NBN takes HFC hit
NBN Co’s decision to stall the HFC rollout has already cost $50 million.
The company will take an immediate $50 million revenue hit from the HFC delay, but the eventual cost is expected to be much higher.
NBN’s chief financial officer Stephen Rue has given an initial indication of the cost of delaying the HFC build.
The delay has been projected to last up to nine months, but NBN Co has only provided projections for the first six months.
“It depends obviously on the length of time of pause but if you take a six month pause … for the period to 30 June you’re talking around $50 million [revenue impact],” Mr Rue said.
The bulk of the $50 million will go to Telstra and Optus to continue to run customers’ existing internet services and maintain HFC connections while the NBN HFC network remains unfit for purpose.
“If the whole program is delayed by six months - we have 1.9 million customers still to connect that we expect to connect, so if all of those 1.9 million customers were all delayed by six months - and I don’t think that’s necessarily going to be the case - you’d be talking about a $500m delay in revenue,” Mr Rue said.
“That is hypothetical. We will continue to build out lead-ins, we will continue to build into new areas but we won’t be releasing them obviously for sale.
“The actual answer to that question is well and truly being worked through, but will take probably several months for the team to come up with a new profile of build and when those premises will be ready for service.”
There are a lot of variables that could affect the overall financial impact of the HFC delay, including how quickly NBN Co can “access the skilled technicians we require”, and how lessons learned during the delay can be used to improve the remaining part of the HFC build, CEO Bill Morrow said.
The company says it will still get most of the planned revenue from HFC - minus the $50 million - and that the delay will not lead to a financial overrun for the entire project.
“We have contingency money set aside for these types of events and we are confident in the $49 billion peak funding forecast set out in our most recent corporate plan,” Mr Morrow said.
“The net effect on the $49 billion plan is zero effectively because of our contingency fund,” Mr Rue added.
Mr Morrow says NBN Co has “a plan on how to get to cashflow positive by only spending $47 billion, but we have uncertainty we know we still face in front of us”.
“When this [corporate] plan was written in June of last year, we knew that we would be facing things that we didn’t know,” he said.
“We were still in uncharted territory to a certain degree so we put $2 billion aside. So instead of a $47 billion we said we would commit to $49 billion and we would have this $2 billion contingency to be able to deal with the unknowns.
“The HFC example is just one of the unknowns, so we slide that over, and we maintain our budget.”
The delay will lead to an increase in the cost-per-premises (CPP) number for HFC, “the quantum of which I can’t tell you today,” Rue said.
Morrow claimed NBN Co had been caught off-guard by the level of remediation required on the HFC network.
“We knew that there would be some level of remediation that was required,” he said.
“We did not anticipate that it would be this much remediation that was necessary otherwise we would have done a far different job before we released it for the customers to connect to.
“It’s a calculated decision that was made to deploy this technology.”
ISPs have already reported drops in revenue due to no longer being able to sell HFC connections.