NBN must find $26.5b

25 Aug, 2015 05:21 AM
If the costs increase then it is going to be passed on to consumers. I think that's the reality.

A $15 BILLION blowout in the cost of building the national broadband network, partly caused by the slow rollout of key broadband services, could make the internet more expensive for Australians, M2 Group chief executive Geoff Horth said.

NBN on Monday revealed that the cost of building the project would increase by as much as 36.6 per cent to $56 billion up from the $41 billion previously forecast.

Phone companies and analysts say the blowout could lead to higher retail prices because NBN will try to stay profitable through higher wholesale charges, which are known as Access Virtual Circuit and Connectivity Virtual Circuit fees, something NBN denies.

M2 is Australia's fourth-largest internet service provider and owns Dodo and iPrimus in its stable. Mr Horth said costs were far too expensive and would hurt consumers unless they were cut.

"If they're going to recoup their costs through AVC and CVC charges then it's going to have an impact on the price that consumers have to pay," he said.

"We also face the problem at the moment that, while they're still trying to work out how they figure to price CVC, what sort of network investments we should be making.

"If the costs increase then it is going to be passed on to consumers. I think that's the reality."

NBN chief executive Bill Morrow said NBN hasn't worked out how much to charge phone companies that will use its wholesale network when it is finished. He said the latest round of increases would not be passed on to consumers because NBN was reducing its expected rate of return.

"It has zero impact on the prices that we charge ISPs and therefore zero impact on what we're charging end users ... because we're lowering the internal rate of return," he said.

Communications Minister Malcolm Turnbull said the company had used better information on the rollout to provide a more accurate picture of the NBN, which had showed it will cost a lot more to build.

Part of the blowout was caused by NBN's hybrid fibre coaxial network, which is used Foxtel services and cable broadband, and is taking longer than expected to convert for NBN's purposes.

But the government has not increased its funding cap of $29.5 billion, meaning NBN will have to raise up to $26.5 billion from private sector sources including banks, bond raisings, international markets or even by borrowing from the government itself starting from June 2017.

NBN's new budget is between $46 billion to $56 billion with the company aiming for $49 billion. By comparison, Labor's final draft corporate plan predicted the NBN would cost $37.4 billion to build - a figure the Coalition has said was wildly inaccurate.

"The reality is that under the Labor Party neither the company nor the Labor government actually knew what it would cost or how long it would take to do the project," Mr Turnbull said. "I'm confident that the numbers we have now is right; we know what it actually is costing to do the work.

"The NBN Co's conclusion...is that if an all-fibre NBN is undertaken it would take until 2026 and quite possibly 2028 to be completed."

NBN's Mr Morrow said the blowout wasn't big compared with the size of the project.

"If you think of an $8 billion change in a project of this magnitude against a strategic review versus a year-long in-depth analysis, it's not that material in my view," he said. "So it still holds - the direction that we're doing it."

Shadow communications minister Jason Clare demanded to see the detailed assumptions made by NBN to reach its conclusions.

"This is just another Malcolm Turnbull magic trick," he said. "He's trying to distract attention from a multibillion-dollar cost blowout by pointing people somewhere else."

The higher costs will come despite NBN slashing the number of homes and businesses getting the most expensive fibre-to-the-premise technology to 2.4 million locations from last year's prediction of 3.1 million.

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25/08/2015 3:49:36 PM

$26.5b extra- doesn't sound anywhere near as bad as $26,500,000,000.00 extra- don't you think?


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