Response to the Senate Select Committee on the NBN
RESPONSE TO THE SENATE SELECT COMMITTEE ON THE NBN
30 April 2014
The Senate Select Committee on the NBN tabled an interim report on 26 March 2014 in which Labor and Green Senators allege financial irregularities and manipulations in the NBN Co Strategic Review (which set out a ‘Revised Outlook’ for Labor’s NBN and forecasts for five other scenarios). The Government rejects each of the seven key allegations:
1. The interim report alleges the Revised Outlook for Labor’s FTTP NBN assumes delays “at odds with NBN Co’s current run rate”. In truth today’s 950 brownfield premises per working day would need to increase five-fold for the Revised Outlook to finish in 2024. The financial impact of delays is clear – the network must be built before it can generate revenue and avert more borrowing (Page 6).
2. The interim report alleges the Revised Outlook ignores $4 billion in design savings ‘signed off’ and ‘implemented’ by NBN Co. KordaMentha determined $1 billion of savings were valid; the remainder had no finished business case and/or were inconsistent with the Corporate Plan (Page 11).
3. The interim report alleges the Revised Outlook inflates FTTP costs, adding $14 billion to capex. In fact most Revised Outlook costs, including FTTP, are well under actual costs to date. Costs to date have been understated because they were not ‘commercially complete’ (i.e. didn’t finalise all claims from contractors) and much of the work up to now has ‘cherry-picked’ lower cost areas (Page 14).
4. The interim report alleges revenue estimates in the Strategic Review are too low. NBN Co’s outside advisors stated previous forecasts conflicted with international benchmarks, double-counted sales to government, and were “very optimistic”. Since 2000 broadband prices have barely changed – casting doubt on NBN Co’s projection of strong ARPU growth over the next decade (Page 18).
5. The interim report notes the Revised Outlook includes the cost of a third satellite. Under Labor the rollout outside the fixed line footprint was so botched that service and coverage commitments can’t be delivered. Capex of about $1.5 billion is needed to rectify coverage and capacity gaps (Page 19).
6. The interim report alleges a Strategic Review table comparing 2011-2021 revenue across scenarios treats FTTP unfairly, because the two FTTP scenarios aren’t completed until 2023 and 2024. In reality this has no impact whatsoever on calculation (or comparison across scenarios) of total capex, total funding required, or return on investment over 2010-2040 (Page 22).
7. The interim report alleges the Strategic Review ignores the cost of upgrading a multi-technology mix NBN. In fact upgrade paths are identified and their costs analyzed - again proving a multi-technology NBN now and FTTP later costs less in today’s dollars than deploying FTTP now. But upgrade costs are not scheduled, as it is unclear when (or whether) they will be needed (Page 23).
A response is also offered to several NBN myths perpetuated in the interim report. Labor’s claims about material allegedly in the Incoming Government Brief and of reduced transparency at NBN Co are refuted (Page 25). The $41 billion cost of a multi-technology NBN is placed in context by noting Labor locked in $34-38 billion of NBN costs before any capex on fixed broadband (Page 26). And Labor’s boast that it would have cut costs with a radically redesigned NBN is disputed (Page 28).
For the full response to the Senate Select Commitee click here.