NBN Co plots new course with nothing set in stone

NBN Co's 2014-17 corporate plan is now out in the open but, without the Telstra and the Optus deal signed and sealed, there's very little the company can do to accelerate the roll out of the National Broadband Network (NBN). With a disclaimer on every page, the current plan is almost certain to have a short shelf life. 

The latest NBN Co corporate plan is more a statement of intent than a concrete road map for deployment, which is understandable given that the NBN process has been recalibrated to fit the Coalition government's intended vision and access to Telstra's infrastructure continues to elude NBN Co.

The funding equation in play

The one aspect of the plan that has generated headlines is NBN Co's considerations around raising money from the private sector to ensure that the network is completed. It's a process that NBN Co has been engaged in for some time, with the baton changing hands from the old regime to the new.

According to NBN Co, it has held talks with domestic and international financial institutions to assess the chances of getting any money, once the government's $29.5 billion funding tap runs dry.

“[Building the NBN] will require NBN Co engaging in debt-raising activities towards the second half of this corporate plan period, for example, calendar year 2016-2017,” NBN Co said.

Just how much debt will need to be raised will depend on how much NBN Co can accomplish with the funding in hand and mollify the concerns of investors.

Here's the tentative game plan. According to the documents released yesterday, NBN Co is aiming to raise $2.5bn in debt during financial year 2018, which will be followed by a larger raising of $4.2bn in financial year 2019. 

NBN Co was always expected to tap the market for money, even under the Labor regime, with the 2013/2016 corporate plan stating that access to private sector debt would occur during the course of fiscal 2015.

"Under this scenario, Peak Government Equity will be approximately $30.4 billion. It is expected that debt funding will contribute up to 33 per cent of the total funding requirement in FY2021," the 2013/2016 plan said.

However, given the state of the rollout under the previous NBN Co management, it's unlikely that any investor would have been willing to tip a cent into the project at that time.

Having said that, the basic funding equation remains unchanged, with NBN Co's ability to raise external funding strictly tied to its performance. Meeting the rollout targets and the take-up of services remain the key metrics of NBN Co's credit quality. 

Everything is open to revision

The caveats spelled out in the NBN Co corporate plan are hardly surprising. There are still so many variables in play that even the stipulated multi-technology mix (MTM) approach is open to revision.

However, NBN Co has provided a general idea of what to expect and with Fibre-to-the-Premises (FttP) to be eventually consigned into an on-demand option, it's all eyes on Telstra for the preferred Fibre-to-the-Node (FttN) deployment.

The best-case scenario, presumably, is that once the Telstra deal has finally hatched, NBN Co will be quickly able to translate its blueprints into real connections and real revenue. Telstra will certainly have to play a part in facilitating that that translation but we won't have the full details until that deal is signed.

In the interim, the latest NBN Co corporate plan is careful to ensure that the company is not tied into any concrete commitment and with its projections tied to a series of assumptions (regulatory process, access to infrastructure, condition of the infrastructure, streamlining relationships with service delivery partners), NBN Co isn't banking on any of the outcomes outlined in the document.

Banking on HFC

The one area that NBN Co is hoping for a swift outcome is the HFC component of the NBN. While access to the infrastructure is still pending, it's understood that NBN Co is working to build the technical capacity needed to quickly start connecting customers to the network once it gains access to the infrastructure. 

With regards to FTTP, the current emphasis is to improve the time and cost of deployment to ensure that the full-fibre footprint is done as cost-effectively and quickly as possible. It might not be the primary component of the NBN but right now it's the only deployment platform that guarantees customers on the network and revenue.

Presumably, the Fibre-to-the-Basement (FTTB) initiative should also help NBN Co monetise the network in high-value areas. However, it's not the only player in that space, thanks to TPG Telecom, and NBN Co has a race on its hands against a nimbler and hungrier opponent.

The HFC and the FTTN component are ostensibly set to boost the metrics in time for NBN Co to seek out external funding but there's an awful lot hinging on them.

Building the NBN has been a key challenge for NBN Co, since the inception of the project. While Bill Morrow and his team have to some extent rehabilitated the relationships with construction partners, albeit at some cost, doubts remain on whether the company has enough boots on the ground to meet its targets.

The eagerly anticipated Telstra deal may provide some relief on that end, especially with regards to the FTTN rollout.

As it stands, the NBN Co 2014-17 corporate plan is hardly a document that would allay the fears of an interested investor. However, it's not designed to serve that purpose. Instead, the document, along with the MTM guidance provided by NBN Co chief executive Bill Morrow last week, provides a template with enough flexibility written into it to give NBN Co breathing space.

While that may prove to be useful for now, without a material uptick in construction activity -- predicated on when the deals with the telcos are finalised -- NBN Co will still have some convincing to do.