NBN making progress but still paying for political footballing

While Australia's broadband network is finally achieving positive developments, it is still struggling financially as a result of Coalition mismanagement. Paul Budde reports.

FOLLOWING MY article from last week and your reactions to it, I think it is important to say a few words before delving into another “glowing” NBN story from the company itself, obviously with a bit of spinning that you can expect from large corporations.

What we are witnessing now, both regarding the growth of the NBN and last week’s discussion on its economic benefits, are outcomes that I and others envisioned when we developed plans for the NBN between 2005 and 2010. In that respect, I am pleased that we are (technically) progressing in the right direction.

However, a loss of $696 million indicates that it is not all hunky-dory. This is significantly higher than the results of the same period last year. NBN Co is obviously paying for a decade of political footballing thanks to the previous Coalition Government.

Now it has to make new investments to bring the overall network up to scratch. Another problem is that for a decade or so, NBN Co has indicated that it was expecting to grow its Residential Average Revenue Per User (ARPU) to $51. However, as promised by NBN Co during the Special Access Undertaking (SAU) consultation, the Residential ARPU has remained flat at $47 for the last 12 months — and the company reiterated its expectation that its Residential ARPU will remain unchanged during the second half of Fiscal 24.

NBN Co’s Business revenue was $570 million for the six months to 31 December 2023, a 4% increase compared to H1 FY23.

Enhanced NBN connectivity will provide economic and social benefits

In recent years, Australia has witnessed a profound transformation in its digital landscape, propelled by the accelerated rollout of the NBN.

Furthermore, the choice to abandon the initial Fibre-to-the-Home (FttH) technology and replace that with the infamous Multi-Technology Mix (MTM) led to a large proportion of NBN users getting a second-rate service. As a result, people started to question its need and looked at alternatives such as 5G, fixed wireless offerings from other suppliers, and new satellite services (Starlink).

As a result of this, the company is not achieving the penetration that was envisaged 20 years ago, which, of course, is reflected in its financial results. As we have reported, it has been losing customers in brownfield areas, with its increase mainly coming from greenfield areas (offering good quality network services).

So, as we have been discussing for many years, the company remains financially problematic.

Putting those financial headaches aside, we have consistently advocated that the NBN would yield significant benefits for individuals, businesses and society as a whole. Finally, we are beginning to see these benefits materialise. Regardless of the challenges we've faced as users, this is indeed a positive development. So, after the MTM debacle, the company has now been permitted by its political overlords to change back to a fibre plan, which is a good outcome for users.

It will be interesting to see if NBN Co can, over time, solve its financial problems or if taxpayers will have to step in to pay for the political incompetence that has, at least for a significant part, led to the current situation.

That being said, let's now look at how the company is presenting its financial and operational results for the first half of the financial year, 2024. As you will notice in its highlights, it doesn’t discuss the issues I mentioned above; those details – on which I base my personal analysis – are buried deeper in their reporting.

NBN analysis shows Australia's broadband infrastructure advancing

New data shows an improvement in Australia's broadband performance while highlighting ongoing challenges for regional customers.

Key highlights of NBN Co's performance for the period ending 31 December 2023 include:

Revenue and EBITDA: Total revenue for the six-month period reached $2.75 billion, marking a 5% increase compared to the same period in the previous fiscal year. Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) stood at $1.99 billion, reflecting a notable improvement of 10% over H1 FY23.
Financial guidance: The company remains on track to achieve its FY24 guidance, with revenue expected to fall within the range of $5.3 billion to $5.5 billion and EBITDA projected to be between $3.7 billion and $3.9 billion.
Business performance: Residential ARPU remained stable at $47 per month, consistent with the previous year. Business revenue experienced a 4% increase, reaching $570 million compared to H1 FY23.
Regulatory acceptance: NBN Co obtained Australian Competition and Consumer Commission (ACCC) acceptance of the Special Access Undertaking (SAU) Variation, introducing a new approach to wholesale pricing and providing long-term regulatory predictability for the industry.
Network growth: The number of net activations on the NBN network increased by approximately 24,000 premises in H1 FY24, bringing the total number of connected premises to approximately 8.58 million. The company continues to invest in expanding network coverage and capabilities, including extending fixed wireless and satellite coverage and deploying fibre deeper into communities.
Fibre upgrades: As of December 2023, nearly 200,000 premises had upgraded to a full fibre service, with approximately 7,000 customers per week, on average, placing fibre upgrade orders.

Network expansion and technology upgrades

NBN Co's network investment strategy focuses on expanding fibre infrastructure, enhancing speed capabilities and retiring outdated copper infrastructure. The company closed the half-year with approximately 8.58 million premises connected to the network, reflecting ongoing progress in extending coverage.

Capital expenditure during the period amounted to $1.87 billion, a 32% increase compared to H1 FY23, driven by continued investments in network upgrades. These investments include the rollout of new fibre infrastructure and the scaling delivery of fibre upgrade programs.

NBN Co negotiating with ACCC for better and cheaper broadband options

In a significant development for Australia's broadband landscape, NBN Co and the ACCC have re-engaged in negotiations.

To support its network expansion initiatives, NBN Co received equity injections totalling over $546 million from the Commonwealth Government. Additionally, the company raised $3.4 billion in bank and capital markets debt during H1 FY24, reinforcing its financial position and liquidity.

NBN Co remains committed to repaying the outstanding balance of the Commonwealth Government loan by June 2024 while maintaining a strong focus on refinancing, funding network investments and ensuring financial sustainability.

Community impact and social initiatives

Beyond its financial performance, NBN Co continues to positively impact communities across Australia. The company actively supports the Australian Government's School Student Broadband Initiative (SSBI), which aims to provide broadband access to eligible families with school-aged children.

In collaboration with industry partners and government agencies, NBN Co launched the SSBI National Referral Centre, allowing eligible families to self-nominate for the initiative, thereby increasing accessibility and inclusivity.

Future outlook

Looking ahead, NBN Co remains committed to its network upgrade programs, aiming to enable over 10 million premises, or up to 90% of the fixed-line network, to access ultrafast broadband speeds by the end of 2025. The company's ongoing investments in fibre infrastructure and technology upgrades position it to meet the growing demand for high-speed internet services.

NBN Co plans to introduce enhanced fixed wireless wholesale speed tiers and uncapped internet data use for customers in regional and remote areas.

Paul Budde is an Independent Australia columnist and managing director of Paul Budde Consulting, an independent telecommunications research and consultancy organisation. You can follow Paul on Twitter @PaulBudde.