The real immediate concerns in the annual report are the activation rates – the number of people connecting to the network – and the ARPU – Average Revenue Per User, or how much money NBN Co expects to make from each of those connections.
Activation rates in the original corporate plan were expected to be around the 30 per cent mark, however, to date the take up has been closer to 15 per cent in the areas where the NBN has been rolled out.
Making matters worse for NBN Co’s revenue stream, the estimated initial ARPU was reduced from $33 in the 2010 corporate plan down to $20 for the 2012 estimates.
These lower numbers have had a marked effect on the project’s cash flow. As of the end of June 2012, NBN Co’s gross revenue was $1.9 million, just short of the $2 million expected in the latest Corporate Plan and far less than the $42 million projected in the original 2010 plan.
Interestingly that $1.9 million income from 13,500 active connections gives an ARPU of $140, an extraordinarily high number as Telstra’s reported ARPUs max out at $65 for a post-paid mobile user and most of those NBN subscribers haven’t been connected for a full year. From this we should assume there are upfront payments included in those annual report numbers.
More of a concern raised by this shortfall is the revised business plan assumes reduced income early in the project will be offset by greater revenue in later years with the network still being profitably by the end of construction in 2021. Any misses in those targets will have a long term effect on already weakened federal budgets. For a federal government attempting to rein in spending, providing the capital contributions to cover these shortfalls may prove to be difficult. This is where the banking expertise on the board may turn out to be useful.
Overall, NBN Co’s annual report offers hope to the project’s supporters that the task of rolling out high speed broadband across the country is now on track for the 2021 completion date.
For critics of the NBN there will continue to be plenty more ammunition for snipers as a project which involves digging holes in thousands of suburban streets hits the usual unexpected gas mains and clumsy contractors inadvertently flattening carefully tended rose gardens.
Both critics and supporters of the project should however be watching the numbers – premises passed, activation rates and revenue per user are going to be the key metrics for the project’s financial success. If these targets are missed then there will serious financial pressures on the NBN.
While the NBNCo’s 2012 annual report claims things are going to plan the document doesn’t really indicate whether the project will run on time or budget. As we go into an election year, it’s clear the NBN will continue to provide plenty of headlines, which should leave both the NBN’s supporters and its detractors with plenty to fight about.
Paul Wallbank is one of Australia’s leading experts on how industries and societies are changing in this connected, globalised era. When he isn’t explaining technology issues, he helps businesses and community organisations find opportunities in the new economy. This article first appeared on Technology Spectator.
Paul Wallbank writes on how IT affects communities, markets and workplaces. He also helps businesses to grow and engage their customers with technology.
