A radical strategy shift has NBN Co hitting its stride

NBN Co's adoption of a lower-cost, less complex rollout strategy suggests the company is finally making progress after its troubled early history.

It may be too early to pass any judgement on the performance of the new board, management and mandate of NBN Co, but amid all the controversies and politics that have swirled around it, there are some encouraging signs of progress.

The statistics of NBN Co’s rollout of the national broadband network aren’t in themselves much of guide to that progress because of the immaturity of the process, particularly in the context of an $8.4 billion equity contribution from taxpayers in return for $61 million of revenue and a $1.64bn loss for the year to June.

There are, however, indications that the pace of the rollout is starting to accelerate and that NBN Co is more focused on actually delivering a useable service than on the politically-driven and near-meaningless statistics of homes passed.

The number of premises that can order an NBN service more than doubled from 227,000 to 553,000, while the number of active users leaped from a meagre 70,000 to 210,000.

NBN Co’s chief executive Bill Morrow has committed to a further acceleration of the build, saying 10 per cent of Australian homes and businesses would have the ability to connect to the NBN in the 2015 financial year.

To be fair, five years and the best part of $10 billion after Kevin Rudd and Stephen Conroy committed taxpayers to the NBN, one would have expected the pace of the rollout to be accelerating.

There is, however, a sense that the new team are far more in control (within a less politicised environment) than their predecessors, and that the shifts in the rollout strategy and the cultural change promised by Morrow and his chairman Ziggy Switkowski are starting to have an impact.

The biggest change to the nature of the rollout so far has been to abandon the "premises passed" statistic as the key objective. Instead of rolling out as much cable as possible without stopping to connect the users, it was passing actually installing the lead-ins and connection boxes as the fibre is being laid.

There are bigger changes to come as the mandate for a fibre-to-the-premises mandate has changed to a multi-technology mix that will use fibre-to-the-node as its core and, where it makes sense, the existing copper-based ADSL broadband infrastructure as well as Telstra and Optus’ HFC cables.

Once NBN Co has renegotiated its deals with Telstra and Optus, it will suddenly have a lot more active infrastructure, customers and revenue. It will be able to focus the rollout on areas which don’t have access to relatively high speed broadband, quickening the pace of the fibre rollout while lowering the cost and complexity of the NBN.

There remain critics of the change in strategy despite the evidence from NBN Co’s past performance, its own strategic review and the Vertigan Committee’s report this week that the fibre-to-the-premises approach would take far longer and cost far, far more than anticipated--  and deliver far more bandwidth than actually required over the next decade or so.

NBN Co has been instructed by Malcolm Turnbull to create a network (or a network of networks effectively) with minimum download speeds of 25 Mbps to all premises (with proportionate upload speeds) and at least 50 Mbps to 90 per cent of fixed-line premises.

So far, NBN Co’s experience with those premises that have been activated is that nearly 80 per cent have taken up products with download speeds of 25 Mbps or less and upload speeds of 5 Mbps – and nearly 40 per cent of them are on plans with 12 Mbps download speeds and 1 Mbps upload speeds.

With analysis commissioned by the Vertigan Committee forecasting that the median household would only require 15 Mbps by 2023, the top five per cent 43 Mbps, the top one per cent 45 Mbps and the top 0.01 per cent 48 Mbps, there is a built-in margin for error if demand for higher speeds has been underestimated.

NBN Co has also been instructed by the federal government to ensure there is an upgrade path to fibre-to-the-premises in case the demand for bandwidth exceeds the capacity of the multi-technology network.

The NBN Co strategic review and the Vertigan Committee both concluded that it would be cheaper to upgrade the network later than to continue building a fibre-to-the-premises network.

The fibre backbone of the network, being built by Telstra, is nearing completion, with 115 of the planned 121 point of interconnect brought into service and 51,728 kilometres of the eventual 65,000 of transit fibre laid.

The transit network will eventually connect all the NBN networks (fibre-to-the-premises, fibre-to-the-node, HFC, fixed wireless and satellite) to the NBN. It will enable NBN Co to expand its roll-out across regional areas and provide connectivity for the wireless and satellite networks.

Telstra is also, with NBN Co, trialling fibre-to-the-node in pilot programs in NSW and Queensland and getting initial download speeds of 95 to 97 Mbps and upload speeds of 28 to 34 Mbps.

It will have most of the 1000 nodes planned (covering 250,000 premises)  in place by the end of this financial year and be ready for a commercial launch, while NBN Co is also beginning preparations for upgrades to the Telstra and Optus HFC networks ahead of final agreement on the changes to their existing deals. In the meantime, it is still rolling out fibre-to-the-premises to avoid slowing the roll-out.

Morrow, a former Vodafdone Australia chief executive and renowned telecommunications industry trouble shooter, has only been in the role since April, but has hit the ground at pace, focusing initially on NBN Co’s management, culture and troubled relationships with its contractors.

By this time next year it will be easier to make assessments of the impact he and the constituted board and management team (and the radical change to the nature of the roll-out) have had. However, the early signs are that NBN Co is putting its troubled early history behind it and making quickening progress.