Putting Labor's NBN out of its misery

Malcolm Turnbull’s NBN overhaul will mark the beginning of the end to Labor’s slow-motion rollout. An FTTN solution may not be as fast, but it will bring quicker returns for Telstra and lower costs for consumers.

One of the first of the new ministers out of the blocks once the Abbott government has been sworn in will be Malcolm Turnbull. And one of the first of his acts as the new communications minister will inevitably be to call for the much-delayed latest NBN Co corporate plan.

That plan was supposed to be handed to the government way back in May, but according to Turnbull’s immediate predecessor, Anthony Albanese, last month’s plan remains in draft form.

That was convenient for the Rudd government given that every previous corporate plan had shown the rollout of the NBN falling further and further behind its original schedule. Only a fraction of the premises originally forecast for completion were shown to be connected, with the rollout way behind schedule in terms of the number of premises it has passed.

The latest plan will provide Turnbull with the jump-off point for his planned fibre-to-the-node network, as well as a practical illustration of his contention that Labor’s NBN would take years longer and cost far, far more than its original forecasts of completion in 2012 at a capital cost of $37.4 billion and peak funding of $44.1 billion. Turnbull has said his version of the NBN would be completed by 2019, have a capital cost of $20.4 billion and a peak funding requirement of $29.5 billion.

Turnbull is going to be busy. He has promised a 60-day review of the NBN rollout and NBN Co itself, which will inevitably lead to a conclusion that the current rollout is in disarray and NBN Co needs a major overhaul, with changes at both the board and management level as the policy shifts from a fibre-to-the-premises to a mainly fibre-to-the-node network.

NBN Co’s inaugural chief executive Mike Quigley has already announced his retirement, with a successor yet to be named. Turnbull is known to be considering wholesale changes to the board and management. He has also promised an independent review of the policy process that led to Labor’s NBN and the absence of anything resembling a cost benefit analysis for a project that involves such massive expenditures of taxpayer funds.

That review will also presumably look at the relationship between the politicians and NBN Co, and the extent to which former communications minister Stephen Conroy is said to have intervened in NBN Co’s affairs. The extent of the ‘consultation’ between Conroy and Quigley, and the potential for perceptions of politicisation of the organisations and its decision-making, became a concern for NBN Co’s chairman Siobhan McKenna once she replaced foundation chairman Harrison Young earlier this year.

Turnbull also plans to commission a six-month cost benefit analysis of the NBN under his preferred strategy of using a range of technologies. That analysis will include the prospective regulatory and ownership arrangements, and the role of government in supporting and owning the network.

He will also have to begin negotiations with Telstra to reflect the proposed changes to the NBN. Telstra, with $11 billion of net present value of benefit locked in under its current deal with NBN Co and the government, has made it clear it is happy to cooperate – as long as it doesn’t lose any of that value.

From Telstra’s perspective, that’s the non-negotiable. But there is plenty of scope within Turnbull’s plan to enable Telstra to retain that value while delivering an FTTN network sooner and at a significantly lower cost than the current NBN. Nearly half the value of the telco’s current deal – about $5 billion – is related to payments for access to its infrastructure, while there is another $4 billion mainly related to disconnection payments as customers on its copper network are migrated to the NBN.

Turnbull can deliver cash faster to Telstra because of the Coalition’s faster rollout, which would inflate the net present value of the payments. He may also be able to trade the compensation Telstra was to have received for agreeing not to use its HFC cable network to deliver broadband services for Telstra’s continued operation of that network. It is also probable that Telstra will be given a far larger and more lucrative role in actually building the network.

The Turnbull NBN will deliver fast enough speeds, with a minimum 25 Mbps by 2016 rising to a minimum of 50 Mbps by 2019 and potentially significantly higher speeds given the developments in copper technologies, at a significantly lower cost.

While the focus in the debate about the merits of FTTP and FTTN tends to be about speeds and construction costs, the other dimension to Turnbull’s NBN will be lower usage costs. It will be more affordable because the most expensive element of the Labor NBN was the final connection to the premises.

Turnbull has forecast a wholesale price of about $38 per month for an FTTN network, which produces a retail price of around $66 a month.  NBN Co has said the retail price of entry level products – about 12 Mbps – will be similar to its current level, but the cost of accessing higher speeds ratchets up quite sharply.

There are still a lot of blank spaces in Turnbull’s NBN plan that will have to be filled in after his various reviews have been completed – like the potential for competitive infrastructure, or the ownership and regulation of Telstra and Optus’ HFC networks. But it is far more likely that his version of the NBN will be built a lot faster and cost a lot less (for taxpayers and end-users) than the faltering and delay-plagued rollout it will displace.

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