NBN to cost up to AU$56bn in peak funding

NBN has announced that it will cost between AU$46 billion and AU$56 billion in peak funding to roll out Australia's national broadband network.
Written by Corinne Reichert, Contributor

The company rolling out Australia's National Broadband Network (NBN) has released its three-year corporate plan, revealing that the peak funding cost for the project will reach between AU$46 billion and AU$56 billion, with a base case peak funding target of AU$49 billion.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) will continue falling, from the AU$1.5 billion loss announced for FY15 out to a AU$2.9 billion loss for FY18. Cash flow will also decline as capital spending ramps up, from the AU$4.8 billion loss reported for FY15, down to AU$9.7 billion forecast for FY18.

Average revenue per user (ARPU), however, will increase from AU$40 in FY15 up to AU$44 by FY18.

Operating expenditure was reported as being AU$1.6 billion in the financial year ending June 2015, forecast to grow to AU$4.6 billion by FY18. Capital expenditure reached AU$3.3 billion in FY15, predicted to increase to AU$5 billion by the end of FY18.

The Coalition's so-called multi-technology mix (MTM) NBN model aims to cover 20 percent of the Australian population with fibre to the premises (FttP); 38 percent with fibre to the node and fibre to the building (FttN/B); 34 percent with hybrid fibre-coaxial (HFC); 5 percent with fixed wireless; and 3 percent with satellite services.

"Due to the long-term uncertainties, management is forecasting a range of possible outcomes. The corporate plan, together with an initial forecast of years beyond FY18, estimates a peak funding in the range of AU$46 billion to AU$56 billion," the company said on Monday.

"Management are targeting a base case peak funding of AU$49 billion, which includes a contingency of AU$4.6 billion for unforeseen risks inherent in a complex infrastructure build over multiple years. This contingency is intended to cover revenue, operating costs, and capex risks."

The risks taken into account by the company cover capability and capacity to deal with the scope, scale, and complexity of the rollout; implementation of the HFC deals with Optus and Telstra; rollout activations; reaching revenue targets; and unknowns.

Australian Minister for Communications Malcolm Turnbull claimed the project would have cost around AU$30 billion more had the government retained Labor's pure FttP NBN model.

"The corporate plan shows that the multi-technology mix remains the most cost- and time-efficient means of completing the NBN, delivering upgrades six to eight years sooner, and at around $30 billion less cost than an all-fibre to the premises alternative," Turnbull and Finance Minister Mathias Cormann said in a joint statement on Monday.

"The government's broadband policy is technology agnostic. NBN Co is free to use whatever mix of technologies is required to get the job done as quickly and cost-effectively as possible. The company therefore has, in the light of its extensive experience building FttP, determined what the peak funding requirement and time to complete would be for an all-FttP build.

"The company's conclusion is that an all-FttP approach, as proposed by Labor, would have a peak funding requirement of $74 billion to $84 billion and would not be finished until as late as 2028."

Premises ready for service as of the end of June 2015 numbered 1.213 million, with 9.062 million predicted by FY18. Premises activated numbered 486,000 by the end of FY15, with this to reach 4.395 million by FY18.

However, beyond 2018, NBN is forecasting EBITDA growth thanks to increasing revenue off the back of more network activations. In regards to the company's long-term financial outlook, its internal rate of return is set to be 2.7 percent to 3.5 percent extrapolated out to FY40.

NBN had released its results for FY15 earlier on Monday, reporting that over the past twelve months to June 30, NBN has grown revenue to AU$161 million, from AU$60 million last year; the number of premises connected to the network and ready for service jumped to 1.2 million from 553,000; and the number connected services moved from 210,000 to 486,000.

Despite the AU$1.5 billion loss, the company responsible for rolling out the National Broadband Network claimed in its full year results today that it has met significant milestones and its full year targets, as well as stating its rollout is gaining momentum.

"NBN has not only met its targets; it has exceeded them," Morrow said in a statement announcing NBN's results earlier on Monday. "These achievements come as a direct result of refinements we have made to the organisation, including improved business processes, the resetting of relations with our delivery partners, and increasing employee morale."

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