NBN's $38bn bill 'locked in'

Spending commitments of up to $38 billion on the National Broadband Network were locked in under Labor and the “overwhelming majority” must now be met to complete it, the Coalition has warned ahead of an overhaul of the project in the bush.

The Australian can reveal that a landmark review finds hundreds of thousands of homes and businesses in rural and regional areas could miss out on super-fast broadband because NBN Co badly underestimated demand, although the review rules out costly plans to build and launch a third satellite to serve them.

NBN Co’s strategic review of the satellite and wireless programs to the “last 7 per cent” of the nation — including regional areas mostly held by Coalition MPs — instead recommends a greater use of wireless towers, rolling out fibre to more areas on the outskirts of cities, and more stringent rules around satellite access.

The release of the review today comes as Communications Minister Malcolm Turnbull has accused Labor of locking in $34bn-$38bn of spending commitments on the NBN between 2011 and 2021 — before a “single cent” is spent upgrading the fixed-line network that will serve the other 93 per cent of Australia. It is believed NBN Co pays Telstra up to $1300 for every one of its household and business accounts that connect to the NBN.

In a new rebuttal of Labor-Greens claims about the NBN, Mr Turnbull says “the real drivers of the NBN’s final price tag are the vast financial obligations entered into under the Labor government that the network must now bear’’.

The document points to forecasts of $18bn in revenue over the 10-year period but warns of $7.9bn in corporate ­overheads, $17bn in operating ­expenses for payments to Telstra and Optus, and $12.8bn in higher capital expenditure to meet the coverage and service levels promised by Labor. “Combined, these three areas amount to $34bn-$38bn of spending commitments between 2011 and 2021 locked in under Labor’s watch ... The overwhelming ­majority of these obligations must be met in full if the NBN is to be completed. This is true regardless of choices about network design or technology,’’ it says.

These costs will be incurred even if the Coalition abandons Labor’s model of delivering super-fast optic fibre to the premises of 93 per cent of Australian homes in favour of its “multi-technology mix’’, which makes much greater use of Telstra’s existing copper network for the final few hundred metres to homes.

“All face the same $34bn-$38bn baseline of financial commitments if the NBN’s fixed, wireless and satellite networks are rolled out,” the document says. “These expenses are so vast that they make (it) immensely challenging for NBN Co to earn commercially adequate returns on its invested capital.”

The comments reveal how hamstrung the government is as it tries to deliver on its promise that it would provide the service ­sooner and cheaper than Labor, and the challenges facing NBN Co executive chairman Ziggy Switkowski, who has vowed to rein in the costs of the Coalition’s version of the NBN.

While in opposition, the ­Coalition promised it could build its NBN for $20.4bn in capital expenditure and would require funding of $29.5bn, and said the project would stay off-budget.

But at the time, the Coalition emphasised that it was not privy to NBN Co’s contractual ­arrangements.

However, the first stage of the Coalition’s strategic review of the project, released in December, revealed that the government’s newly adopted multi-technology mix would need $41bn in peak funding — an $11.5bn hike on what the ­Coalition pledged in the lead-up to the election — and would have a capex cost of about $30bn. That document estimated operating expenditure of $27bn for the Coalition’s multi-technology mix between 2011 and 2021.

The strategic review forced the government to drop its election promise of delivering download speeds of 25 megabits per second to the majority of Australians by 2016. Since then, the ­Coalition has said that factors driving up the price of the NBN are outside of its control, such as Australia’s geography making it more costly to serve the most remote premises.

Yesterday, a spokesman for opposition communications spokesman Jason Clare dismissed Mr Turnbull’s document.

“Malcolm Turnbull needs to explain why the Coalition has broken their promise to give all Australians access to download speeds of 25mbps by 2016,” the spokesman said.

The $34bn to $38bn figure of “locked in” costs in the new document include $17bn in operating payments to Telstra and Optus, who are migrating their customers to the NBN and decommissioning rival networks.

The document also points to recent revelations that draft advice prepared by Goldman Sachs for the NBN Co showed it could hand over more than $98bn in nominal pretax payments to Telstra between 2011 and 2067.

Telstra has never broken out the specific value of its deal with the NBN Co, maintaining the deal is worth $11bn in net present value. Mr Turnbull is renegotiating the deal with Telstra.

In 2010, NBN Co chief executive Mike Quigley maintained that a price tag on capital expenditure for building the NBN at the time of $35.7bn should not be added to the payments to Telstra as these were an operating expenditure. But at the time, Mr Turnbull added the capital costs to the payments to Telstra to insist there had been a “significant hike” in the headline price of the project.

The other costs are $7.9bn in operating expenses for corporate overheads — which the document says are to “some extent controllable” — and higher capital expenditure on non-fixed line assets.

The higher capex covers the cost of delivering coverage and service levels promised by Labor, with NBN Co committed to a “larger investment” in satellite, wireless, the transit network, as well as IT systems.

The new document, published on Mr Turnbull’s blog, also warns about problems with the rollout to the “last 7 per cent”, describing that as a “mess”. These 1 million homes and businesses, which are outside the fixed-line footprint for the NBN, are the most expensive to connect.

The document said this had been impeded by “failures of planning and execution”, including that total capacity on two long-term satellites to serve the bush would serve a maximum of 209,000 users, while the “beam” often aligns poorly with demand.