JAMESON, Mr Justin, Chief Executive Officer, Venture Consulting

REEDE, Mr Michael, Partner, Allen & Overy

[13:10]

CHAIR: Welcome. Thank you for coming in; sorry we are running nine minutes late. Although the committee does not require you to give evidence under oath, I advise you that these hearings are formal proceedings of the parliament and warrant the same respect as proceedings of the respective houses. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. Would you like to make a short opening statement to the committee?

Mr Reede : Thank you for the opportunity to present to you today. I would like open by saying that we are supporters of an NBN policy, a comprehensive policy and a government-sponsored policy. Our interest resides in policy development—our background is in policy development—and encouraging the right policy settings that ensure value for money and the highest possible consumer welfare. That interest emerged from our initial work under engagement on the original private sector bids for the FTTN proposition up until 2009, and in a more observational capacity since then in relation to the post-2009 FTTP policy.

That resulted in us preparing two papers. The first was in 2011, in February, and there we focused on the manner in which the new NBN policy was a departure from some of the pre-existing policies around infrastructure competition and how it would change a range of communications markets. That paper gave us a chance to talk to a range of stakeholders in the industry, and both that paper and this paper have been developed by us as a contribution to the debate. They have not been commissioned by anyone and no-one has requested those papers. We have done that because it does allow us to engage with industry, with government and with investors, and engage in a debate in which we receive as well as provide those views.

Our 2013 paper looked at, essentially, a potential to revise the policy of the NBN for a number of reasons, but principally because we do think the current policy will come under economic pressure for the reasons that we identified in 2011 and in 2013. The questions that we have sought to raise are questions that are really intended to be answered by whichever government or regulator is in the seat. They are difficult questions to which there is no easy answer, but we did want to examine the proposition from a first principles perspective, which is why we chose a change of government for the hypothetical, although facing the 2013 September election.

I will summarise the key issues that we identified in the lengthy paper. Firstly, affordability and ubiquity. We believe the best outcomes for the community are achieved from services that maintain pace with demand but are delivered at the lowest possible price to ensure they are widely adopted. Low prices promote increased connectivity, and that becomes self-fulfilling because everyone demands equivalence between any communication.

Secondly, in our view the public always pays. The cost of a telecommunications network is either paid through higher charges in the long term by the community as users or is paid by taxpayers in the form of subsidies, so there is no free lunch in network development. An important part of the debate over the past four years has been what we think is the correct public expectation of a national broadband network. A detriment is a lack of perception of who is paying for that network, because it will be consumers and taxpayers. Until this point in time, lower prices and improved quality have been achieved in this country through competition, and that has been our policy for the past 22 years. In delivering an NBN, we are refocusing our efforts on a core government-sponsored network. There will be less competition to discipline that entity as a result and that requires more careful choices in investing in that network.

Thirdly, a new mass-market broadband network requires new mass-market broadband applications to support the demand. Consumers demand applications, they do not demand capacity. To justify building a new network or the incremental cost of that new work, we do need to have the demand for applications that exceed the capacity of the current networks. In our view, we have not heard anyone articulate the applications—the multiuse applications, the simultaneous applications—that will require the upper echelons of FTTP connections. A press article last week referred to the potential for an application involving a wall-size HD 4K TV screen with multiple viewing angles of the same sporting event. That would be a very attractive consumer service but not one that we would suggest government should subsidise.

The next principle is that there is no fibre pricing premium. International experience so far would indicate that, while consumers will happily take increased capacity, they will not pay incremental amounts for that capacity, and where they take it they do not necessarily use the capacity. Finally, we believe the current policy should reflect temporary market failure. We think the market has failed to deliver and the private sector has failed to deliver a comprehensive national broadband network to date. That is the result of, in our view, risk factors around Telstra's structural separation, the financial crisis and capital markets, but clearly that failure needs to be addressed by government and, hence, we have a government sponsored plan. In the mid to long term, there should be a plan to transition that back to private sector investment.

We also support the maintenance of procompetitive policies. We heard about that from the CCC a moment ago. We do not think they should be traded in the exchange policy settings for a particular outcome. All these principles suggest that we should adopt a degree of caution in making these investments. We have both worked on network proposals in the past where assumptions demand and outcomes have not been borne out in the marketplace, including, in my case, the HFC networks when they were built. The previous speakers spoke to that. The business plans for those networks receive great attention from advisers and carriers. They proved to be very flawed.

So we have no firm position on technology mix. We simply believe that it should be driven by the data and the cost-benefit analysis. If that data suggests that we should have FTTP in an area, we support that and, by the same notion, we support a mix of technologies where that is more cost-effective. Finally, it is difficult to divorce our position as policy makers, advisers and investors on the one hand from our position as consumers. In this context, in our personal situations, we would regard ourselves as fairly high-end users. We both have families; in the evening we both have two streams of HD television running, four to five computers and four to five wireless devices in a comprehensive multitasking environment, where our children are showing lack of attention to what they are doing. But there is a limit to the information that we can consume within the household: audiovisual information, text information and straight audio information.

I enjoy, fortunately, within the HFC footprint, speeds of 25 Mbps at the moment. I find that very satisfactory. Apart from the caps on plans, it serves all of those needs. In the case of Justin, he is fortunate to be within the footprint of 3 and receives up to 100 Mbps. His wife works in a creative industry where she is uploading and downloading a high bandwidth of HD audiovisual files in a telecommuting context. That is a niche need, but they have the service for that reason and it is very adequate. From a national perspective, we believe that it is more important, if it is a less costly proposition, that we lift the broader population that has not got access to that current HFC footprint up to the 25 to 50 Mbps range, because that is the range that will be used in the short, medium and possibly long term. That should be the focus. That was the reason for the papers. We welcome any questions.

CHAIR: How many children do you both have? It sounded like you are managing a zoo at home!

Mr Reede : I have two.

Mr Jameson : I have three.

CHAIR: I did not mean to be offensive, but you sound like you are high users.

Mr Reede : It does feel like a zoo at times.

CHAIR: I have four, so I say it with shared sympathy.

Senator CAMERON: I think it is a bit rich for Mr Corporate to be talking about being offensive, but never mind. On commissioning this work, what sort of cost is there to put something like this together? I ask both companies.

Mr Jameson : We each speak for our respective companies. On our side, it is probably one man month of work, I would say.

CHAIR: For how many people?

Mr Jameson : Probably two or three people working together, but combined it would be the equivalent of 30 or 40 days of work.

CHAIR: So if you were charging that out, what sort of charge would that be?

Mr Jameson : Maybe $200,000 to $300,000.

Mr Reede : I would have spent a week on it myself in January during, frankly, down time, which is why we did it at the same time of year on this occasion as the last occasion.

Senator CAMERON: But if you were charging for it?

Mr Reede : If I was charging, maybe $25,000.

Senator CAMERON: So it is about a $325,000 document. How did your company make a decision to do this?

Mr Reede : Originally I proposed the 2011 paper to Justin on the basis that we had been very heavily involved in all NBN policy at that point in time. We both found ourselves not engaged at that point in time and that gave us the freedom to talk about this. Obviously, if we were engaged with a client, we would not have been able to approach the issue in the same fashion. We had the freedom to speak our mind. Because there seem to be a dearth of discussion at that point it was a good opportunity. The payback that we receive is essentially the profile in the discussions that we have and to participate in the sector.

Senator CAMERON: So it is a bit of a marketing exercise as well, is it?

Mr Reede : It is an engagement exercise.

Senator CAMERON: Marketing?

Mr Reede : It is a discussion engagement exercise. It has business development benefits, yes, because we engage and talk to government regulators and investors.

Senator CAMERON: Did you talk to any government people about this?

Mr Reede : No.

Senator CAMERON: Did you talk to anyone from the coalition?

Mr Reede : I did not.

Mr Jameson : We engaged with stakeholders across the board, so both telcos and coalition.

Senator CAMERON: What about the government?

Mr Jameson : No.

Senator CAMERON: You not talk to anyone from the government?

Mr Jameson : No, 2013—

Senator CAMERON: I am just trying to clear this. You spoke to the coalition but not the government?

Mr Jameson : Let me clarify. The 2013 report is specifically around what policies and options an incoming coalition government would have, so if that were to eventuate then the relevant stakeholders would be the incoming coalition government and the industry participants. In terms of consultation, we prepared the report ourselves. About two weeks before publication we shared a prepublication copy with a number of shareholders, offering them the chance to give any comments. We did not change the report materially as a result.

Senator CAMERON: Did you share it with the coalition?

Mr Jameson : Yes, they were one of the stakeholders.

Senator CAMERON: I thought you said 'shareholders'.

Mr Jameson : 'Stakeholders'.

Senator CAMERON: Okay. Who was that?

Mr Jameson : Malcolm Turnbull's office.

Senator CAMERON: Did Mr Turnbull offer any comment or ideas for the paper?

Mr Jameson : His office gave some feedback, but, as I said, no new ideas and certainly we did not change the paper materially.

Mr Reede : There were 15- to 20-minute conversations over in the phone on factual accuracy.

Senator CAMERON: So you did not think about checking any of this with the government?

Mr Jameson : Checking what?

Senator CAMERON: Checking any of the issues raised, any of the policy issues, with government?

Mr Jameson : We did not think to check coalition policy options and their likely viability with the government.

Senator CAMERON: Do you feel a bit dudded by Mr Turnbull that you have done all this work and it really does not reflect the coalition policy?

Mr Jameson : Absolutely not.

Mr Reede : That is the point. Having since seen the coalition's policy we put a number of views that are quite different in this paper.

Senator CAMERON: So it is a joint effort between the coalition and your company. That is good.

Mr Jameson : No.

Mr Reede : That is incorrect.

Senator CAMERON: That is not right?

Mr Reede : That is entirely incorrect. Indeed, as we have indicated, we depart fundamentally from the coalition in a number of respects and we had no idea what their policy was going to be.

Senator CAMERON: In your report NBN options for a coalition government, you say there are three financing options which include separate metro and regional companies. You also explicitly call for private sector investment in the satellite and wireless components. Do you accept that, as part of the NBN Co.'s project, these networks are part of the NBN Co.'s 7.1 per cent return?

Mr Reede : As currently contemplated with a wholly integrated single business plan, that is the case.

Senator CAMERON: What return would a private sector acquirer of these assets expect?

Mr Reede : They would expect a return as well, naturally.

Senator CAMERON: How much?

Mr Reede : Not potentially a great deal more than the government in certain circumstances.

Senator CAMERON: What is 'not potentially a great deal more'?

Mr Reede : The reason we proposed—and these are mid-term options, we stress—that, if the decision is made to return to greater private sector investment, it is necessary to understand how you would do that and to do that a single holistic network may not be the best means of—

Senator CAMERON: I am just asking you. If you would just stick to my questions.

Mr Reede : The answer to the question, expressly, is: if you were to take a metropolitan network and an infrastructure investor with a stable yielding product, we will accept your security. We will accept a rate of return that could be in the 10 per cent range. Again, that would be off, we would suggest, a lower cost base in the first place. So the question is not: what is the return that is demanded by the infrastructure investor? The question is: what is the price at which consumers receive the service? The position we took is that you would receive efficiencies out of a different approach to the network, lower the cost, lower the capital investment. There would be, naturally, some increase in the return, but it would not necessarily be great. If a government rate of return was the required benchmark for investment then government would sponsor the vast majority of enterprises in the country.

Senator CAMERON: You spoke about market failure earlier. One of the market failures has been the inability of governments, both Labor and Liberal, to actually get an NBN up and running. Part of that would have been the need for a higher rate of return, wouldn't it?

Mr Reede : Part of that is that it is a risk-adjusted rate of return. So I would suggest that the problem has been very significant risks around the regulatory environment, Telstra's response and the cost of capital post the GFC. It has been a very difficult period for a project of this scale, and the scale itself makes it a difficult proposition.

Senator CAMERON: I may have to put some of my questions on notice. In your report you claim that the fibre to the premises in the 80 to 93 per cent range of the population is likely to be more expensive and require a cross-subsidy. But you have said the scale of these cross-subsidies has never been made public. Is that the position that you have put?

Mr Reede : That is right.

Senator CAMERON: Are you familiar with the implementation study conducted by McKinsey and KPMG, in particular exhibit 4-14 of that study which included a curve for cost per premises activated?

Mr Reede : I am familiar with the study. I have not got it in front of me, no.

Senator CAMERON: Are you familiar with the cost curve?

Mr Reede : I have read that, yes.

Senator CAMERON: Do you think that that cost curve is unreasonable?

Mr Reede : That cost curve was done without any experience of the particular outcome. We do think it is important that there is not just an implementation study but ongoing transparency of the cross-subsidy, and we support the cross-subsidy. We think that is a positive thing. We support equivalence of service and pricing. But we do support transparency in the same way that we have had a 22-year-long USO regime, which is a good regime. That has moved towards transparency, which is a positive thing.

Senator CAMERON: Now that you have the coalition policy, are your companies going to invest another $200,000 or $300,000 doing an analysis of that? If you do, would you get wider consultation than simply the coalition to postulate on their own policy?

Mr Jameson : Can I just make the point that after the 2011 report we actually came down to Canberra and spoke with the department extensively and answered all questions and queries that they had. We would be very happy to do the same with the 2013 report.

Senator CAMERON: After the event?

Mr Jameson : After the event because the 2013 report was around coalition policy, not around government policy.

Senator CAMERON: I know where you are coming from. It is all right.

CHAIR: A bit of a right of reply, Malcolm?

Mr TURNBULL: I just think it is extraordinary that the senator is here attacking a pair of witnesses who have come to give evidence.

Senator CAMERON: I am not attacking. Come on, Malcolm. Don't be such a sook.

Mr TURNBULL: You can attack me as much as you like. You abuse the privilege of parliament.

Senator CAMERON: You are such a sook.

Mr TURNBULL: Gentlemen, thank you very much for taking the time to come and put—

Senator CAMERON: Thanks for including them in the thing earlier.

Mr TURNBULL: This is the reward you get for making submissions to committees: you get abused by people like Senator Cameron.

Mr Jameson : We are comfortable with that.

Mr TURNBULL: Your taxes at work. I will defer to Mr Fletcher.

Senator CAMERON: They are more robust that you, Malcolm.

Mr FLETCHER: If we can get onto the internal logic of the report that might be instructive. I am interested to understand why the thinking in the report seemed to build up from an analysis of the willingness of consumers to pay. Isn't this a public policy objective and a vision, and we really should not be worried about willingness to pay, which is a more narrow, commercial way of thinking about things?

Mr Jameson : No. Matt Healy, who was up previously, spoke from the perspective of the carriers that he represents. We have a genuine desire that we share to drive positive public policy outcomes and for us that starts with the experience of the consumer, the customer. The whole point of building the network is to deliver customer outcomes. The start point for analysis is from the customer—what our customers are prepared to pay and what they wish to pay, unless we are going to force them to take certain services at certain prices, which of course we are not. At the end of all this construction there are a series of consumer decisions as to whether or not to buy certain services at certain prices.

Mr Reede : There are only two outcomes. Either consumers demand those services and are willing to pay those prices in a manner that delivers the seven per cent return, or they are not, in which case there is an ongoing subsidy and you would have to have the proposal back on budget.

Mr Jameson : We are very conscious of the fact that, if you look around at other fibre markets, the typical retail price as of this week for a 100-meg service is between $30 and $60, and a bit higher in the US. That is for countries that have very different types of consumers yet the price band is quite similar.

Mr FLETCHER: Does that mean that in assessing the viability of an NBN business case, regardless of the technology choices you make, you would argue that what you need to do is start with plausible assumptions about how much people would be willing to pay and then plausible assumptions about what percentage of people would be willing to pay that?

Mr Reede : Yes.

Mr Jameson : We would like to see analytics driving policy because, as Michael said, ultimately there is a certain amount of revenue that can be got from what customers are prepared to pay. If there is any shortfall against what it costs to build and maintain any network that has to be made up from somewhere else in the public purse.

Mr Reede : We also think it is important that we understand what they are prepared to pay for. If that application is a productivity enhancing application, if it is promoting telecommuting, or health or education, it will have a multiplier effect. We think it is fair that the government can look beyond the four walls of the business case of this network and say that there are real benefits to the wider economy to justify the investment. However, if it is promoting further entertainment services that will not flow. We do have a view, and we had the view back in 2011, that to utilise the capacity you need to be using high bandwidth audiovisual services, which in the home is entertainment services. We do query whether they are productivity enhancing or indeed could be a detriment to productivity.

Mr FLETCHER: Is it a fair take away from the work you have done that you are expressing some caution or scepticism about the robustness of the demand forecasts at the prices that are contemplated in the case of NBN Co. right now?

Mr Jameson : We have been quite publicly sceptical of the numbers in the corporate plan going back to 2011, firstly because the average prices envisioned just do not match with what is being paid in a mass market situation in other markets for those services; secondly because the impact of mobile does not seem to have been taken account of as fully as it might have been; and thirdly because, were the corporate plan followed, towards the end of the plan NBN Co. would be making a rate of return that would be considerably higher than any other regulated utility and at that point, either from the perspective of the regulator or politically, we believe that would become an unacceptable situation. So we do not believe the plan as set out today will suffer robust analysis.

CHAIR: There are two more committee members wanting to ask questions and we have about 10 minutes left.

Mr FLETCHER: Okay, I have just a couple more questions. Perhaps I will just compress it down to one. It seems as if there are a couple of elements there that your concerns decompose into. One is whether NBN Co. would get the take-up based upon market evidence from other markets. The other is that, if it did hit its plan, it would be very difficult for a government to sit there and allow a regulated monopoly to get the kinds of returns that the plan assumes. Is that a fair summary? What weighting should we attach to each of those?

Mr Reede : It is. On the second issue, in the original 2011 report we predicted that, as soon as the NBN became operational, the competitive carrier industry would turn on it, in the same way it has focused on Telstra's access pricing in a debate about its SAU. That has been borne out, and that is in the near term. In the long term, if we get to the back end of the business plan and those networks are paying a wholesale price against a published rate of return that is above market acceptability, that will become a very shrill complaint, and so the pressure will be intense to prevent that balloon payment towards the end of the business case period.

Mr Jameson : On the first point, our view is that customers are actually more focused on usage than on speed. Sorry to be subjective again, but in our household usage has gone from two gigs to 50 gigs a month over a period of just 24 months, whereas the peak speed has not changed that much. The NBN corporate plan envisages pricing that is broadly usage based, and we do believe there will be significant increase in usage but do not believe there will be commensurate increases in pricing unless Australia is going to go in a different direction from the rest of the world. So, just as with water customers are more concerned about the total cost of their water bill rather than the pressure they get through their tap as long as their showers are running, it is the same with broadband: customers will be consuming more and more broadband, but they do not want to be paying $50, then $100 and then $150. That total bill size is more important than 25 versus 50 versus 100 megs versus a gig.

CHAIR: You do not think people would be concerned if their shower were just dripping and they were still paying a bill?

Mr Jameson : Of course they would; there is a minimum threshold. But our view is that, in terms of broadband, the minimum threshold is defined by how many people you have in the house multiplied by the maximum number of applications you can use simultaneously multiplied by the capacity you need to deliver that application, and you struggle. Under the NBN's own projection—I think they call it the advance case—they have something like 10 simultaneous applications to reach 30 or 40 megs, with an average household size in Australia of 2.5.

CHAIR: Malcolm has promised me one question; then Ed and then Luke. We will try and get it all in.

Mr TURNBULL: Firstly, I apologise on behalf of the committee for the abuse you have received from Senator Cameron.

Senator CAMERON: Oh, gee! What a wimp! You are just such a—

Mr TURNBULL: Secondly, can I just put this to you, Mr Jameson and Mr Reede.

Senator CAMERON: No wonder they dumped you for Tony Abbott!

Mr TURNBULL: Mr Jameson, isn't this the fundamental problem that investors in fixed-line networks face: that the utility or value to the customer of increased broadband speeds at the edge—going into their house, for example—does not increase in a linear fashion? At some point, the additional value from going from 25 to 30 to 35 is very modest or nonexistent, yet the cost of provisioning those very high speeds by taking the fibre into the premise becomes very high. In other words, just as the incremental value—or the marginal value, I should say—starts to level off, the cost of provisioning becomes very high.

Mr Jameson : Our global analysis shows that that point is exactly right—there is no fibre premium. We have looked at markets with fibre and non-fibre products where there is a big speed differential and there is significant take-up of the high-speed product above the threshold only once the prices equalise. Once the price premium gets above a very small amount then take-up drops off substantially.

Mr FLETCHER: I have one more question—

Mr TURNBULL: No. Really, Chair, you have allowed these witnesses to be treated shamefully. I have a respectful and thoughtful question to put to them. You have looked at the corporate plan very carefully. Is it your assessment that the steep climb in revenues, particularly in average revenue per user, assumes that customers are going to be using more data and so having bigger data allowances with more gigabytes per month and paying consequently more for that? So the increase in revenue is premised on very large increases in the CDC charges, which is what accommodates that. I want you to comment on that. But also is it the case that over the last decade we have been getting in fact more bytes of data allowance and more bits of bandwidth for that matter for no more money? In other words, we are getting faster broadband and a lot more data downloaded for comparable access charges to what we were paying five, 10 or more years ago?

Mr Jameson : We always try to avoid jumping into the politics of this. I would make this observation: the mobile and fixed broadband prices globally have been declining over that 10-year period. Customers have been getting more data for less over the last 10 years. I would note that not just the corporate plan but even under the coalition's own forecasted plan prices on average are forecast to go up over a 10-year period. Even slight increases are not consistent with what has been seen globally.

Mr Reede : I will put it into simple layperson's terms. On the demand side, if what is sponsoring the increase in the demand is lifting your usage of audiovisual from high-definition to 4k television the question becomes: if I in the home enjoy a free-to-air HD service that I am getting for free on a capacity basis and I enjoy high-definition over the Telstra network serving Foxtel and I can download HD services off iTunes, why would I pay linear increasing amounts to receive super high-definition capacity across the broadband network?

CHAIR: That is the second time that point has been made. I tabled before the work the Boston Consulting Group did for Google. It talked about the culture boom that is going on in Australia and the amount of video data that is being watched overseas from Australia, which would be the counter argument to that point.

Mr HUSIC: I think it is also good to see that Mr Turnbull is now defending research being done by independents, unlike what he did when Google commissioned Deloitte Access Economics's report, which I want to come to as well. You both related your experiences personally as consumers in households in relation to data—

Members of the committee interjecting—

Mr HUSIC: Sorry, we have got Punch and Judy on the other side. You have both related your own personal experiences with data consumption within homes, but have you seen some of the worldwide projections of data consumption conducted by CSC which suggest that in a generation, between 2009 and 2020, data usage will increase by about 4,300 per cent? Have you seen that?

Mr Jameson : We broadly agree with forecasts of significant increase in usage. In fact, some of our own forecasts also show that.

Mr HUSIC: So you would not think that is just being generated by YouTube downloads and music downloads, surely?

Mr Jameson : I think there is a real confusion here between usage and speed. We absolutely forecast massive increases in usage, but the question is what peak speed you need to provide in order to deliver that application suite. The only things that require very significant speeds are real-time applications like video but not necessarily video, or very significant transfers of data that have to occur quickly; they cannot occur in the background. The trend with all this increased usage has been driven by 'always on'. It is because we have got all these connected devices that are doing all this work in the background so that we have information when we need it, or we have got massive supplies of data that we are accessing in real-time—and there is just a limit. We have only got two eyes and two ears, and there are only a certain number of people in a home. The reason businesses need higher speeds is because they have got so many more people. So there is a physical limit to what maximum speed you actually need into a domestic environment.

Mr HUSIC: But given the fact that businesses are effectively digitising their operations, they will need both speed and usage. Without sounding like I am channelling Donald Rumsfeld talking about known knowns and known unknowns, you are talking about what we know we can do with data both in speed and in usage right now as compared to what might happen with faster speeds liberating innovation. Correct?

Mr Jameson : No, not strictly correct. I am talking here specifically about the home, so the situation—

Mr HUSIC: I am not talking about the home. You have spoken a lot about the home. I am talking about the fact that there is a predicted worldwide explosion in data use and that that cannot all be driven by households. A lot of businesses are generating that demand. Instead of relating this just to household experiences—which has tended, if I can put it to you, to be almost a patronising or a put-down view about why we need faster speeds and greater bandwidth—it is also about what it does for the economy. I would not mind if you could look at it more broadly than the way we use household data.

Mr Jameson : We are very happy to. We can have a separate conversation about businesses—that is absolutely fine—but the NBN is specifically designed to connect all premises, the vast majority of which are households. That is why in the mass market context the focus of the report is on households. I think the issues regarding appropriate levels of connectivity to businesses and the amount that they should pay are completely separate. We will be very happy to answer questions on that.

Mr Reede : I think we have also said that we do believe that there are or should be fibre connections, as there are to most businesses in the CBD areas now, to universities, educational institutions, libraries and hospitals—to those kinds of usage locations. Ideally, there should also be optionality around achieving fibre to the premises that have very high-end needs, because there is telecommuting in a creative audio-visual industry—for example, an architect. So we favour that optionality; we favour it to those locations. We simply look at the medium that is used to connect an ordinary residential household being mathematically the larger proportion of the NBN.

Mr HUSIC: In your earlier verbal submission you took a view that it almost looked like this investment was a cost: it was how much consumers and taxpayers should pay rather than the economic benefit of the NBN. Coming back, if I may, to the Deloittes work that was commissioned by Google where they said that under current circumstances there would be $27 billion in productivity improvements by digitising operations, don't you see that rather than looking at the NBN through the narrow focus of the cost to consumers and taxpayers there is a broader benefit in our upgrading the broadband infrastructure?

Mr Reede : We do and indeed we said in our submission for today that we think government should look at itfrom a broad consumer welfare perspective. We think there should be an empirical assessment of that.

Mr HUSIC: Why do use the term 'consumer welfare'?

Mr Jameson : I will quote Rob Kenny on this. If you are going to deliver publicly funded fibre to the home then 'fibre' implies some sort of societal benefits. I agree there should be a broader assessment. 'Fibre' implies that there should be a need for that level of bandwidth and 'to the home' implies that those two things should be in the home. What we are arguing in the report is that any investment should be analytically driven because any dollars to pay for that investment that are not recouped through revenue charges are going to be paid for by taxpayers. It is as simple as that.

Mr Reede : At the bottom of page 2 of our submission for today we stated the role of government is to consider wider consumer welfare and also to take into account costs and benefits not regarded as relevant by the private sector and most government expenditure is assessed on that basis and we support that principle.

Ms ROWLAND: I am interested to note please whether you consider the evidence which shows up-channel usage is higher in fibre markets, including residential, and what that shows for the conclusions on future usage patterns.

Mr Jameson : That is a good question. I think that traditionally broadband services have been constrained with the upload channel and so on. It is a bit like the shower analogy, good strength one week but a bit of a drip in the other direction. So there is clearly a threshold level and until that is reached you will get significantly increased traffic in the upload channel.

Ms ROWLAND: I understand what you are saying about technology will be used and it is how we will utilise it. I know that similar scrutiny was applied in the early 2000s when 3G was being launched. But what I am struggling with is how we can surmise that there is scant demand for 100 megabits per second when we see from exhibit 43 in NBN Co.'s document presented today that something like 31 per cent are already choosing the 100 megabits.

Mr Jameson : I would say two things to that. Firstly, the no fibre premium that we point out shows that if you offer higher bandwidth to a house at a very small price increment then you will get high take-up but if that premium gets above a relatively small amount people will take less. Then the second point is the one that I made before about usage and bandwidth, so we do expect and forecast massive increases in usage but the vast majority of applications that drive that usage do not require very high real time bandwidth and we are in a consumer environment and in a household you are limited simply as to how many of us there are and how many eyes and ears we have got.

Ms ROWLAND: So you would concede there are lot of small businesses that are run from houses in our suburbs.

Mr Jameson : I think that is right. If you were to make the case for an NBN based on at-home enterprises and small business enterprises running out of households you may well get different policy settings.

Mr Reede : The only additional comment I would make is this. Tony Brown, who is with Informa, published a piece in the Herald last week which you would have seen. He had spent time the previous week chairing an Informa broadband forum in Hong Kong and he asked some of the broadband providers providing 100 megabits per second and a gigabit per second what the consumers were using it for and their response was 'pretty much what they used the previous service for'. So people will take a high-bandwidth service out of pure desire, interest and early adoption. I may well take it in those circumstances. Whether I push the limits of that or push the limits of that service beyond the preceding network is another question.

Ms ROWLAND: Wouldn't you say, however, that early adopters are some of the ones who end up driving the innovation in it? Five years ago we would not even have had a market for things called apps.

Mr Jameson : Some commentators have suggested that if you have a lower speed it is like having a two-lane Harbour Bridge in Sydney. What we are saying is that the risk is more that, if you put in too much bandwidth at a high cost, it is almost like putting a Sydney Harbour Bridge over every creek and stream and river in Australia.

CHAIR: On behalf of the committee, thank you for coming in to assist the committee today and rest assured robust discussion does assist the committee. I do not think that there have been any questions on notice—there may be some that come in. If they do, if you could turn them around in a couple of weeks that would be appreciated.

Mr Reede : Thank you. Notwithstanding the exchange at this end of the table, we came today hoping we would have a robust discussion. We took this course because we expected one and we are happy to have had one today.

CHAIR: Thank you.