NBN rollout cost to jump by $2 billion

New NBN Co chief executive Stephen Rue has lifted the expected cost of the network rollout to $51 billion, with the infrastructure giant planning to raise an extra $2 billion from private sources around 2020.

NBN Co’s funding was previously expected to peak at $49 billion, with a public equity funding commitment of $29.5 billion and a commonwealth loan facility of up to $19.5 billion. Around half the new money will go towards unexpected costs relating to technical issues with its hybrid fibre coaxial (HFC) network late last year, price cuts and network upgrades, while the other $1 billion will be directed to a contingency fund.

NBN Co's new chief executive Stephen Rue said the new expected peak cost of the network would be $51 billion.

Photo: Peter Braig

NBN Co in November "paused" connections to the NBN via pay-TV cables while it addressed dropouts being experienced by a “minority” of the 370,000 customers already connected. About 3 million premises will be connected using HFC when the rollout is complete. This delay of several months cost NBN Co about $700 million, with “additional optimisation” expenses on the HFC network totalling $200 million.

A further $700 million was due to a recent wholesale pricing change, designed to encourage Australians to pay for faster plans by reducing the cost of the 50Mbps product. This has seen the take-up of faster plans double in recent months.

An extra $800 million will be spent on upgrading the capacity of its fixed wireless networks.

Labor's communications spokeswoman, Michelle Rowland, described the raising as a “cost blowout”, saying NBN Co was on “life support”.

Announcing NBN Co’s corporate plan for 2019-22, Mr Rue told Fairfax Media he didn’t think the extra cost would be a “significant impost on the company at all”, pointing to strong cash flows. The NBN Co expects earnings (before interest, tax, depreciation and amortisation) to move into the black in fiscal 2021, at $1.3 billion, with cash flow to become positive in 2022 at $100 million. Revenue is expected to increase from $2 billion in 2018 to $5.6 billion by 2022.

He expected there would be “lots of competition” to provide the funding.

“When we are a company at that time, with strong cash flows, we’ll be a mature operator ... We’ll have got either to or almost to the 2020 point when we go to the market. I think it’s appropriate for us to go to the market, frankly and get the money.”

He said former chief executive Bill Morrow had been involved in these decisions in the past few months.

Mr Rue, who has a 50Mbps plan at his own home on a fibre-to-the-node connection, said there were a “couple of objectives” including completing the network by 2020, delivering “good customer experience” and ensuring a strong business in future.

“I am pleased, actually, to be able to deliver a plan ... with a completion date for 2020. The customer experience investments that we’ve made I think are the right decisions,” Mr Rue said.

Communications Minister Mitch Fifield said the multi-technology rollout saved $30 billion in potential project costs, noting revenue “remained on target or a little above and activations have held fairly closely to schedule”.

He said there had been “variations” to the forecast as the plan shifted to focus more on the consumers.

Telstra and TPG Telecom's share prices dropped 4.18 per cent and 7.04 per cent respectively by 2.20pm on Friday. It's understood Telstra will be working through the corporate plan to see whether it impacts guidance for fiscal 2019 provided by the telco in early-August.

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