The cost of Malcolm Turnbull's NBN rollout plan may blow out by up to $15 billion

Communications minister Malcolm Turnbull. Photo: Stefan Postles/Getty Images)

The national broadband network (NBN) may cost up to a third more than predicted by the Coalition, blowing out by $15 billion, according to figures revealed today in the company’s three-year corporate plan.

While communications minister Malcolm Turnbull promised a cheaper rollout of the NBN sooner under the Coalition, predicting it could be built for $41 billion, with the government contribution capped at $29.5 billion, the new estimate means NBN Co may be forced to find up to $26.5 billion in private capital to complete the project.

NBN CEO Bill Morrow said the new costing, of between $46 billion and $56 billion, has a $49 billion target cost. The revised figures are a result of technology changes and potential delays in deployment.

“An $8 billion change on a project of this magnitude is not that material in my view,” Morrow said.

Malcolm Turnbull blamed inadequate 2013 figures as one reason for the increase, saying it had taken CFO Stephen Rue, who joined NBN Co in July 2014, nearly a year establish an accurate cost accounting system.

“Under the Labor Party, neither the company nor the Government knew how much [the NBN] would cost or how long it would take,” he said.

“In September 2013, when the Coalition came into government, the current approach to the NBN was already well underway, contracts worth billions of dollars were locked in, and important agreements were in place with Telstra and Optus. It simply wasn’t possible to stop the project and start again with a clean slate without suffering losses of $20 billion or more, with little or nothing to show for it, and years of further delay in prospect.

“So our job was, as usual, to clean up Labor’s mess and mismanagement.”

CFO Stephen Rue said “costs have increased as expected and in-line with the ongoing build of the project”.

Before the election, Turnbull claimed the cost of Labor’s NBN plan would balloon to $92 billion, arguing the Coalition’s plan could do it using fibre-to-the-node technology for $41 billion.

Today he emphasised the risks and uncertainties in the project while saying everything is now under control.

“This is the biggest, most complex and most financially risky project. There are so many variables that can make a billion dollar difference,” the minister said.

“I’m confident the management has a very good handle on the numbers and on the way forward.”

The communications minister now has to consider how the shortfall in funding will be addressed, via the private sector, with a government guarantee or government borrowing. But the additional cost has the potential to hit the federal Budget bottom line.

NBN Co has doubled the number of places with access to the network, with the number of premises activated rising from 210,000 in June 2014 to more than 485,000 in June 2015. The company has a target of 8 million active users by 2020, when it is due for completion.

Netflix has done wonders for the NBN’s bottom line in just three months, with revenue rising to $161 million for the year to June 30 on capex of $3.3 billion.

The company has been trying to rein in costs by cutting fibre-to-the-premise (FTTP) numbers, with around 500,000 fewer places under the revised plan now getting the ALP’s more expensive, preferred option – about 20% of the total, down from 2013’s 26%. The ALP wanted FTTP in 93% of 13 million premises. The NBN now estimates that would cost $78-$84 billion.

Numbers receiving the Coalition’s preferred Multi-Technology Mix are also changing with fibre-to-the-node (FTTN) dropping from 41% to 38%, while hybrid fibre coaxial (HFC) cables – Foxtel’s delivery system – has risen to 34% from 28%. Fixed wireless or satellite connections will also increase.

The 2015 corporate plan says “the strategic MTM planning approach determines which technologies are utilised on an area-by-area basis so as to minimise peak funding, optimise economic returns and enhance the viability of NBN”.

The communications minister praised Morrow for a “formidable turnaround” in the organisation, which he said had “missed every single target” under previous CEO Mike Quigley, adding the the business was failing and the staff demoralised.

But the business faces considerable challenges still, with the internal rate of return (IRR) from the previously predicted 3.1-5.3% in the Strategic review, to around 2.7-3.7%. That may add to the challenge of raising additional capital and hit the federal government’s bottom line if costs rise about the $49 billion estimate.

NBN Co’s corporate plan is targeting 9.1 million homes and businesses ready for service by 2018, with 4.4 million activations, and $1.7 billion in annual revenue for FY18, plus construction completed in Tasmania and the Northern Territory.

“This is a bold plan that puts us in striking distance of our ultimate goal of delivering better broadband to every Australian by 2020,” Bill Morrow said.

“The work to date has also given us a more accurate picture of the actual costs of the build. This enables us to set the course for the move to the exponential growth of the rollout.”

The full plan is here.

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