How much do FTTP NBN connections really cost?

New Zealand’s equivalent to NBN Co provides damaging evidence that the Coalition’s National Broadband Network (NBN) is unlikely to be delivered more affordably and sooner than Labor's full-fibre plan.

In New Zealand, the conservative government led by Prime Minister John Key has forged ahead with a fibre-to-the-premises (FTTP) rollout abandoning the use of the obsolete Fibre-to-the-Node (FTTN) which is to be rolled out to over 50 per cent of Australian premises under the Coalition’s multi-technology mix (MTM) broadband plan.

Chorus, New Zealand’s equivalent to NBN Co, is rolling out FTTP to about 70 per cent of New Zealand premises and its full-year financial reports for the 12 months ending June 30 2015 present a far clearer picture of the true costs and deployment times for FTTP.

When Chorus commenced a FTTP rollout in 2012, the cost per premises passed (CPPP) was about $NZ3,500 and this cost has decreased to an average of $NZ2,134 over the past year. The projection for financial year 2016 is in the range of $NZ1,700 to $NZ1,770.

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Source: Chorus

The cost per premises connected (CPPC) is the cost of connecting premises to the fibre running past premises and excludes a cost known as the Layer 2 implementation cost which is about $NZ100. The CPPC cost has fallen since 2012 to an average of $NZ1,233 over the past year and is expected to fall to an average of $NZ1,050 to $NZ1,250 next year.

What this means is that Chorus is now installing FTTP for an average cost of $NZ3,467 and this cost is expected to continue to fall to an average of around $NZ3,200 over the next two years.

Chorus reports that over the past year about 75 per cent of the net additions and changes to ultra-fast broadband (UFB) fibre connections have been to adopt 100 Mbps+ download speeds. A key reason for the move to 100 Mbps download plans has been the decision by Chorus to reduce the cost for wholesale 100/20 Mbps fibre connections to $NZ40 per month.

In an effort to justify the MTM broadband plan and explain away the recently announced $15 billion cost blow-out, NBN Co has released a financial report for the financial year ending June 31 2015 and a corporate plan for 2016 to 2018 that quite remarkably indicates that brownfield FTTP rollout costs are increasing. The key reason for this is the need by NBN Co to maintain the pretence that FTTN will be much cheaper than FTTP to rollout.

NBN Co recently announced it will fund the training of 4,500 extra workers to boost the rollout rate to ensure that the MTM NBN is completed by 2020 -- which is when Labor’s FTTP NBN was to be completed -- by adopting a similar workforce expansion approach. However, delays in renegotiating the NBN Co Telstra agreement and other regulatory delays mean that NBN Co is now further behind in the rollout than it would have been if it continued to rollout FTTP to 93 per cent of premises.

In an extraordinary move, NBN Co has added an OPEX cost of about $700 to the average FTTP connection cost but has failed to include the anticipated $1 billion per annum to maintain the FTTN copper in the cost of rolling out FTTN.

A reason for NBN Co’s apparent desperation to present a rosy picture about the ballooning cost to complete the MTM broadband rollout and maintain a fixed cost for FTTP connections was identified in Emeritus Professor Rod Tucker’s recent presentation Bringing Australia's Broadband Network into the 21st Century where he showed how the cost projections for the governments MTM NBN had fallen from 30 per cent of Labor’s NBN to 66 per cent in the 2015 financials. Tucker joined a long line of MTM NBN critics earlier this year when he criticised the government for artificially inflating the cost of FTTP connections.

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Source: Professor Rod Tucker

On page 32 of NBN Co’s corporate plan the average cost of brownfield FTTP connections is $4,387 up from $4,359 in the previous year and the average cost of greenfield FTTP connections is $2,798 down from $3,104 in the previous year. The overall average cost for each FTTP connection is not provided but it is worth noting that greenfield connections account for less than five per cent of the total NBN connections.

If the $700 OPEX charge over the life time of the NBN Co agreement with Telstra is subtracted from the average $4,359 reported by NBN Co, the true Capex cost of a FTTP connection falls to an average of $3,659, which if you disregard the use of different currencies, is about $200 per premises more expensive than what Chorus reports. NBN Co also fails to project a reduction in FTTP rollout costs, actually reporting an increase between financial year 2014 and 2015.

Australia has about nine million premises to connect using a fixed network connection and currently about 10 per cent have been connected. So a saving of $200 per premise for the remaining 8.1 million premises to be connected is about $1.6bn and if Chorus achieves its cost projection for 2016, then the total saving of about $400 per premise would mean that Australia could save over $3bn if NBN Co achieved similar savings completing a FTTP national rollout.

It’s a normal expectation that costs will decrease during an infrastructure rollout and the figures shown by Chorus clearly demonstrate why NBN Co’s mumbo-jumbo accounting practices must cease and Australians should be provided with transparency and facts about what is actually happening within NBN Co.

A key reason why FTTP connection costs should decrease is the use of new technologies including the move from multi-port to mini-port devices that are used to connect fibre running past premises to the drop lines that go into premises. Another step that should be taken is the adoption of aerial fibre distribution, micro trenching and sheathed fibre and other approaches that have been shown to reduce the cost of distribution and drop fibre rollout in locations where existing infrastructure is old and degraded. The option of self-installation of drop lines should be explored too.

In his recent speech, Tucker went on to argue that Australia should have continued the global trend to rollout FTTP rather than FTTN which has no more than a five year life-time so many Australians will be provided with an obsolete technology by 2020.

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Source: Rod Tucker

Questions must be asked of NBN Co about why there is a major discrepancy between the figures it has reported and figures reported by Chorus and why alternate construction techniques are not being adopted to further reduce FTTP rollout costs as is happening in New Zealand.

Mark Gregory is a senior lecturer in the School of Electrical and Computer Engineering at RMIT University.