The Federal Government this morning released the long-awaited corporate plan outlining how NBN Co plans to build and operate its planned fibre network over the next decade and more, including tantalising details such as the promise of a uniform national wholesale price for 1Gbps fibre broadband for close to $150 per month.
The plan covers a wide range of matters from projected pricing, to how much NBN Co will charge retail service providers to provide broadband services over its network, how much government capital it will require ($27.5 billion), when it will seek additional investment from the private sector (2015) and the network construction schedule for the fibre, wireless and satellite rollouts that will constitute the NBN.
We’ve broken the document down into some key sections so that you don’t have to read the whole 160-page document, although you can if you want — it’s available in full from NBN Co’s website.
Pricing
Perhaps the first thing that the document makes clear is just how much NBN Co will charge for its services.
The following table doesn’t deliver the whole picture, as ISPs will also need to pay for backhaul data connectivity to each broadband users’ connection — what NBN Co calls an ‘Access Virtual Circuit’. However, it does deliver a ballpark picture of what NBN Co could expect to charge retail service providers such as Telstra or iiNet to provide services over the new fibre network.
Current broadband prices usually range from $30 up to several hundred dollars a month, depending on how much customers download and what speeds they pick. A series of NBN Co tables relating to pricing in the document appear to show that broadband prices under the NBN won’t be that different to current prices using technically inferior fixed technologies such as ADSL2+ or HFC cable broadband.
Additionally, the Federal Government went to some lengths today to emphasise that NBN Co’s decision to set a uniform standard wholesale price of $24 per month for a basic broadband service with a 12Mbps download speed and 1Mbps upload across all three NBN technologies (fibre, wireless and satellite). The price comes off the back of complaints from some parties that the NBN could lead to higher charges for basic services.
“The Government expects this will translate into retail prices that will be both affordable and very competitive,” said Communications Minister Stephen Conroy this morning. In addition, Quigley noted at a press conference with the Labor politicians this morning that under NBN Co’s agreement with Telstra, retail pricing for basic voice services wouldn’t rise.
Rollout timing
Another important facet of the NBN Co business case is the rollout schedule. The first big target the company is setting itself appears to be June 2013, by which it hopes to have rolled out fibre, wireless and satellite to some 1.7 million premises around the nation, with most of those being fibre rollouts. However, by that stage, it is estimated only some 570,000 premises will actually be receiving broadband services, indicating that not everyone will connect to the NBN straight away, even when it is deployed to their area.
This initial period until June 2013 is described in the NBN Co documentation as a “ramp-up” stage which will allow the company to gain lessons about deploying the infrastructure. The ‘volume’ rollout will hit its straps after that period, with a full deployment rate of almost 6,000 premises per day being planned for financial year 2014.
The entire rollout process is to be on a nine-year schedule until 2021 and will involve installing some 181,000km of gigabit-capable Passive Optical Network fibre and a further 57,000km of what is called ‘transit’ fibre to connect it all up. The first five first release sites across mainland Australia are already being constructed, and NBN Co has already published a list of a further 19 second release sites.
Financials
The Federal Government also went to some lengths this morning to point out the key financial aspects of NBN Co’s business plan.
The plan revealed this morning that NBN Co is forecasting an internal rate of return on the investment in the network of seven per cent per annum over the life of the project (30 years), which Communications Minister Stephen Conroy and Prime Minister Julia Gillard said at a press conference this morning demonstrated that the network was financially viable in its own right.
Gillard said the figure — which NBN Co said was in excess of the Government’s cost of funds, or the long-term bond rate — demonstrated that even without ancillary productivity benefits to the economy (ensuing, for example, from better technology and better competition in the telco sector), that the project was viable as a proposition in its own right.
NBN Co will require $27.5 billion of Government capital for the project, and will seek about $13.4 billion in debt funding from the private sector capital markets for the rest of the total capital expenditure ($35.9 billion) and net operational expenditure (after revenue, $1 billion) from financial year 2015. At the press conference this morning, Gillard pointed out the amount was less than the $43 billion originally predicted the NBN would cost to build. Quigley has previously stated one factor in driving costs down was the company’s arrangement with Telstra, which gives NBN Co access to Telstra’s ducts to lay its fibre.
The total cost of the NBN’s equity and debt funding will come to $40.9 billion. The company is forecasting annual revenue of $5.8 billion in financial year 2021 (when it will hit positive net income) and $7.6 billion in financial year 2025. Positive net operational earnings are projected to start occuring in 2018.
However, the company’s business plan notes the financial forecasts are based on a number of assumptions, such as various construction scenarios (with the cost of labour and productivity rates being a factor, for example), and demand and average revenue per user scenarios. For example, the company notes in the plan that end users adopting wireless instead of fixed broadband packages could affect the situation.
NBN Co has assumed that 70 per cent of premises passed by its network would eventually take up a service — including about 12 per cent of premises being unoccupied, 13 per cent using wireless alone and five per cent using other fixed broadband networks.
Quigley claimed in a separate statement from NBN Co that no commercial enterprise would be likely to fund an endeavour of the size of the NBN. “Building a genuinely national broadband network in a country such as Australia required a central role for the Government,” he said.
Points of Interconnect
A controversial aspect of the NBN’s future over the past few months has been the debate over how many points of interconnect (PoIs) the company will offer retail service providers to connect to its network. Initially the company had planned for just 14; which medium-sized ISPs such as Internode said as recently as today would bolster competition. Larger ISPs such as Telstra and Optus had called for as many as 200 PoIs, to take advantage of their existing infrastructure.
After consultation with the Australian Competition and Consumer Commission, the Government set a policy for there to be 120 PoIs — 80 in metropolitan areas and 40 in regional areas. In its document, NBN Co noted that because it had been designing and planning on the basis of 14 PoIs since May 2010, the Government’s policy decision meant a delay to deployment timing, costs and end-user take-up from what it called the new, “semi-distributed” PoI model.
The general sentiment from Gillard and Conroy at this morning’s press conference, and in distributed statements, appeared to be that the publication of NBN Co’s corporate plan finally put paid to the Opposition’s call for a cost/benefit analysis into the investment, and showed that the project was viable and moving forward.
“The Corporate Plan shows taxpayers will get their investment back, with interest; the NBN will provide a rate of return significantly higher than the government bond rate; and all Australians will gain access to this state-of-the-art network,” said Conroy.
“Corporate Plans for Government Business Enterprises are not usually released to the public, however, the Government is keen to ensure Australians are provided with as much detail as possible on the nation’s largest infrastructure project. In releasing the public version of NBN Co’s Corporate Plan, the Government has set the stage for significant advances on the NBN rollout in 2011.”