NBN Co’s newly updated, fibre-heavy Corporate Plan 2021-2024 has been portrayed as a “monumental policy backflip”, a return to the NBN’s original scope and a natural evolution of the controversial project – but as the political fallout settles, analysts warn the plan may be hiding bigger problems with the project’s financials and future prospects.

A cornerstone of the plan is spending $4.5b to transition many fibre-to-the-node (FTTN) customers to fibre-to-the-premises (FTTP) technologies, purportedly delivering NBN Co’s fastest wholesale plans to up to 75 per cent of premises in fixed-line areas by 2023.

The investment is a way “to return to nbn’s purpose”, CEO Stephen Rue said in releasing the new plan, which he said capped off “one of our best periods on record” as the company generated $3.8b in revenue, marked 11.7m homes and businesses ready to connect, and saw 7.3m customers actually connected to the network.

“Completing the initial build was an incredibly important milestone, not because we said we would deliver it on time and on budget but because of what it has delivered to the nation”, Rue said, noting that the COVID-19 pandemic had rapidly turned the network from a utility into a “lifeline”.

That growth was characterised by increased demand for faster NBN services – with 69 per cent of customers ordering plans of 50Mbps or faster – and demonstrated performance, with new ACCC figures confirming the network was “holding up well” under increased demand.

“A fast, reliable broadband connection has quickly moved from being a ‘nice to have’ to becoming as important to work and productivity as the office was to previous generations,” Rue said.

Burying the financial facts?

Shadow Minister for Communications Michelle Rowland labelled the new plan a “disgrace”, describing it as “a cover up for unfunded promises and cost blowouts” and calling on the Morrison Government and NBN Co to revise the plan with a new version “that does not treat Australian taxpayers as fools”.

As well as confirming that fibre was cheaper to build all along, Rowland said, the new plan glosses over NBN’s debt structure, fails to include a profile of operating expenditure, does not break down capital costs by technology, and omits an updated estimate of total peak funding that has now reached at least $55.5b.

Yet even that figure may be understating the total final cost of the network, since fibre lead-ins will only be built when customers order higher-speed plans.

Despite breathless media reports, the Corporate Plan only anticipates some 400,000 households, including 100,000 FTTN customers, will have actually transitioned to fibre by 2024.

By that point, 3m premises will still be connecting using FTTN – and migrating the rest of those customers to FTTP could actually cost NBN Co more than seven times the investment announced in the new plan, adding tens of billions to the network’s final cost.

Rubbery financial numbers, telecommunications analyst Paul Budde warned, are “again an indication that [NBN Co] are struggling with the finance of the whole situation.”

NBN Co’s revenue stream has long been tied to average revenue per user (ARPU) – the price it charges retail service providers (RSPs) to provide its wholesale services, long stagnant at around $45 per month and previously projected as reaching $49 per month by 2023.

That figure hasn’t changed in the new Corporate Plan, which forecasts residential ARPU to stay at $49 through fiscal 2024.

Stagnant ARPU limits NBN Co’s revenue potential – which, in turn, limits its value to potential acquirers should the government eventually decide to sell off the network to recover the money spent building it.

The new fibre services, which are expected to drive retail prices of around $150 per month, are the main way NBN Co can increase ARPU. However, observers have warned that while businesses may warm to the service, price-sensitive residential customers – who comprise the majority of the NBN user base – may struggle to justify this cost.

Failure to foster long-term growth could force the government to write down the value of much of its network investment, Budde believes: “They are hoping to increase ARPU and make it more attractive for sale,” he explains, “but in all honesty I can’t see that they can sell it without actually writing down some of that.”

“Whatever way you look at it, you’ve got a product that has costed double the price of what you thought it would cost.”

Cost issues aren’t the only problem, with former CTO Gary McLaren warning earlier this year NBN Co would struggle to differentiate its products in a meaningful way.

“The extent of retail competition is limited to price only,” he wrote early this year in a submission to the government’s ongoing NBN inquiry, and “no competitive offers that distinguish quality or performance are available on the market.”

“Despite its monopoly position NBN Co will find it difficult to meet its commercial return objectives,” McLaren wrote, warning that “more taxpayer subsidies will likely be necessary to modernise and develop the network for future service requirements.”

Financial struggles ahead?

Fluctuating revenue projections have painted a constantly changing picture of the network’s financials, with capital expenditure increasing over time and outpacing revenue growth.

The trend has not been lost on analysts like Richard Ferrers, a research data analyst at the Australian Research Data Commons, whose ongoing modelling of NBN figures suggests that 2021 estimates are tracking 6 months behind the original 2020 corporate plan.

Ferrers has long argued NBN Co needs a clearer set of terms of engagement, flagging in his own inquiry submission that he is “optimistic about the NBN’s finances” but warning that the government needed to provide NBN Co “with clear instructions how to spend the cashflow earned by NBN to progressively upgrade the network and to what standard of broadband Australia should aspire.”

This should include launching gigabit services “at affordable prices”, Ferrer said, warning that maximising the value of the NBN investment requires “more than speed”.

“We need an NBN which is reliable, supported through quality services and ultimately provides high customer satisfaction to end users,” he said.

Yet whether or not the current organisation has the luxury to deliver those outcomes, while still keeping prices affordable and revenues growing, remains to be seen.

Meeting all of the competing pressures on its rollout would require ARPU to grow substantially over time, Budde says, and any improvement will depend on takeup of faster plans by businesses more willing to pay higher prices.

Yet even then, he warns, the magnitude of growth needed will be hard to achieve.

“Whatever you gain extra through your premium, and business customers, is not going to double the ARPU because the big [residential] numbers will stay in the lower end of the market because people simply can’t afford to pay more,” Budde explains.

“The reality is that none of the parameters set by Malcolm Turnbull’s plan [which expected the network would eventually be sold at a profit] are realistic,” he said, noting that ongoing ARPU ceilings have kept commercial valuations of the network in the $25b range – even higher than an $8.7b Parliamentary Budget Office estimate from earlier this year.

“The reality of the economic situation in the next couple of years is that while NBN Co might be able to increase ARPU slightly, you cannot see it suddenly becoming this golden investment that everyone wants to buy into for $60b to $70b.”