Turnbull reflects on 'killing the dream' of NBN 'fibre fanatics'

Communications Minister Malcolm Turnbull has warned of ongoing risk in the National Broadband Network (NBN) a year after coming to office, and claimed that there is no evidence that the cost of rolling out fibre to the premises (FttP) is declining, despite NBN Co's claims to the contrary.

Speaking today at the National Conference on Corporate Turnarounds and Transformations, Turnbull reflected on the NBN in the first year since the election of the Abbott government in September 2013. He said that while the fibre rollout has picked up pace in the last year, during which the government and NBN Co went through a number of reviews, a change of board and management, and a move to a "multi-technology mix" model that requires testing of fibre to the node and hybrid fibre-coaxial (HFC), the pace of the changeover has not been as fast as the government expected.

"While some of the changes at NBN Co were slower than we would have liked, the turnaround we now see under way is dramatic indeed, when compared to the company's lowest ebb, which came a few months after the change of government," he said.

Turnbull blamed much of the delay on problems within NBN Co, including problems with the address database, interim satellite service, and fixed-wireless rollout. He said that NBN Co itself also didn't know the actual cost per premises of rolling out fibre to the premises, despite the fact that it is highlighted in many of the company's presentations and internal documents.

"We were surprised to find that nobody inside NBN Co was quite certain of the real cost per premise of its fibre rollout — the most important cost in the rollout. This was because information was siloed and the data needed to accurately calculate this cost was available for only about 30,000 premises," he said.

The changes executed under the management of new CEO Bill Morrow and his executive team, and the move to the multi-technology mix, would mitigate much of the risk associated with the NBN project, but Turnbull said it is still a risky venture for the government.

"Costs remain a key risk, and continue to be very high. NBN Co is burning through close to AU$100 million a week at present, and on current trends will have drawn down 46 percent of its total available equity by June 2015 (when the rollout is estimated to extend to only 10 to 12 percent of premises)," he said.

Integrating the BSS/OSS systems with HFC, fibre to the node, and fibre to the basement would be risky, as would ensuring the scalability of the BSS/OSS systems to the entire NBN.

Despite evidence obtained by ZDNet and confirmed by Morrow that NBN Co is bringing the cost of fibre to the premises down, Turnbull also claimed that there is "no evidence" that the cost per premises for the FttP and fixed-wireless components of the network rollout are declining.

He said that regulatory decisions such as the TPG decision last week also put the investment at risk, and said that an increased uptake in wireless services would threaten the NBN's financial model.

"While fibre fanatics love to scoff at anyone who dares suggest wireless will ever be competitive with fixed-line access, the work of Clay Christiansen tells us (if we had not worked it out already) that often, a 'good-enough' offering beats a technically more advanced offering because of lower cost and greater convenience," he said.

"Wireless may prove a formidable competitor, perhaps sooner than expected — which speaks to the value in avoiding laying too many costly FttP fibre lead-ins to users who don't really need them."

He said that a big risk in the NBN came from "inflated political and public expectations", which came as a result of the former Labor government conflating access to fast broadband with fibre to the premises.

"Sometimes I fear that every mayor in Australia thinks the project will turn their town into Silicon Valley. People with perfectly good broadband connections today — for example, over HFC — have been brainwashed to believe that their world will be changed forever if they get fibre to the premises," he said.

"Yet, the truth is that for the 50 or 60 percent or so of Australians with good broadband today, the NBN will often be indistinguishable from what they already have, assuming their current line speeds are sufficient to run the applications they need and value. They'll wonder what all the fuss was about — and why the NBN is costing so much and taking so long."

Turnbull reflected at the reaction to his change to the NBN rollout, and said that "bringing a sense of reality to a beautiful dream is never going to invite popularity".

"Many people remain incensed that we've killed that dream to save a mere AU$30 or AU$40 billion," he said.

"On the other side of the argument are people who say the project should have been shut down. Leaving aside the political dimension, we were satisfied that the cost of shutting it down was at least AU$15 billion and likely quite a bit more."

Turnbull said he is confident that the current direction for the NBN is "the right one", and said that the management and board in place is the right team.

Turnbull confirmed that NBN Co would release a three-year rollout schedule for the multi-technology mix NBN early next year, but Morrow has previously indicated that the company will not know until the company reaches each new area what technology it will be using in that area.