NBN says it’s all on track after some initial troubles – I don’t believe them

Last night was another in the regular series of appearances by NBN CEO Mike Quigley before the Parliament’s NBN Joint Committee. This is supposed to be a mechanism for the Parliament, on behalf of taxpayers, to oversee the public investment being made in the national broadband network. The stakes are high: already taxpayers have pumped $2.7 billion into the government owned NBN Co and will be up for over $40 billion by 2021.

According to Mike Quigley and his colleagues, everything is now on track. Sure, they fell a little behind while they were negotiating a deal with Telstra, but now they have turned a corner and the way forward is clear.

For example, Chief Operating Officer Ralph Steffens told us:

If you look at the forecast we are tabling here, it is the same pattern we are following here with the premises passed. There will be a steep ramp which will then level out and we will have then a sustainable run rate. It is a challenging program, it is a challenging ramp we have ahead of us, but we are confident that all the work is now handed over to the construction partners.

It all sounds lovely and reassuring. But I am not persuaded. There are three reasons why.

First, the Company’s track record since it was established in 2009 has been extremely poor. NBN Co put out a Corporate Plan in December 2010. According to that plan, by 30 June 2012 there were going to be 137,000 premises with an operational service on the fibre. The actual number was 3,867. Based on that kind of dismal underperformance against plan, if NBN Co were a private sector company, the CEO would have been dismissed by now.

Second, NBN Co continues to be tricky in the way it deals with information. It makes an art form of reporting data inconsistently between different documents, to make comparisons difficult. In the 2010 Corporate Plan, for example, it broke down its targets (for premises passed or covered, and premises with active service) into fibre, satellite and wireless.   In the 2012 annual report, it has merged together satellite and wireless.

To take another example, NBN Co tabled graphs at the Committee hearing last night purporting to show current connection costs per premises, and what these will reduce to over time. But while the graphs contained bars, they did not contain the actual numbers. All of this makes me suspicious that NBN Co wants hide the real picture.

The third reason I am sceptical – NBN Co is very good at telling us what it is going to do, but not nearly so good at doing it. Last night Mr Quigley wanted the Committee to focus on what he claimed the company was going to achieve – getting its connection cost per premises down to a much lower number than it currently stands at:

With the number on the right we are saying that with our corporate plan—as you can see in the yellow there—given our best estimate now and given all the data we have, that we are confident that we are going to come in for FY2013 between $1,200 and $1,500 for this component of the cost per premise passed.

I asked Mr Quigley some questions about this because I wanted to be clear that he was telling us about what the Company hoped to do in the future – not what it has delivered to date.

Mr FLETCHER: Just to be clear, the only reality you have here is about $3,000—looks like a bit more than that—and then the rest of it is what you hope to be at by the end of 2013. Is that right?

Mr Quigley: No, it is not a hope, it is an estimate that the company is prepared to back.

Mr FLETCHER: Can it be achieved or not?

Mr Quigley: We have achieved the similar number of FSAMs at build—

Mr FLETCHER: Is it in your plan, or is it actually delivered?

Mr Quigley: Some of it is actually delivered—as you heard from Mr Steffens we have some FSAMs—but we are not prepared to give a precise number or to fill it in in black until we have a larger quantity done. That we put some confidence limits around it; but I think that the committee can be assured that we are on track to hit the corporate plan number. We are prepared to back that, Mr Fletcher.

A plan is all very well. But it is not reality. It is not delivered.

Let us be clear on why this is important. Presently, NBN Co is spending about $3,000 per premises to connect them to the network: that is what the graphs the company tabled last night show. Now the Corporate Plan says that by 2021 there will be 12.2 million premises passed by fibre. So unless NBN Co dramatically improves, it is going to spend $36 billion just on fibre connections. This would mean a massive blowout in the budget of the NBN project – which is supposed to cost $37.4 billion in total capital expenditure (including not just the fibre connections but the rest of the network, and of course two other complete networks, one satellite and one wireless.)

On a trip to New Zealand a few weeks ago, the NBN Committee visited a company called Northpower, which is building part of New Zealand’s fibre broadband network in a town called Whangarei.   Northpower told us they have built a trial network, passing 900 premises, at a cost of NZD 374 per premises (about AUD 300). So presently it is costing NBN Co ten times as much money as it costs a company in New Zealand to build the connections for a similar fibre to the premises network.  

If NBN could show that it had actually delivered numbers like that, I would take notice. But until NBN Co can actually walk the talk – and show what they have done rather than what they are ‘gunna’ do – I will be extremely sceptical. So should all Australian taxpayers.