While the construction costs are about $7 billion lower than previously thought because of Telstra's cooperation, the operational costs are higher. However, the cost to taxpayers will be about $27.1 billion, with NBN Co financing the remainder, according to the plan. "Specifically, [operational] expenditure costs are higher in the deal scenario in comparison to 'no deal', due to the higher use of Telstra's infrastructure as well as the acceleration of customer take-up." Leasing infrastructure from Telstra and compensating it for decommissioning the existing copper network are part of the operational expenditure. Senator Xenophon said he would back the legislation that paves the way for Telstra’s participation in the NBN, after the government gave in and released the business plan, ending days of a political stand-off. "Yes I will," Senator Xenophon said this afternoon, when asked by reporters if he would now support a government bill before the Senate.

NBN Co would start paying the government dividends in early 2020, and repay the entire amount by 2034, even if the government-owned company were not privatised, according to the plan. "The project returns ... are expected to exceed the long-term government bond rate," the plan states. "This is based on a number of assumptions, the most significant of which are growth in speeds and demand, and hence revenue." "The stated internal rate of return is also dependent on the completion of a Telstra deal, which has a material impact on construction costs." However, the returns will be 50 to 80 basis points lower than expected if the government does not adopt a controversial network engineering design.

NBN Co has proposed just 14 points of interconnect on the network, which could make billions of dollars worth of existing broadband fibre infrastructure redundant. Some telecommunications companies, including Optus, have called for compensation on their infrastructure investment if this model is adopted. The Australian Competition and Consumer Commission (ACCC) is expected to finish its review on the interconnection issue by November 30. NBN Co estimates it will pay Telstra $13.8 billion between June 2011 and June 2020 to lease its pipes and ducts and to transfer customers from the existing copper network to the new fibre network. It estimates the build cost is $7 billion lower because of this deal, but speeds up deployment. "Taxpayers benefit from the deal with Telstra because it reduces the overall cost of building the network and will result in higher take-up rates and revenue for NBN Co." The NBN will not submit pricing details to the competition watchdog until after the current legislation and a related bill formally establishing the NBN Co are passed.

The deal with Telstra must be finalised by the end of next month and approved by shareholders in June 2011 or the whole project will be delayed, the plan says. The plan reveals that nearly 20 per cent of Australian households could be connected, or at least have fibre running past their house, within 13 months. And NBN Co expects to be fully operational by August 2012, a benefit of the deal with Telstra. ‘‘Based on current timetables, detailed design of the second release sites will commend in November 2010, with subsequent construction commencing in February 2011. The volume roll-out construction will commence in June 2011.’’ The plan confirms NBN Co will not sell services directly to consumers, it will remain wholesale only, but wholesale prices will be set to ‘‘achieve a viable internal rate of return based on NBN Co’s estimates of take up of different speed tiers and connectivity capacity usage’’. Prices could fall over time as more people take up the service, but the company would still provide returns to government above the current bond rate of about 5.4 per cent.

The current business plan is expected to last until June 30, 2013, and NBN Co will update its corporate plan every year. Loading lbattersby@theage.com.au BusinessDay