nbn cools on HFC amid cost increase

nbn cools on HFC amid cost increase

nbn sees rising HFC costs as peak funding forecasts decrease.

Bill Morrow - CEO, nbn

Bill Morrow - CEO, nbn

The company tasked with building Australia’s National Broadband Network (NBN), nbn, is easing back on its reliance of existing hybrid fibre coaxial (HFC) cable infrastructure in its national rollout of the network, citing rising costs associated with the technology.

In its latest annual corporate plan, nbn, revealed that the cost of rolling out the network using existing HFC network infrastructure originally constructed by telecommunications providers, Telstra and Optus, has risen to $2,300 per premises, up from its previous estimate of $1,800 per premises.

Due to the new cost estimates, the company has decided to lower the number of premises to which it will rollout the network using the HFC infrastructure from, 4 million to between 2.5 million and 3.2 million during the coming year.

Nbn’s deal to acquire the HFC networks built by Telstra and Optus, worth $11 billion and $800 million respectively, was approved by the ACCC in August last year - the HFC infrastructure had been largely used to deliver cable television and internet services.

The acquisition came as a result of the Abbott government’s decision to opt for a multi-technology mix in the rollout of the nbn, citing cost savings and speed of delivery.

However, a leaked internal nbn document published by Fairfax late last year described the Optus network as “not fit for purpose”.

“Some Optus equipment arriving at end of life and need to be replaced,” the document said. “Existing Optus CMTS [cable modem termination systems] don’t have sufficient capacity to support nbn services.”

According to nbn chief executive officer, Bill Morrow, the increase in the company’s estimated cost per premises for an HFC rollout was down to previous uncertainty around contract costs.

“We had said last year in the plan that there was a great deal of uncertainty because we did not have those contracts in place,” Morrow said.

“We had not negotiated again with equipment suppliers, with delivery partners, there were still design questions about what we were going to do.

“As we’ve secured the contracts for HFC, we can see that certain premises are far better off to be in the alternative technologies than in HFC.

"We are very pleased with the way we think HFC is going to perform, that $2,300 is still half what it is for a FttP, and still comparable to what we’re deploying with alternative technologies, but still gives that Gigabit per second capability.”

Despite the changes to its HFC strategy, nbn’s latest forecast highlights an increased expectation in annual revenue for the financial year 2020 – when the network is expected to be completed – to $5 billion. It also reported a $2 billion decrease in its top end peak funding range, to $54 billion.

At the same time, Morrow revealed that the company is in talks to secure non-government finances to help fund the project.

“NBN is fully funded for this entire financial year, and already we are in the process of securing external debt as we speak right now,” he said.

Meanwhile, the company said it remains on track to connect 8 million premises by 2020, while expecting data consumption to grow at 30 per cent each year.

This, in turn, is expected to drive up the average revenue per user (ARPU), to $52. According to Morrow, this could be good news for nbn retailers.

“The cost per megabit per second actually comes down as usage goes up. This is part of our dimension-based pricing discount structure that we implemented recently,” he said.

“Retailers can therefore push more data and make it more affordable to end users because they will have a lower unit price as they go forward.

“We know that the network can handle far more consumption that exists today without changing anything on the speed levels.

“[Consumers] have room to purchase up, to have higher speeds, to be able to accommodate the growth that we have in this plan out to 2020."

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