Politics Analysis

NBN Co hits revenue target after constant downward revision

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NBN Co has been missing revenue targets with continued support from government figures such as Communications Minister Paul Fletcher (Image by Dan Jensen)

NBN Co has finally hit financial targets after continually revising them to a point where they met its struggling business model, writes Paul Budde.

LAST WEEK, NBN Co announced its financial results for the financial year ending 30 June 2021. It showed that it had activated 8.2 million customers. Interestingly they mentioned that this was on target — returning $4.6 billion of revenues and an improved net loss of $3.8 billion.

But as I have also mentioned in previous analyses, it is easy to reach your target if you simply keep revising it. In all reality, the revenue target for the financial year 2021 has been dramatically revised down from $5.4 billion, to $5.2 billion, to $4.9 billion, to the current $4.5 billion.

The reality is NBN Co has been missing revenue targets for many years. However, as it is totally protected by the Government, it can get away with it. The company has indicated it will need to reach an average revenue per unit (ARPU) of $54. The question remains if that will ever happen as it has been staying now for years around $45.

It would create even more problems for the industry if that $54 target is reached, as that means prices will have to go up further. On the other hand, if they don’t reach that target, they will continue to struggle with their financial situation.  

However, it is no use crying over spilt milk, even though it is frustrating.

Having said this, here are some of the headline figures that the company revealed:

  • it has generated a 21% year-on-year increase in total revenue of $4.6 billion;
  • payments to Telstra and Optus decreased from $2.4 billion in FY20 to $1.2 billion in FY21;
  • net loss after tax improvement of 27%, or $1.4 billion;
  • earnings before EBITDA (earnings before interest, taxes, depreciation, and amortisation)was $1.35 billion, representing a $2 billion improvement on FY20;
  • some 8.2 million residential and business premises are connected on the NBN network, a 13% increase on the 7.3 million premises connected at FY20;
  • capital expenditure for FY21 was $2.8 billion, down 45% on FY20;
  • it raised more than $8 billion in private debt during the last 12 months; and
  • it aims is to bring higher download speeds to up to 75% of premises on the fixed-line network by 2023.

There was some more NBN news over the last few weeks.

ACCC launches court case against Telstra, Optus and TPG

The ACCC alleged that Telstra, Optus and TPG misled consumers over NBN maximum speeds. While this is not news, the issue the ACCC has with the companies is that after a year they still have not rectified the matte to all affected customers. The regulator has now instituted proceedings in the Federal Court.

The issue is that the companies have not made the financial rectifications required for allegedly false or misleading representations in their promotions of some 50Mbps and 100Mbps NBN plans, in breach of the Australian Consumer Law.

According to the ACCC, collectively, hundreds of thousands of consumers were allegedly misled by the three big internet providers, which accepted payments for NBN speeds they could not provide.

Apparently hurried by the upcoming court case, the three players have now suddenly started to speed up the “rectification”. Let’s see if this is enough for the case to be settled.

The underlying problem, however, remains that NBN Co does not always deliver the speed that customers buy and according to Telstra, it seems the company at least in some instances is unable to tell what the actual speed is that is provided to customers. As mentioned many times before, this has to do with mixing the various (old) technologies. Only when you have a first-class (fibre) network will that problem be solved. NBN Co, however, denies that they don’t provide accurate data and indicates that there is no problem. Let’s hope the arbiters can unravel this mess.

The drama in the industry was also on display in Telstra’s result — while its net profit was up 3.4%, revenue was down 11.6%. Net profit was up thanks to massive cost savings but what we are seeing is a company slowly shrinking.

NBN Co creates 44 new NBN Business Fibre Zones

A day before the financial announcement, the company announced the creation of 44 new NBN Business Fibre Zones. From September onwards, they will be able to deliver premium business-grade fibre to an additional 60,000 eligible businesses premises across Australia, on-demand, with no charge for the design and construction of fibre to the premises when they order a premium business NBN Enterprise Ethernet service.

This also rekindles other issues that we have discussed before. The business market is a very competitive market and it has been argued why taxpayers' money is used to service this market when there are plenty of other providers operating in this market.

This also links in with a current investigation by the Productivity Commission if NBN Co is indeed adhering to the government policy that states that it needs to be competitive negative.

Obviously, the business market is far more lucrative than the residential market. With the excessive costs of the way the NBN has been built in the residential market, the company is in desperate need to tap into other revenue streams to produce a better overall outcome. Having said this, the smaller players in the market are happy that NBN Co built this infrastructure as that gives them a better chance to compete with the other infrastructure players.

Telcos want CVC relief

Finally, this week saw yet another development in the endless CVC sage (the wholesale pricing NBN Co used for its Retail Service Providers). While the RSPs have been complaining about this for well over a decade, this time five players have joined forces and asked the Minister to intervene and get NBN Co for a restoration of the CVC 40% free boost, with nearly half the Australian population in lockdown.

The wholesale pricing system is making life for the telcos very difficult as it is very hard to predict in advance how much capacity is needed to deliver their services to their customers. For the same financial reasons as mentioned above, NBN Co needs this extra charge to create a better financial result.

While I do have my own questions about the way the telcos operate in this market, for me, the key issue is that NBN Co has become a de facto monopoly with full protection from the Government and that prevents the creation of a balanced market situation.

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.

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