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NBN reports positive full year EBITDA once Telstra payments excluded

Adjusted EBITDA of AU$608 million wiped out by AU$2 billion in payments to Telstra and Optus.
Written by Chris Duckett, Contributor

The company responsible for deploying the National Broadband Network (NBN) across Australia has reported its full year results to June 30, with total revenue for NBN up 43% to AU$2.83 billion.

NBN also disclosed that its adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) hit positive territory for the first time, coming in at AU$608 million compared to the AU$103 million loss recorded last year, however this is before payments to Telstra and Optus are taken into account.

The company did not disclose the exact amount handed over to the telcos for access to their networks and ducts, but said it was "around AU$2 billion". Last year, the payments were AU$1.95 billion, and flowed into a proper EBITDA loss of AU$2.05 billion, and net loss of AU$4.78 billion.

NBN CEO Stephen Rue said the network would be completed by 30 June 2020, with the exception of greenfield builds, complex installation, and culturally significant areas and heritage sites.

"I cannot emphasise enough what a remarkable achievement this is," Rue said.

"Many years ago, we set out a plan to complete the build in 2020. Today, less than one year away, we can confirm we are on time and on budget."

See also: NBN moves into Layer 3 with Sky Muster Plus launch

Rue said the adjusted EBITDA number puts NBN on target to become cashflow positive.

"It is imperative that the company maintains its prudent financial management to ensure we can sustainably fund ongoing maintenance and operations of the network on behalf of customers, and to be in a position to upgrade the network as community needs develop over time," he said.

"We are making great progress with the Business segment contributing more than $388 million in revenue in FY19 and we expect this segment to remain solid and for residential and business customer demand for higher speed tiers to continue in FY20."

Capital expenditure on NBN was AU$5.9 billion, a 3% increase from last year, while operating expenses grew 7%.

On the connections front, NBN increased its customer numbers by 37% to 5.53 million, and connected nearly 3 million premises to its network in the twelve months to June 30.

Last month, NBN announced it had narrowly beat its own targets for the 2019 fiscal year.

For premises ready to connect to the network, NBN reported 9.93 million against a target of 9.7 million. NBN also reported, at the time, 5.52 million premises were activated on the network compared to its target of 5.5 million.

The company had previously planned to have 11 million premises ready to connect, and 6.9 million premises activated before revising its targets down.

Over recent weeks, NBN and Telstra had engaged in a round of finger pointing over which company was responsible for money disappearing from which company's balance sheet.

In July, NBN struck out at Telstra's complaints that the connectivity virtual circuit (CVC) charge that NBN puts on bandwidth needs to be scrapped and wholesale prices need to be cut by AU$20.

Read: Australia or Austria, the most expensive broadband plans belongs to one of them

Telstra CEO Andy Penn said at the time it was unprofitable for retailers to resell the National Broadband Network (NBN) at current prices.

"An industry where wholesale prices result in zero margins for the downstream retail providers is unsustainable," Penn said.

"It will result in higher retail prices, reduced competition and retail providers looking for ways to bypass the NBN altogether -- which is bad for customers and bad for the industry."

Rue hit back describing the wholesale price debate as "the industry gnashing about NBN Co's pricing model".

Rue said it should be remembered that NBN is serving the entire country, and it is not just about capital costs, but also ongoing costs to keep it running.

"Let's not forget that the sum of all NBN Co payments to Telstra was around AU$2 billion this year," Rue said.

"Our Corporate Plan points to a continuing payment to Telstra for access to ducts, dark fibre and facilities of AU$1 billion annually from FY21, representing 20% of forecast revenues, and continuing for decades after the build is completed.

"This has an obvious impact on wholesale prices."

ACCC chair Rod Sims entered the fray, and said the value of NBN should be ignored, in preference for how to make use of it.

"We must ignore those who worry about the value of assets that are sunk, and focus on how the NBN can best contribute to Australia," Sims said.

"A key NBN issue is entry level pricing. If the 12/1 service is priced the same as the old equivalent ADSL service then, we can be assured that those who want a better NBN service are prepared to pay for it, because they otherwise have the backstop of getting pre-NBN speeds and pricing."

Australian Finance Minister Mathias Cormann retorted that any potential write-down of the network would be a political decision, and not impact the Budget bottom line.

"A write-down would not impact surplus goal. NBN equity investment was classified as such when it was made," Cormann said last week.

"A write-down would not cause retrospective re-classification into a grant."

Cormann added that a write-down is the responsibility of the NBN board, and such action would shift the cost on taxpayers instead of customers.

"Those pushing for a political decision to write-down the value of NBN to facilitate lower prices and higher margins for other businesses are arguing that the taxpayer rather than customers should carry more of the cost burden of services provided by NBN and accessed by NBN customers."

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