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NBN Faces Double Cost Hit on Ageing Optus Network

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NBN Faces Double Cost Hit on Ageing Optus Network NBN faces double cost hit on ageing Optus network by David Ramli NBN Co spent $800 million to buy and reuse Optus' cable network. Now it may be forced to invest another $375 million to rebuild parts of the fading network because it isn't capable of delivering high-speed broadband to enough people. NBN struck the deal with Optus in 2012 to buy and convert the hybrid fibre-coaxial (HFC) network used for internet and pay TV. Where the last Labor government wanted to replace it with fibre-to-the-home technology, the Coalition pledged to save money and time by upgrading it instead and signed an updated contract last year. The draft of an internal NBN presentation this month says the Optus network is not "fit for purpose", lacks the capacity to support NBN services and must be upgraded or replaced at a cost of up to $375 million. This would be the latest cost increase at NBN since the Coalition took over in 2013. It revealed a potential cost blowout of $15 billion in August, citing higher than expected expenses. "Some Optus equipment [is] arriving at end of life and needs to be replaced," the presentation to senior executives said. "Optus nodes are oversubscribed compared with Telstra and will require node splits … 470,000 premises [in areas covered by Optus' network] would have to be overbuilt." The presentation warned that any of the planned works would "come at a significant cost" in terms of time and money. "NBN will miss its financial year 2017-18 ready-for-service targets by respectively 300,000 and 333,000 [premises]," it said. "Preliminary analysis indicates a peak funding increase of $150 million to $375 million." No good options Sources said that NBN Co was waiting on the final results from its Optus cable trials in Queensland, which are due by February. This will then feed into a final decision, which is expected to be made by mid-next year. One key slide highlights the options available to NBN – all of which spell bad news for the business case and assume the Optus connections will need to be replaced. Expanding Telstra's cable TV network, which covers many of the same areas, is the cheapest option and would cost NBN an extra $150 million in peak funding. Overbuilding Optus' network with fibre-to-the-node technology would cost $175 million more in peak funding. Labor's original plan does not escape unscathed, with internal forecasts showing that an upgrade to the fastest fibre-to-the-premise technology would cost an extra $600 million in peak funding. But NBN's preferred option is to use a mix of technologies and this could cost between $150 million and $375 million extra in peak funding to complete. This would see 350,000 homes and businesses get fibre-to-the-node or drop-point technology, while 120,000 premises would get plugged into Telstra's HFC network. An NBN spokesman said the company had prepared for "ebbs and flows" in the project. "In order to manage risk, NBN regularly prepares for multiple scenarios in the network deployment – the document concerned is part of that ongoing approach of risk mitigation," he said. "The NBN HFC trial in Redcliffe has been built out to 4500 premises [and] end-users have been receiving [download] speeds of up to 100Mbps." Construction targets off The internal presentation also reveals NBN is set to miss its construction targets, adding to its existing problems getting users on to the internet. While thousands of customers are being plugged into the national broadband network every day using a range of technologies, many are forced to wait several weeks before getting broadband services. "NBN will miss its financial year 2017-18 HFC ready-for-service target," it said, adding that this assumed there would be no extra capacity in other construction programs to absorb the extra work. "[The] fibre-to-the-x program is already activations-constrained." NBN's 2016 corporate plan makes no mention of overbuilding its HFC networks, but a spokesman said that "scenario planning" had been accounted for. This may indicate that NBN will use its contingency fund to cover any increased costs. Labor shadow communications minister Jason Clare said the latest presentation showed NBN was set to have another cost blowout. "[Prime Minister Malcolm Turnbull] designed his second-rate NBN using a network that he didn't know the quality of and now his chickens are coming home to roost," Mr Clare said. "It looks like Malcolm Turnbull's second-rate NBN is about to have another cost blowout and will take even longer to build. "Malcolm Turnbull's management of the NBN has become an absolute joke." An Optus spokeswoman said both the telco and NBN had always said the HFC network would need an upgrade to support the latest broadband speeds and plans. "In advance of handover, there has been and continues to be major investment into the HFC network to manage subscriber growth and capacity demand," she said. "It's no coincidence that an independent study conducted by Netflix in October ranks Optus' fixed networks as No. 1 for a prime-time streaming experience." Read more: http://www.afr.com/business/telecommunications/nbn-faces-double-cost-hit-on- aging-optus-network-20151125-gl7eii?login_token=6LIIkzwzGNA1SNvk- lv3X_jSSEc7FR7wmzzHo2BYY6Ay138d8Z6-2inldDGdfxj5U0xfjOncCVnOdlQD2- B7tg&expiry=1463986595&single_use_token=w5o2y66SbhwZHZmzhowlUAcHklt3Wz3pB 6q- VoHhzUCX5wDGp5St1FIq1F3txLWidLCGNODXA1wcgFYObgkB0g#ixzz49SbAKJV4 Follow us: @FinancialReview on Twitter | financialreview on Facebook .
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