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NBN Co flags ongoing cost problems

NBN Co will soon have spent half of its guaranteed government funding but has still only completed a fraction of its roll-out according to NBN Co Chairman, Ziggy Switkowski.

Speaking at a Council for Economic Development of Australia (CEDA) function on 16 September, Switkowski said that by the end of 2015 NBN Co would have spent about half of the $29.5 billion that the government has committed to provide. However, at that point only 10% of the build is likely to have been completed.

The NBN roll-out is still tracking at around 6-7,000 premises passed a week, but those numbers can be expected to improve materially once the renegotiation of the agreements with Telstra has been finalised and the FTTN roll-out ramps up. Presumably, though, such an increase in the “run rate” has been factored in to Switkowski’s estimates.

Adding to the company’s budgetary problems is the fact that its internal business systems appear not to be up to the task of supporting NBN Co as the network scales up beyond its current level of operations.

Switkowski reported that there would be a need for ongoing investment in this area – one that may prove to be a bottomless pit financially if the experience of other telcos is any guide.

If Switkowski is right, NBN Co will come up against its government funding limit some 8 months before the next federal election, creating a potential dilemma for the Coalition and Labor alike. The Labor government’s last budget forecast a total government NBN funding commitment of $30.4 billion, not materially different from the current Coalition figure.

NBN Co could of course borrow. It could also seek private sector equity partners. But irrespective of technology choices, the project may also require higher levels of public funding than have been committed to date.

It is on this issue, rather than the relative merits of copper, fibre and wireless platforms, that public debate will increasingly have to focus.

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