News

New figures show the Coalition’s rollout of the National Broadband Network has cost almost twice what was projected – for an inferior system. By Laurie Patton.

The real cost of the bungled NBN rollout

Minister for Communications and the Arts Paul Fletcher.
Credit: Sam Mooy / Getty Images

Critical revelations this week confirmed that the Abbott government’s changes to the national broadband network have been an expensive disaster. They also demonstrated the extent to which the company building the network, NBN Co, has consistently hidden the real cost of the project, which has failed to meet original budget predictions.

The current minister, Paul Fletcher, has effectively conceded his predecessors’ mistakes and is about to start fixing the problems they created. But this will add billions of dollars to an already massive blowout in costs.

Meanwhile, millions of Australians struggle with slow and unreliable internet connections. It wasn’t supposed to be like this and the mess could have been cleaned up years ago.

When the Coalition announced its changes to the NBN it claimed a build cost of $29 billion for its “cheaper, faster” version. However, cost increases have seen the total exceed $50 billion.

Citing dubious commercial-in-confidence issues, NBN Co has consistently refused to release details on its internal costs. Some of those details were finally outlined in a report in Guardian Australia this week.

In 2013, NBN Co estimated the cost of using copper wires instead of fibre would be $600 to $650 per premises and using pay TV (HFC) cables would cost between $800 and $850 per premises. The average for copper is actually $2330 and HFC is $2752.

At the heart of the debacle is a decision, insisted on by Tony Abbott as a cynical political play, to stop rolling out optical fibre and instead reuse decades-old copper wires and ageing pay TV cables – the so-called MTM or “multitechnology mix” model.

While copper-based fibre to the node can theoretically deliver reasonable broadband speeds, the problematic state of the Telstra phone network has resulted in massive numbers of complaints to the Telecommunications Industry Ombudsman.

Not long after Malcolm Turnbull became prime minister, I attended a fundraising dinner in Sydney. The guests of honour were Turnbull and then opposition leader Bill Shorten.

Towards the end of the evening I had a brief chat to both. I’d recently taken on the role of chief executive at Internet Australia – the peak body representing internet users – and the NBN was top of mind for me.

When I told Turnbull there were new alternative technologies worth considering he replied, “I need to know about this. Come and see me.”

For months I attempted to break through his Praetorian Guard. The closest I came was a brief meeting with Drew Clarke, his chief of staff. Ironically, Clarke was the head of the Communications department when Turnbull was the minister. He has since retired from the public service and now sits on the NBN Co board.

Fast forward two Coalition Communications ministers and along came Paul Fletcher. He has worked in the industry and has written a book on the subject – Wired Brown Land? Telstra’s Battle for Broadband.

In between was former senator Mitch Fifield. Despite having no apparent prior interest in the field, Fifield was a quick learner who absorbed and repeated ad nauseam the talking points his advisers worked up for him. Along with the NBN Co chair, Ziggy Switkowski, Fifield continued to defend the project despite growing evidence that changing the technology choices had created a significant problem.

The NBN Co board consistently rebuffed calls to return to a fibre model. It must surely have been aware of the information revealed this week. If not, management has questions to answer.

Fletcher might not thank me for the compliment but, unlike his predecessors, this minister knew too much to go along with a defence of the NBN that even some of his Coalition colleagues – especially those in the National Party – could see was less and less convincing.

Without drawing attention to the reality that he was abandoning the Abbott–Turnbull–Fifield defence, Fletcher has allocated more than $3 billion to start replacing copper with fibre. It will probably cost much more.

This essentially puts into effect what Internet Australia recommended five years ago. George Fong, a former Internet Australia chair, calls it “the tragedy”. He says it is the “incalculable retardation of the massive social, educational and economic benefits, especially to regional/rural Australia that would have more than paid back the investment and would have transformed the country”.

The path to the current substandard outcome can be traced back to the Howard government’s decision to sell Telstra. Under government ownership, Telstra was subject to direction from the Communications minister. It also had a statutory obligation to service the telecommunications needs of the country.

The only way Australians enjoyed widely available telephones – known as POTS, as in a “plain old telephone service” – was through a bipartisan agreement for government to fund the rollout of the network, originally undertaken by the Postmaster-General’s Department and later Telecom and finally Telstra. The NBN was modelled on the same proposition.

A single government-owned provider – NBN Co – would supply the technology connecting people to the World Wide Web while the provision of the enabling equipment in the home or business (a modem) and a data allocation would come from a wide range of retailers (retail service providers). Sadly, this has not been the case, with the dominant telcos still holding the majority market share.

Once it was privatised, the board of Telstra was bound by a corporations law requirement to act in the best interest of shareholders, which of course meant maximising profits above all else.

Charged with that obligation, and under the leadership of the very savvy David Thodey, Telstra took the current government to the cleaners on a multibillion-dollar deal for ongoing access to its copper network – the “pits and pipes”. For Telstra, the NBN is the gift that keeps on giving.

While in opposition, Labor had toyed with the idea of using Telstra’s phone lines to create a nationwide broadband network. However, the Rudd government’s Communications minister, Stephen Conroy, was alerted to its major technical shortcomings. Ironically, having itself anticipated the inevitable need to move to fibre Telstra had, for some time, been doing only essential maintenance on its copper network.

Conroy consulted leading broadband communications experts on whom he was to rely in developing his broad vision for a ubiquitous broadband network. In addition to warning about the rundown status of the Telstra network, these experts also pointed to potential problems likely to accompany any attempt to repurpose the Telstra and Optus pay TV cables. It has since cost millions to repurpose the Telstra cables. The Optus network was found to be unusable.

Contrary to an urban myth eagerly propagated by the Coalition, Conroy rejects the claim he and his prime minister designed the NBN on the back of a drink coaster or a paper napkin aboard a government jet. The planning was much more detailed and sophisticated, and drawn from advice.

Mike Quigley was NBN Co’s inaugural chief executive. He maintains that Labor simply accepted the advice that confirmed the use of fibre to the premises, or FTTP, and then, having established NBN Co, left it to him and his engineers to develop detailed implementation plans based on providing fibre to 93 per cent of premises.

Quigley argues that adding two additional technologies – copper wires and pay TV cables – meant the complexity of the project increased significantly and this has added to the ongoing operational costs. He points out that in New Zealand, where they’ve stayed with fibre, per premises installation costs have been reduced over time by 40 per cent. He says a similar outcome was predicted for the NBN at the outset. He describes the “multitechnology mix” model as a “dog’s breakfast”. That’s a view I heard regularly from a raft of telecommunications experts at Internet Australia.

One of the unintended consequences of the downgrading of the capabilities of the NBN is it has opened up opportunities for others to enter the market. Some might see this as a good thing. However, there’s at least one initiative ringing alarm bells.

Space entrepreneur Elon Musk is building a network deploying thousands of small satellite dishes in a ring around the globe. Environmentalists currently campaigning to have plastic refuse removed from our oceans see a similar disaster in the making with our skies full of space junk.

A question that needs answering is what advice Turnbull was provided by the Communications department headed up by Drew Clarke. As an apolitical public servant, Clarke’s obligation was to ensure the government of the day was provided with accurate advice.

At the time Abbott and Turnbull took the decision to abandon a fibre rollout, a raft of external experts went public describing the move as flawed. Surely there were officers in the Communications department aware of the dubious state of the Telstra copper network and the pay TV cables that proved unusable?

So, where to now? In the last election Labor said it would undertake a detailed review before deciding how to bring the project back on track if it were elected.

By his recent actions Paul Fletcher has made Labor’s task much simpler. It could continue the current repair work or it could speed up the process and fine-tune the program. In addition, it would be well advised to commission an independent review of the actions of the NBN Co board and management.

This week’s revelations have reinforced the industry’s view that for a publicly owned business enterprise, transparency and disclosure has been unreasonably restricted. There is a widespread industry concern that there’s more bad news to be uncovered. Labor, or indeed the current government, needs to look into a range of reasons why the retail market is still so concentrated.

This article was first published in the print edition of The Saturday Paper on Nov 13, 2021 as "Net losses".

A free press is one you pay for. In the short term, the economic fallout from coronavirus has taken about a third of our revenue. We will survive this crisis, but we need the support of readers. Now is the time to subscribe.

Laurie Patton is immediate past president of TelSoc and a former chief executive of Internet Australia.