any near-term action around headcount," he said.

"My head is not around attempting to rationalise the employment levels within NBN Co. That is not a major issue, even though I acknowledge the headcount is [higher]."

Switkowski said the company would focus on improving the culture in NBN Co.

Following the delivery of the report, NBN Co will now work on a new statement of expectations and a new corporate plan to be approved before July 1, 2014. NBN Co will establish a transformation office, work to improve the existing fibre-to-the-premises delivery model, prepare for the new multi-technology approach, and assess the IT changes required and the personnel requirement. NBN Co will also be preparing for new commercial negotiations, which will commence once the new statement of expectations is issued.