The ifs and buts in NBN's business plan

The National Broadband Network (NBN) Company's costings and timelines for the building of its network depend on a web of eventualities and assumptions to be valid, as outlined yesterday in the NBN business plan.

(Wet floor sign image, by Uwe Strasser, CC 2.0)

In the creation of its corporate plan (PDF), NBN Co admits it has had to make a number of "fundamental assumptions" to form a view on how the network, and ultimately the company itself, will operate over the next two years.

"The key assumptions set out … incorporate the latest government decisions as well as NBN Co's expectations on the most likely outcomes for remaining policy decisions," NBN Co said in section three of the plan.

Skills shortage

At the height of the network's deployment in financial year 2014, for example, NBN Co predicts that it will be rolling out connections to almost 6000 premises per day. However, the plan points out that this may not be achievable if there aren't enough workers to carry out the task.

"A significant risk to achieving this planned rate, and hence, the volume deployment plan, is a possible economy-wide shortage of available construction resources at acceptable cost," NBN Co said.

Geoff Johnson, Gartner research vice president for Enterprise Communication Applications said that a shortage of skilled labour could occur before NBN Co's 2014 projections.

"The mining industry and NBN Co will compete for [skilled] labour, "Johnson said. "There will be a potential labour shortage two years out for sure. I'm trying to get a builder at the moment and he's gone off to the mines for example."

NBN Co said that it will work with the training industry to alleviate the impacts of any potential shortage.

Johnson suggested that NBN Co cap staff numbers at around 300 employees and contract the external construction workforce in roll-out areas to keep the private sector in the loop. He said that by doing so, the NBN roll-out would be tougher to scale back or cancel if the Coalition forms government in 2013.

Johnson also suggested that a large number of ex-Telstra contractors might be looking for work.

"NBN Co labour is supplied by its contractors and Telstra resources are also available to be contracted to NBN Co," he said.

Telstra deal

Probably the biggest risk in the roll-out of the NBN is the potential non-completion of a definitive agreement with Australia's incumbent telco, Telstra.

The telco signed a Heads of Agreement with NBN Co earlier this year, promising $11 billion to the telco in return for moving its customers to the NBN and providing access to its infrastructure.

NBN Co assumes that the definitive agreements will be signed off by 30 June 2011. However, in the event of a "No Deal" scenario, roll-out costs would be forced up.

Guy Cranswick, advisor for analyst firm IBRS, said that the implications of not passing the deal with Telstra would be far-reaching, beyond that of an increase in deployment costs.

"If they don't pass the deal, it will erode the credence of the [business case itself]," Cranswick said.

Wireless competition

The plan also drew attention to the risks that competition from wireless competitors would bring.

"NBN Co's wireless and satellite services will be competing with other infrastructures (e.g. Telstra's NextG and other wireless and copper services)," the company admitted.

Johnson said that the competition overlap for wireless customers would be negligible, however, given the fact that NBN Co will implement wireless in areas where it is unprofitable for providers like Telstra and Optus to do so.

"NBN Co is looking at it from a [Universal Service Obligation] perspective: they'll roll out wireless where others can't," Johnson said.

Cranswick disagreed however, saying that NBN Co would be competing with other wireless providers' cheaper offerings.

"I think NBN Co will have a problem when competing with wireless vendors knowing what we know about the landscape [currently]. So many things can change between now and then that are completely unknown to us," Cranswick said.

Take-up rates

Overall, Cranswick said that the plan made some optimistic assumptions about how services would be delivered.

"You have in there, some very simplistic financial and market assumptions about pricing, application, uptake and services that will be delivered," he said. Cranswick added that NBN Co's 70 per cent take-up rates were optimistic at best.

"When I looked at the revenue and adoption rates, I saw exponential lines. I just thought 'no, that's not right'. I saw [Mike Quigley] say there would be exponential growth, and you can see why we had great growth for a number of years moving from dial-up to a broadband world, [but] where we go from this into the future is another thing," he added.

Johnson also felt the plan was light on tangible details.

"The plan barely scratches the surface leading up to the 2013 election if the government even lasts that long," Johnson said.

Shadow Communications Minister Malcolm Turnbull yesterday slammed NBN Co's business case, saying that it wasn't a true business case, merely "summary financials".