NBN costs blow out by $4.6bn

NBN Co's broadband network will cost more to construct and operate than first expected - about $4.6 billion over ten years – but roll out targets are being met, according to an update on its corporate plan.

The government's total investment in the NBN Co project will now be $30.4 billion, up from $27.5 billion. And operating expenditure will be about $26.4 billion between now and 2021, rather than $23.2 billion.

About 13,500 premises will be connected via either fibre, fixed wireless or statellite by June 2012, the updated plan reveals. A total of 92,000 will be connected by mid-2013, when the next federal election is expected, and about half a million premises will be connected a year later.

In the last corporate plan, written in December 2010, NBN Co forecast it would have 419,000 premises connected by June 2013.

Shareholder minister Stephen Conroy said NBN Co got access to detailed information about Telstra's network nine months later than expected.

“The detailed design of the volume roll out could not start until five months ago. The overwhelming bulk of the data needed to start the volume roll out was not available until conditions precedent were satisfied in March of this year,” he said.

“Only then could the NBN Co design teams have access to the lay out of all the Telstra pits and ducts across the nation.”

Since the last report came out NBN Co has signed a 40-year deal with Telstra to use its infrastructure. Telstra expects to get at least $11 billion, in 2010 dollars, over the life of the contract.

NBN Co revealed today the cost of building the network will be $1.4 billion, 3.9 per cent, more than originally forecast. And the cost of operating the network over the next ten years has increased by $3.2 billion. NBN Co is leasing more inter-city fibre connections from Telstra than originally thought, which saves it capital costs but increases operational costs.

However, equipment costs have declined due to “architectural optimisation and volume-price arrangements''.

NBN Co chief executive Mike Quigley said these increases were due to an $800 million deal with Optus, which was not included in the last corporate plan, and policy decisions, such as NBN Co building fibre in new housing estates.

“With the Optus deal we will be bringing some 500,00 customers onto the network that we were not anticipating in our original 2010 plan. Those are are the customers who we were expecting to remain on the Optus hybrid fibre coaxial network. Now they will be coming across to the NBN so the capital expenditure costs for connections have gone up and the operational costs for migrations of those customers have gone up...And also we have an increase in revenue because those customers are coming onto the network.''

He added that costs would decrease after 2012 because of this deal NBN Co expects take up of its satellite and wireless services to be about 20 per cent of the potential market by 2021 because it ''recognises there will be other competing wireless type services'', such as 4G mobile broadband.

Other changes include a decision to make bulky battery back-up boxes optional for homeowners. NBN Co expects about 50 per cent of households will not take a batter, saving the company hundreds of millions of dollars.

And NBN Co will put more resources into getting apartments connected to its fibre network, after finding in its trial sites that body corporates were uncooperative.

Mr Quigley said the average monthly revenue per user is expected to be about $20 until 2015, when it will rise to about $40. NBN Co predicts that it will make about $100 per month from each user in 2040.

“The prices are just where we wanted them. It means that people are getting better services for the same prices on the NBN and what is especially good news is we are expecting speed and usage profiles to go up, which means we may even be able to bring wholesale prices down faster than we otherwise would,” he said.

“And that is the aim – for a company such as NBN Co our aim is not to generate higher profits, our aim is to get wholesale prices down as fast as we can.''

The story NBN costs blow out by $4.6bn first appeared on The Sydney Morning Herald.

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