Seeing the sense in Turnbull's NBN

It might be tempting to argue that it would be better to bury the vision of a national broadband network than to push ahead with the Abbott government’s ‘inferior’ version. But the reality is that taxpayers are already too deeply committed to the project to abandon it.

The question of whether the NBN should be abandoned and left to the private sector was posed today by my colleague Rob Burgess (Time to scrap the NBN?, December 18), who bemoans the loss of the "unique benefits" of Labor’s NBN.

One could argue about the value of the ubiquity and speeds of that version of the NBN (it’s "unique benefits") relative to Malcolm Turnbull’s, which will use a mix of technologies including copper and the existing HFC networks. For most users, the download speeds of at least 50 Mbps by 2019 targeted by his plan would be more than fast enough, but benefits always have to be assessed against their cost – unless you’re Kevin Rudd or Stephen Conroy.

The brutal reality of Labor’s NBN is that three years into the rollout, it is two years behind schedule and grossly over budget.

The strategic review commissioned by Turnbull released last week showed that, with a bit of luck and better management, the fibre-to-the-premises version of the NBN would be finished three years later than planned. And, at $73 billion, it would have cost nearly $30 billion more than envisaged in NBN Co’s corporate plan.

While it might be nice to dream about starting again from scratch – or walking away from the concept of a publicly-owned wholesale broadband network – the problem with both those 'options' is that it is too late to contemplate either.

Turnbull’s parliamentary secretary (and former senior Optus executive) Paul Fletcher identified the core of the issue in an article in The Australian today when explaining why the new version of the NBN would cost $41 billion rather than the $29.5 billion outlined in the Coalition’s election policy.

More than $6 billion of taxpayer funds has already been spent by NBN Co, even though the NBN has been rolled out past only a fraction of the premises that its corporate plans envisaged. It has entered unavoidable contractual arrangements for billions more.

Moreover, a significant proportion of its costs – which have also been blowing out, like the near doubling of the cost of its IT platforms  – are now baked in. Meanwhile, the slow progress of the roll-out means its revenues are far lower than its corporate plan envisaged. The review estimated that revenues would be $13 billion to $14 billion lower than had been forecast out to 2021.

As Fletcher says, the review found that about $15 billion will either have been spent by the end of this financial year or is irretrievably committed. It is the locked-in spending and costs – there’s about $17 billion tied up in the contracts with Telstra and Optus --that have inflated both the capital and operating costs of the starting point for Turnbull’s NBN.

At yesterday’s Senate committee hearing, NBN Co’s new chairman Ziggy Switkowski described the NBN Co culture as one in which its leaders appeared to believe that because there were numbers and assumptions in the corporate plan, they would somehow be delivered. This was in spite of evidence to the contrary being delivered out in the field.

Switkowski declined to guarantee any base level of speeds for the revised rollout plan, saying that after the past four years guarantees had “lost currency”.

The unwillingness to guarantee anything relating to the NBN shouldn’t be held against Switkowski at this point, given that there is a cost-benefit analysis and a new corporate plan (and a new chief executive, Vodafone’s Bill Morrow) yet to come. The precise (and ever-shifting) numbers in NBN Co’s past corporate plans demonstrate how useless and misleading such guarantees can be.

The numbers within the strategic review, however, do have some broad credibility. Unlike the existing corporate plan, the review wasn’t trying to create a business case that conformed to a conclusion already reached.

The fact that the $41 billion peak funding cost of Turnbull’s NBN is so far in excess of his original policy says the review, while commissioned by him, wasn’t directed by him. Therefore is likely to be far more realistic and achievable than previous assessments of the NBN.

For those critical of the choice of 'inferior' technologies for the NBN, there is a telling table within the strategic review that looks at the deployment timetables for the various options, including pursuing the existing FTTP rollout.

In 2019, under the existing roll-out, 57 per cent of premises would have access to the network and 100 Mbps download speeds. Under the review’s preferred "optimised multi-technology mix", between 65 per cent and 75 per cent of premises would have access to the same speeds and 91 per cent to at least 50 Mbps.

Moreover, if NBN Co were to be required to deliver the 7.1 per cent internal rate of return Conroy promised, it would need to increase its minimum prices between 50 per cent and 80 per cent, the review concluded. Alternatively, taxpayers would have had to provide a continuing subsidy to NBN Co, estimated at between about $1.9 billion and $2.5 billion.

The far lower cost of building Turnbull’s NBN – largely because it uses infrastructure that would otherwise have been senselessly rendered redundant -- will be reflected in significantly lower costs to users and taxpayers than would have been the case under Conroy’s NBN.

While it may not have the lustre of the vision of a completely new and shiny all-fibre network, the review of the rollout has highlighted the cost of pursuing that vision, as well as the demonstrated difficulties and delays in trying to execute it.

Turnbull’s NBN might not be as ‘visionary’ but it will inevitably be more affordable for both taxpayers and ultimately the end-users. It ought to be delivered considerably earlier, particularly in regions with the poorest access to broadband.

Given that it is too late to end the roll-out and leave it to the market to decide when and how to provide high-speed networks, the review’s recommendation that NBN Co use a mix of technologies is a pragmatic one. Indeed, it is the only sensible conclusion that anyone could reach after being confronted with the daunting cost and elongated timetable for the existing rollout.