news NBN Co chief executive has flatly rejected as “wrong” a report by the Financial Review newspaper last week which claimed that the company was facing a $5 billion blowout in its construction costs, stating that he expected the NBN project to deliver within its existing cost structure.
Last week the Financial Review reported that NBN Co chief operating officer Ralph Steffens had told senior executives at the company about a “$5 billion hold in construction costs” at the company. The news had come after NBN Co has suffered repeated issues with its construction workforce over the past several years, ranging from contractual difficulties with contractors to issues with training to deal with dangerous asbestos material in the Telstra ducts it is using. It has also lost several senior construction executives along the way.
The AFR’s article led to immediate claims by the Coalition that Labor’s credibility, when it came to the NBN rollout, was in pieces.
“Well today Anthony Albanese and Kevin Rudd’s credibility on the NBN has been completely shattered, said Shadow Communications Minister Malcolm Turnbull in a press conference in Sydney on Friday, referring to the Communications Minister and Prime Minister. “As David Ramli has revealed in the Australian Financial Review just a few minutes ago the NBN Co’s chief operating officer has told his top executives that their construction costs have blown out by $5 billion. Now we didn’t find that out because Anthony Albanese has told us the truth. He’s been telling us for weeks that the NBN Co is on time and budget.”
“We didn’t find out about that because the NBN Co published the latest version of its business plan because he’s been sitting on that and won’t release it before the election. He wants people to vote on the NBN without actually knowing what’s going on. We found out about it because someone at the NBN Co had to ‘fess up to the facts about the bad shape this project is in to their colleagues.”
“The fact of the matter is this,” added Turnbull. “The NBN Co is not managing this project well. It is way behind schedule, it is running well over budget. Right now they have managed in four years to connect 33,000 premises to their fibre network. They have basically completed in four years, two per cent of the project, And they want us to believe they will be all completed by 2021. The NBN’s business plan, its corporate plan, as is currently published, has no credibility at all. And the revelations in the AFR today have blown it asunder. The AFR have blown it asunder.
“The lack of transparency, the lack of honesty, on behalf of the Government has been shocking. I mean, the NBN Co revises its business plan every year. They have given a revised business plan to the Government and the Government refuses to release it. And now little facts, little bits of it are starting to leak out about it already. You’ve seen already an acknowledgement of a $5 billion blowout. How can we be sure it’s only $5? How do we know it’s not $10 or more? What confidence can you have in this Government and this project when we have been told so many falsehoods about its progress?”
However, in his own statement, NBN Co chief executive Mike Quigley denied there were problems with the NBN’s finances. “Claims that there is a $5 billion “hole in construction costs” are wrong,” Quigley said. “I continue to expect the NBN to be delivered at the capital cost $37.4bn as set out in the Corporate Plan.”
“The management of NBN Co are well aware of their responsibilities to taxpayers and so are committed to offset any increases in costs with savings. We have managed to do this very effectively since the project started and we will continue to do so.”
The business model and finances of the NBN have already seen a number of major changes since the project was first set up back in April 2009. NBN Co was forced, for example, to factor in additional obligations for rolling out fibre to greenfields (new housing development) areas, as well as its $800 million deal with Optus that will see the telco shut down its existing HFC cable network.
In addition to these changes in scope, it is believed that the company has also had some areas where it is aware internally that costs have increased and others where they have fallen. This kind of ‘give and take’ scenario is not unusual for major infrastructure projects such as the NBN, which rarely remain completely on track to meet their target budget, usually coming in above budget in the long run.
However, Turnbull is also accurate that NBN Co has made little progress on its network rollout, compared to similar major infrastructure projects internationally. The company’s rollout in Australia has been delayed repeatedly over the past four years. In July it revealed it had only successfully deployed its fibre to the premises network to some 207,500 premises, and it is believed that a number of those premises (such as those in apartment blocks) cannot actually connect to the faster infrastructure yet.
In comparison, British incumbent telco BT revealed last month that its fibre to the node network has passed more than 16 million premises since the network rollout was commenced in 2009, with more than 1.7 million customers having signed up for active connections to the infrastructure.
The slow speed of the NBN rollout, and issues around the perceived cost of FTTP rollouts, has led the Coalition to propose a FTTN model similar to BT’s in the UK. FTTN has also been deployed in the United States by AT&T, France by France Telecom, and in Germany by Deutsche Telekom, although other countries, such as Singapore, Korea and Japan have preferred to deploy all-fibre networks similar to the Government’s NBN project.
However, there are also key differences between the two countries when it comes to broadband. The UK has a much higher population density than Australia, concentrated in a much smaller area, easing some of the broadband rollout challenges found in Australia. In addition, it is currently unclear to what extent Telstra’s copper network is maintained at a similar level to the copper network operated by BT, with some claiming that Telstra’s network is inferior and not as capable of supporting high broadband speeds under a fibre to the node-style rollout. The Coalition has pledged to remediate Telstra’s copper or extend fibre all the way to premises where necessary.
opinion/analysis
Who’s telling the truth here? Well, I think it’s a mixed bag. I believe the AFR’s report that Steffens held a meeting to warn NBN Co executives about cost blow-outs. However, I also believe Quigley that NBN Co is able to manage these blow-outs, and the fact is that the AFR’s own article contains a number of measures designed at mediating the issues, such as changing the equipment and number of cables NBN Co is using in its rollout. Quigley didn’t explicitly deny that Steffens had held the meeting or that there were cost blow-outs in the NBN project internally, after all — he merely denied that the issues would affect NBN Co’s overall cost profile for its rollout. Both the AFR’s article and Quigley’s answer are broadly credible.
It looks like what we’re seeing here is precisely what happens when you deploy a massive national infrastructure project like the NBN. You start off with a very detailed plan, but as you go on you learn many important lessons which change the nature of that plan. The art of dealing with these lessons and incorporating them into your overall plan, cutting costs in some areas where you realise it’s possible to fund others, is called “project governance”, and a very difficult, demanding and precise art it is indeed.
Of course, the larger point to be made here, as I recently wrote in a Delimiter 2.0 article (paywalled) is that if the NBN project had been handed to Australia’s incumbent telco Telstra back eight years ago or more, many of these lessons and project governance hiccups would have been irrelevant. We’ve seen pretty conclusive evidence from countries such as the US, UK, France and Germany that incumbent telcos are pretty good at upgrading their existing copper networks to variants of fibre to the node or fibre to the premise (albeit, coupled with a general loss of competition in the retail broadband environment).
One has to wonder to what extent Telstra executives are looking at the lessons being learnt by NBN Co right now about its network rollout and comparing the company’s progress unfavourably to what could have been. After all, the amount of corporate knowledge about telecommunications infrastructure rollouts in Australia resident in Telstra dwarfs that within NBN Co. One suspects that Telstra would not have had to learn many of the lessons that NBN Co is right now.
As Turnbull has said, NBN Co exists now and we can’t go back and just hand the rollout of the NBN to Telstra. We’ve likely gone too far down the track of rolling out the NBN. However, the more NBN Co continues to struggle with its rollout and learn lessons about how its network will be deployed, the more some among us, myself included, wonder if it wouldn’t have simply been better to hand the incumbent the responsibility for the upgrade eight years ago — as virtually every other first-world country did. We would have lost some competition in the retail broadband market — but we might have had the NBN rollout completed years ago — instead of just limping over the (revised) target of a few hundred thousand premises in June.
I call this assumption
if the NBN project had been handed to Australia’s incumbent telco Telstra back eight years ago or more, many of these lessons and project governance hiccups would have been irrelevant.
Wrong
There is a major difference in the level of scrutiny of the NBN project and ANY other telco project in history BT have had many delays which have been reported yet this level of detail would never be made public if this was BT or AT&T
I find the following as extremely misleading
16 million premises since the network rollout was commenced in 2009
to compare a project which was in full rollout to one which was not even designed yet and had one employee at the time as being the same is wrong.
Not to mention BT called a premises ‘passed’ as soon as they built the node, and chose not to do the next step of cutting over a phone line until the customer specifically ordered the FttN product.
I’d wager that NBNco could achieve similar rollout speed if they didn’t actually run fibre all the way to the premises.
All of which shows that comparing the BT FttN rollout to the NBN FttP rollout is a completely inaccurate, and increasingly disingenuous, comparison that plays into Turnbull’s hands by making it look like NBNco are doing much worse than they really are.
Don’t forget: there’s the better part of a million premises under construction right now…
“Not to mention BT called a premises ‘passed’ as soon as they built the node” — Methinks The Turnbull will pull the same trick, claiming something like “its the internationally accepted method of measuring this sort of infrastructure rollout”…
Yea not really comfortable with either myself, AJ. Particularly the idea of Telstra deploying and owning the network – Telstra have shown us over the best part of two decades what telecommunications looks like with them able to leverage various monopoly positions against consumers and competitors, and how reticent the government is to step in and regulate even when the situation gets out of hand (minimum service levels, artificially limiting access to exchanges, pair gain, anyone?) If Telstra were so great at designing competitive and cost effective networks, why didn’t they take the government’s original tender process seriously instead of arrogantly thumbing their nose at it? Why didn’t they privately fund design and deployment of their own fibre network? I’m sure the Govt would have chipped in if Telstra had had a comprehensive plan.
But I’m extremely glad they didn’t and NBN Co are doing this – the private sector will want to deliver higher profits to shareholders than 7% ROI. They will want to minimise expenses such as maintenance, which is what lead the CAN to degrade so absurdly in the first place. They will want to extract the maximum return for every sip of performance, so they would artificially limit it and price higher tiers out of reach for all but large enterprise (as they have done with the CAN – 1.5mbps ADSL with no ADSL2+ anyone?). The only outcome I can think of that would be worse for Australian would be if the government were to spend tens of billions in on-budget funds on a network they just gave Telstra… Oh wait, that’s essentially the LNP policy isn’t it? :-(
While you’re on the subject Renai, what exactly was stopping Telstra from tendering for the roll-out work? Did they? They even have a lot of experience with FTTP with Telstra Velocity…seems odd that they didn’t get any work out if it (unless they did and were just too expensive?).
There was never ever any tender for FTTP..
The FTTP NBN came right out of the blue and no one seemed to know about it until conroy mentioned it after saying the FTTN tender was a failure..
This is the problem with the NBN.. It is politically motivated rather then motivated by the good for everyone in the country…
With it being politically motivated we can see now in hindsight it has not been very well planned and thought out as the emphasis all along to get it done as quickly as possible and if need be roll over and fix any problems with money (cough Telstra, optus handouts cough) and we will sort out any after effects down the track…
Well now we are down the track and we can see problems ahead that should have been seen in the planning stages…
I always say if Telstra is happy, then something is wrong…They know they have you by the nuts if they are smiling..
Incorrect…
RFP’s were for FttN or FttP.
Fttn didn’t go ahead for a number of reasons which we have gone over umpteen times…
The PoE who were consulting on rejecting FttN said they had a better way forward (or similra words) and would report this to the government…
Soon after FttP.
Coincidence?
Don’t spoil a good beat up story with the facts, eh Frank? ;-)
There were definitely RFP’s posted, and tenders awarded:
http://www.nbnco.com.au/about-us/working-for-us/tenders.awarded.html
The Liberals might want us to think NBN Co are “cowboys”, but they are run a lot like any other company in Australia…
I assume he meant for the actual construction work that NBN co sent out for tender.
“The FTTP NBN came right out of the blue and no one seemed to know about it until conroy mentioned it after saying the FTTN tender was a failure”
Actually, British Telecom suggested considering a FTTP roll-out in their submission for the NBN Mk1:
“Fibre to the premises has higher bandwidth and greater transparency than fibre to the cabinet, therefore it represents a more future-proofed solution for next generation open access (provided that an economical case can be made to fund its deployment).”
http://www.archive.dbcde.gov.au/2009/april/national_broadband_network/submissions/BT.pdf
“a more future-proofed solution”
so, not a “quickly obsolete white elephant” then?
once again i have to laugh; given MT loves to bring up BT and the UK rollout experience so much i am amused that BT clearly believes ftth to be future proof…. to borrow a phrase – “i dont have another window open” – and dont recall the precise verbiage but i get the distinct impression these are among the grounds on which MT has claimed FTTH is not the way to go….. (and not the first time it seems BT said something counter to MT, despite his appeals to consider their experience..)
again; BT made that call all the way back when …… when our FTTN RFP was being floated. if it was so then, it certainly is now. i have to play the cheeky wag and ask: why ARE you persisting with a less future proof solution then, Mal? its certainly not news, this is from 2009 remember……
in any case the whole FTTH gig certainly *isn’t* a johnny-come-lately idea – it absolutely was an option from the start. i remember that part – i probably have that same RFP document in my data hoard somewhere too…..
sorry, Frank, Acacia/Terria knew full well that FTTP was a possibility but made their pitch primarily for the FTTN option – its a while back now but i seem to recall that even as consortia they didnt believe they had the wherewithal to field a FTTH net against Telstra, particularly if there was no anti-buildover provisions preventing a repeat of the HFC rollout – one of their big concerns at the time, i think. the decision for a governmental FTTH build obviated both concerns – in many ways i thought it was a much more elegant solution than what might have been.
Sorry, unrelated (sort of) to the story Renai, but google alerts seems to now be categorising delimiter as a Blog rather than news, unsure if it’s a recent change, but thought I’d mention it.
Feel free to moderate my comment out obviously due to the unrelated nature :)
*shrugs* It’s both. Does that change how you get alerts about Delimiter?
Strangely it comes up on mine as a Malcolm Turnbull fanpage??
*boom tish*
GOLD!!!
Fair enough, unsure how the tagging is done at google’s end and whether you have any control via tags etc.
That was the only reason I raised it.
In fact, FTTP was pushed as an ultimate end point in many of teh submissions for NBN Mk1 but there was even a submission dedicated to going directly to FTTP.
http://www.archive.dbcde.gov.au/2009/april/national_broadband_network/submissions/FTTP_Special_Interest_Group.pdf
The suggestion that FTTP came “out of the blue” and was dreamed up by Conroy without any expert input is clearly and demonstrably a deliberate falsehood.
Who is beating up the story?
Only mentioning the history of the NBN.. FTTP came out of thin air, no one was expecting it.. The government obviously thought it knew better, it could plan and build it without the need for any public consultation. Acacia and others would not have spent millions wasted on a FTTN plan had the government hinted it was going to build FTTP by itself..
Obviously the government was wrong in that it thought it could create and successfully implement a politically motivated broadband network… Just like the liberals and Opel before that…
We seem to have more success with broadband when it is left to the private sector..
@Frank: Feel free to define “success” in the context of private sector and telecommunications please?
FTTP came out of thin air, no one was expecting it.. The government obviously thought it knew better, it could plan and build it without the need for any public consultation.
Actually, the government didn’t have a clue either way, they took the advice of the NBN Panel of Experts (made up mostly of non-government people).
“The Panel will receive submissions from industry and the public to assist in the development of the RFP documentation. Submissions will be received until 30 March 2008.”
So “the public” and industry also got a say.
Where have you been getting your information from Frank? The Australian?
Try directly:
http://www.minister.dbcde.gov.au/conroy/media/media_releases/2008/government_announces_panel_of_experts_to_assess_national_broadband_network_proposals
“The government obviously thought it knew better, it could plan and build it without the need for any public consultation.”
But the consultation WAS there in the responses to the first call for submissions.
With no viable FTTN tender, the obvious thing to do was what so many of those submissions suggested, do FTTP instead.
Incorrect again Frank…obviously, it’s the the same wrong claim you made an hour earlier…
http://delimiter.com.au/2013/08/19/5bn-nbn-blowout-wrong-says-quigley/#comment-620789
Seriously, what is wrong with your eyes that you can manage to read my comment and ignore all those preceding and following it? Others pretty comprehensively demolished your conjecture, even providing links to supporting evidence demonstrating you are flat out wrong. HTF do you manage the mental gymnastics required to filter so many compelling facts and reality out of your field of view just because they disagree with your preexisting ideology?
Ren, another poster incapable of following the comment policy ignoring responses of others?
Reminds me of a joke. Appologies to anyone overly religious out there, this isnt intended to offend, just show how blinkered people can be.
So it seems that these four rabbis had a series of theological arguments, and three were always in accord against the fourth.
One day, the odd rabbi out, after the usual “3 to 1, majority rules” statement that signified that he had lost again, decided to appeal to a higher authority.
“Oh, God!” he cried. “I know in my heart that I am right and they are wrong! Please give me a sign to prove it to them!”
It was a beautiful, sunny day. As soon as the rabbi finished his prayer, a storm cloud moved across the sky above the four.
It rumbled once and dissolved. “A sign from God! See, I’m right, I knew it!” But the other three disagreed, pointing out that storm clouds often form on hot days.
So the rabbi prayed again: “Oh, God, I need a bigger sign to show that I am right and they are wrong. So please, God, a bigger sign!”
This time four storm clouds appeared, rushed toward each other to form one big cloud, and a bolt of lightning slammed into a tree on a nearby hill. “I told you I was right!” cried the rabbi, but his friends insisted that nothing had happened that couldn’t be explained by natural causes.
The rabbi was getting ready to ask for a *very big* sign, but just as he said, “Oh God…,” the sky turned pitch black, the earth shook, and a deep, booming voice intoned, “HEEEEEEEE’S RIIIIIIIGHT!”
The rabbi put his hands on his hips, turned to the other three, and said, “Well?”
“So,” shrugged one of the other rabbis, “now it’s 3 to 2.”
“We seem to have more success with broadband when it is left to the private sector..”
It’s apparent from this comment that you don’t live in Australia and are commenting based upon an “external ” viewpoint. Privatisation of telecommunications in Australia with the exclusion of Mobile has been an unmitigated disaster.
Even mobile has the “blackspot” problem, seems the Liberals want to use public money to help out “private industry” there
The problem with giving the project to Telstra 8 years ago is of course price. They have shown over and over again they know how to extract monopoly rents from infrastructure.
Also I’m note sure if comparing the NBN roll out to the UK BT roll out is fair as the NBN roll out time includes planning and legal negotiations
Comparing the BT rollout and the Oz rollout is very much comparing apples and oranges:
– BT is the infrastructure owner
– population density much higher
– BT governance structrues already in place instead of building from scratch like NBNCo
The list goes on.
This is very much the straw man argument, especially considering they are backtracking on the FTTN evangelism…
Indeed Brad.
But as Renai says (so to keep within the comments policy) FttN can, nonetheless be done here…
IMO however, it’s just that FttN is a retrograde, dumb move… Or dare I say it… a $30B white elephant ;)
What can be done and what should be done are independent.
Can FTTN be done in Australia?
Yes.
Is it a stupid idea?
Yes.
Unfortunately it is those sort of comments that result in “fanboi” labels.
Which is equally stupid.
Instead of saying “its stupid” Say “Economically inefficient”, or “Technologically shortsighted”.
Or something else. “Its stupid” just gives the opposition to the FTTP NBN ammunition to distract with.
Your criticism is unwarranted.
I’ve been very verbose on this topic in the past, and occasionally I like to change things up a bit and say things directly, concisely and conclusively.
It is a stupid idea. Others have repeatedly stated many of the reasons why it is a stupid idea. Renai alludes to some of those reasons in the article:
The UK has a much higher population density than Australia, concentrated in a much smaller area, easing some of the broadband rollout challenges found in Australia. In addition, it is currently unclear to what extent Telstra’s copper network is maintained at a similar level to the copper network operated by BT, with some claiming that Telstra’s network is inferior and not as capable of supporting high broadband speeds under a fibre to the node-style rollout.
I have previously commented on another reason, and I think it is one of the most, if not the most, important reasons why FTTN in Australia is a stupid idea:
I’m becoming increasingly convinced that Tony Abbott’s initial plan of “pausing” the NBN (allowing a future government to continue) is a better idea than Malcolm Turnbull’s current policy that will require a lot of retrofitting for the inevitable upgrade to FTTP and cost much more in consideration of that.
Just my opinion.
But honestly, Malcolm’s policy is built around planned obsolescence, while Labor’s (or rather, NBN Co’s) design is future-proof (not infinitely of course). Planned obsolescence is a stupid idea, and that’s not just my opinion.
“FTTN has also been deployed in the United States by AT&T, France by France Telecom, and in Germany by Deutsche Telekom”
AT&T
I simply can’t understand how these people think. They have recently upped the MAXIMUM speed available on their FTTP offerings to a massive 24/3 Mbps, up from 18/1.5 Mbps. They seem puzzled why they were not flooded with people wanting to drop their comparatively fast xDSL connections on competitors networks to take up the slower FTTP option. It appears to be their policy to limit fibre to FTTN capabilities.
http://www.fiercetelecom.com/story/att-ups-its-ftth-speed-24-mbps/2013-04-10
France Telecom
France Telecom and SFR, in particular, see a strong future in FTTH. In April, the duo announced a joint agreement with France’s central government and the Ile-de-France region to bring FTTH to major Paris suburbs by the year 2020.
http://www.fiercetelecom.com/story/frances-ftth-base-rises-50000-first-quarter-arcep-says/2013-06-03
Deutsche Telekom
Prefers to provide FTTP. They survey new areas and do FTTP “if at least 80 percent of the homeowners agree and a threshold of ten percent is exceeded during pre-sales”.
http://www.telekom.com/media/company/133040
AT&T are probably constrained by the American market.
Namely; Americans aren’t fans of data caps. So instead of having a 1tb quota (or whatever) they can only cap usage by limiting maximum bandwidth.
They *need* to cap usage (by quota or otherwise) because they obviously don’t have 100megabit+ uncontended links (same as Australia), but since their market hates to pieces quotas; they just cap the bandwidth.
NBNco’s plan was based on a per user connection cost of $2,400.
The reality is that connection costs range from $2,200 to $2,500.
These figures would indicate that some of the problems faced by teh contractors may have been due to under-quoting in order to secure contracts.
Even in the worst case scenario that new contracts are renegotiated at the highest, $2,500 price, that would be $100 x 11 million connections, $1.1 billion which is a tiny part of the contingency funding already budgeted, ie not a blow out but a normal variation already allowed for in the budget.
An interesting article (surprising source)
http://www.theaustralian.com.au/australian-it/it-business/fibre-island-open-for-business/story-e6frganx-1226700113529
I have suggested previously that I can imagine a future where statues of Windsor and Conroy have pride of place in the Armidale Civic Centre.
Not only business but education, sure uni’s are connected to AARNET, but the students especially the undergraduate ,researchers etc, now have access to FTTP to also do their work or research from home, an ideal location for industrial design studios for the same reason. 1Gb from home may be a reasonable option for some. (GMH, Ford, ??)
So even if there is a 10% blowout (I think NBN was screwed over by having to seal the deal by a particular time so was in a poor negotiating position) It is important that the savings are not cut corners that will come back to bite on the posterior in the future
“We’ve seen pretty conclusive evidence from countries such as the US, UK, France and Germany that incumbent telcos are pretty good at upgrading their existing copper networks to variants of fibre to the node or fibre to the premise (albeit, coupled with a general loss of competition in the retail broadband environment).”
And then there is this article that seems to refute this point somewhat in relation to BT.
http://www.theguardian.com/commentisfree/2013/aug/12/bt-broadband-scam
That article doesn’t deal with the rollout of FTTN basically at all … did you read it?
I think he’s refering to the part talking about being a fiasco rolling broadband out to rural Britain. There’s mention along the same lines a couple of paragraphs later about roadworks to put down fibre-optic, so its a fair assumption to think the story is talking about FttX broadband rather than last century xDSL.
Not clear either way.
The comments are worth a read, once you get past the sports section
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