CHAIR —Welcome. Thank you very much for coming along. You would be aware that these proceedings are parliamentary proceedings, so they are covered by parliamentary privilege. If there is anything that you feel you would rather talk about in private, make a request of the committee and we will go into that then. First of all, would you like to give us an opening statement? Then we may ask you some questions.

Mr Hilvert —Earlier I circulated a copy of our opening address and, if it is possible, I would like it treated as a formal submission. The Internet Industry Association has been around since well before broadband. We arose in the mid- to late nineties and we represent the major suppliers, the major content creators, many of the developers and many of the lawyers. We have one message for you guys: Australia deserves broadband and we need it now. We have one shot. Please do not blow it.

We do not have a strong view about the governance issues or, in fact, the technical issues or the like. We are very much in the same bed as our colleagues at ACCAN—we are on about function. Australia deserves the best, most accessible and fastest possible broadband and we are running late. Only today Neelie Kroes, the EU digital affairs commissioner, pledged that the EU will have universal broadband by 2013, admittedly at a much lower rate, but our main concern is about overall functionality. We really risk being an IT backwater, a digital backwater, compared to other countries.

Our message is that it is a user generated thing. It is effectively a business thing. It was users that were demanding broadband and it is user generated content that is behind this desire for more and faster broadband. Back in 2006, the Internet Industry Association responded and launched some targets in a report. Those targets were relatively modest by today’s standards, but, if even they had been achieved by 2010, we would have been delighted. But they have not. Those targets were for both fixed and mobile. We have no big issue—we think it is a phoney war between wireless and terrestrial. They are both important. They are both vital. We thought, four years ago when we put the targets up, that something would happen. We were delighted when the current government decided to run with a very ambitious and worthy system and model. Our targets were basically driven by the fact that demand is a user driven issue. I will repeat that: it is a very strong user issue. That is what is happening now. If you want to get a feel for what is happening, look at YouTube. YouTube in 2007 consumed as much bandwidth as the entire internet did in 2000.

Senator LUNDY —That is amazing.

Mr Hilvert —It is an exponentially increasing demand. We think it is quite absurd for people to say, ‘Where will the demand be, where will it happen?’ We have it now. In Australia Facebook is probably the most popular application on smart phones. There are eight million subscribers on Facebook now and growing, and many people put out videos. They expect almost instant response and they expect genuine communication. In many ways it will probably replace the telephone. In fact, yesterday the chief executive of Telstra commented that the amount of data on its wireless network doubles every nine months. We really would like the Senate committee to refocus or give a bit more attention to the users, to the consumers. What is driving the internet is not the government; we know that. We have had 11 years of governments talking about broadband. It is not the government; it is the users. The wireless technology, which is probably the thing that has stood out in terms of take-up, we believe, has occurred mainly because there has been competition. In many cases it is cheaper to purchase wireless.net than terrestrial. The reason for that is that it is one of the few cases where we have had a decent competitive market.

Senator FISHER —Do you think the competition and the lack of access of terrestrial services is what has driven the demand for wireless?

Mr Hilvert —Yes.

Senator FISHER —When you talk about scalability in terms of wireless, are you saying that the more people use it the slower it gets—is that what you are talking about?

Mr Hilvert —That is precisely what I am saying. In the US already there was a report that US smart phone users are wrestling with sluggish performance right now, so it is—

Senator FISHER —More people are using it not necessarily because it is better; it is the option when there is less terrestrial.

Mr Hilvert —It is there; it is easy.

Senator FISHER —In your view.

Mr Hilvert —It is not in our view; it is in the user’s view. The users are basically voting with what is available, and what is available at the moment is very strong competition in mobile, and that was the theme of Telstra’s talk yesterday. Our concern though is that that is very short term. Wireless is a natural fit and a complement but it is no substitute to wholesale access to a reasonable fast broadband to all Australians.

Senator LUNDY —We know that this issue about the uptake of mobile—and I think the points you makes are extremely valid in the context of the current discussion. I would like to pick your brains just for a moment about the broadband inhibitors that are currently in the existing network and the proportion of services per exchange that are able to deliver a terrestrial broadband service—that is, what proportion of the services offered exchange are actually able to deliver a terrestrial ADSL 2 Plus style service. The most recent evidence I can recall was from Telstra, where I think it was Mr David Quilty who admitted that it was barely 50 per cent. How much do you think that constraint on the provision of terrestrial based broadband services in the existing network would be contributing to the explosive growth in mobile data? Have you got any comments on any relationship between those two features of our network?

Mr Hilvert —I have not seen any reports that could confirm or reinforce that. To us, there is a more accessible business model at the moment which is based around getting on the internet via wireless.

Senator LUNDY —So if there was an NBN-style service available, you think that would start to be taken up—wireless would not necessarily be what people chose in an environment where there was an affordable terrestrial fibre based service in the market.

Mr Hilvert —Exactly. Perhaps I could give an example of my two daughters, who are at the University of New South Wales right now. They need internet for their studies. It is not a big issue; they do like to download video but it is mainly about study. There were four of them boarding in quite a good area, in Kensington, and they worked out that the cheapest and most efficient way for them to manage their internet was to get those little wireless thumb drives. It is not efficient, because they are running at a much slower rate—they are probably doing barely one megabit a second—but they are getting the functionality. I think it is functionality and ease of access that is driving the internet, as well as their own educational demands.

CHAIR —Mr Hilvert, did we interrupt you? Were there more things you wanted to say? We do not want to rush you, but we do have a lot of questions.

Mr Hilvert —Our second concern is that we believe very strongly in competition driving broadband. We think that the biggest issue in the future NBN is to make sure there is a very strong, transparent set of incentives and reporting to ensure that competition is ensured all the way through the years ahead. It is too easy for oligopolies to develop, unless this is properly attended to. The experience we have had over the last 11 years or more has shown that small discretions in legislation, the occasional leaving open of matters to codes and the like, will be ruthlessly and quickly exploited by many players. They also will have a chilling effect on encouraging future business investment. If the nature of NBN as a wholesale market and a wholesale supplier is not clearly appreciated, the fact that it might slip into some areas for all sorts of reasons might be just enough to simply get several players who are interested in working with our new broadband economy to say no, it is too hard, there are too many discretions here. So our second message is, please nail the competitive aspect; please leave discretions that are not properly considered by parliament out of the legislation and let us move on.

CHAIR —Were you happy with the implementation study addressing of those issues, which is sort of what we are focussing on today?

Mr Hilvert —Recommendation 68 was the only one where we had an issue, where they said that NBN should be a wholesale operation subject to the minister’s right to make exceptions. We think that, despite some good intentions, that will be misused and exploited, and it will be the birth of more oligopolies in our view.

Senator LUNDY —I want to go to your reference to the US study about mobile services and congestion of the networks over there. Are you able to provide the committee with an insight into the response of the telecommunications companies to this congestion? I know of areas or cells in Australia that are already experiencing this kind of congestion with mobile data services, so I am just trying to get more of an insight into the telecommunications company response to these kinds of complaints, because of course the fine print in the contract says ‘up to’ as far as their bandwidth, so consumers in that regard have not a leg to stand on as far as the service they have purchased is concerned. That is the case, isn’t it?

Mr Hilvert —Yes. The problem in America is that I think the most popular phone, the iPhone, is substantially put out by AT&T, and as a result they cannot go to other suppliers at this stage; it is part of the deal. That is an example where lack of competition has caused that.

Senator LUNDY —So consumers with iPhones are bound to the AT&T telecommunications network, so if there is a high take-up of that particular device in a given area it is inevitably going to lead to congestion of the network.

Mr Hilvert —Agreed. It may well be that, if we can make terrestrial and Wi-Fi a little bit more popular, that may ease some of that, although in America prices are much more competitive terrestrially as well. It is one of the implications and consequences of our current environment. Our plea is that, in forming your recommendations, you make a note that we do not want to do that again, please.

Senator LUNDY —I am asking these questions in the spirit of the contention that is often put forward that somehow the wireless mobile data services are an alternative to a fibre-to-the-premises network. My view is, of course, that they are not, so I am keen to explore further. The next question I have is on the nature of a service contract for mobile data. I am happy for you to take this on notice. Does an ‘up to’ bandwidth commitment mean there is no minimum bandwidth provision guaranteed to anyone purchasing the mobile data service? Is that the nature of those products?

Mr Hilvert —I will take that on notice, but that is my impression.

Senator LUNDY —Secondly, is there anything within those contracts or within any service obligation or consumer service guarantee that requires the telecommunications company to install more towers to cope with the higher densities of mobile data services in a given geographic location when the service has degraded beyond a certain point? Are you aware of any regulation?

Mr Hilvert —No, it would be mainly be market forces.

Senator LUNDY —Can you envisage a time when, I guess, the style of product—a maximum bandwidth offer as part of the service and charges associated with download—would change to be a flat rate or a minimum bandwidth service provision? Can you see that day? I certainly cannot. You probably have a better bead on the market than I do.

Mr Hilvert —We believe that, if there is sufficient playing field at the retail end, there will always be scope for a value-added provider that will say, ‘I’m willing to put my hand up and guarantee this, and if we don’t we’ll provide compensation or the like.’ At this stage, it is very hard with our current regulatory arrangements.

Senator LUDLAM —I want to pick you up on some issues. There has been a lot of commentary on uptake and the modelling in the implementation study that says there is going to be a very high level of uptake compared with overseas experiences where, some analysts are saying, uptake of fibre broadband to the home has plateaued at 30 per cent market penetration. The implementation study says that the cost assumptions for the NBN rely on much higher uptake. Do you want to comment, from the point of view of some of the info you have given us this morning about how rapidly these services are expanding? Do you want to use a crystal ball and say, within the build-out time of the NBN, how many of us are going to be using it?

CHAIR —And is the 30 per cent in Holland and the USA accurate, in your view? That is just an addition to Senator Ludlam’s very good question.

Senator LUDLAM —It is, because there has been some contention around that as well—around whether the uptake really has plateaued or whether it is growing continually.

Mr Hilvert —We have seen no evidence of plateauing at all.

CHAIR —In Australia, you mean?

Mr Hilvert —No, even overseas. As I said, the EU digital affairs commission is committed now to a rollout of a minimum of 30 megabits a second for all of the EU. It is as simple as that. We are talking about infrastructure and we are talking about demand, admittedly, but they are also talking about trade. They have an EU digital affairs commissioner not because of consumers but because the EU are conscious of the fact that they are basically in competition with other countries, like Singapore and America, in ensuring that they have infrastructure where business can be done, especially amongst small to medium enterprises. We see absolutely no evidence of a slackening of demand.

CHAIR —But do you agree with the figure of 90 per cent, bearing in mind that 20 per cent of Australian households do not have computers—or so it is alleged? Perhaps you do not agree with that figure either.

Mr Hilvert —We will talk about Australia. The Bureau of Statistics notes that there was a 40 per cent increase in wireless broadband in six months. Telstra has also seen a record uptake.

CHAIR —Of wireless?

Mr Hilvert —Yes.

Senator LUDLAM —Because that is all there is.

Mr Hilvert —Yes, because that is all that is available, in many cases.

Senator LUDLAM —Just to cut to the chase, from your reading of the implementation study, are they realistic projections of how we will take up the system?

Senator FISHER —The figures are 70, 80 and 90. They have a few scenarios.

Mr Hilvert —We think the modelling is fair. We have no reason to question that. If anything, we think the figures are a little bit modest, from our members’ experiences.

Senator LUDLAM —You said right at the outset that you did not really come here to talk about governance. I am going to put a question to you anyhow, to see whether you have a strong view one way or the other. We are shifting from a situation where we have a vertically integrated monopoly providing services right up and down the value chain, as it were. We are taking the wholesale infrastructure back into public hands and running that as a utility providing access to all comers. Do you have strong view one way or the other as to whether that wholesale architecture should stay in public hands, chugging along and making a seven per cent rate of return, or whether it should go back to the market at some stage in the future?

Mr Hilvert —No, we do not have a strong view. We do think it needs a single, coherent build, frankly. If it is attractive to other parties, so be it. It is nice to have that option, and it is probably wise of the government to flag that that is their intention. But, on the whole, it is something that I suspect will become clearer as the rollout continues. If you want an example, take a look at our highways. Many of them will continue to be in the hands of government agencies, but for many others—maybe high-traffic ones—there will be some private equity interest in there. That is mere speculation on my part.

Senator LUDLAM —Just to play devil’s advocate for a second, what would be wrong with NBN Co. in future offering services directly to university networks or big public sector agencies without having some mediating retailer in the middle? I think that has been flagged in the draft legislation.

Mr Hilvert —Our concern is simply that it introduces a degree of uncertainty and it will probably make people who really want to serve that market think twice—think that there is always the possibility that the rules will change. We really are very tired of discretions that can be extended in ways that are not subject to appropriate review. If we really do want to promote the business, we need to be really clear on how far the NBN goes in its wholesale operations.

Senator LUDLAM —We have certainly heard that view from quite a number of different parties. Lastly on that proposition at the end of the bill to sell the Commonwealth’s stake back to private hands, the implementation study proposed that a test be applied before that sale went ahead to make sure that the competitive structure of the market was sound and that that be undertaken quite rigorously. What do you think of that concept—or broader, as I am proposing—that a full-scale public interest test be applied that would capture whether the competitive state of the market was healthy before we sold the NBN down?

Mr Hilvert —We do not have a firm view about that. We certainly would welcome a public interest test. But, again, as I said, the government’s issues are things that can be built into the design to some extent. We like very much that we are talking about annual accounting and transparency of the competitive market. I think that would give parliament and business a better feel for how it is shaping. But I think it is foolish to try to decide one way or the other on that particular point.

Senator LUDLAM —Interesting. Thank you very much for your time.

Senator FISHER —Senator Ludlam has explored much of the issue that I wanted to pursue with you, Mr Hilvert, but can you dig a bit deeper in your response about—if I got it right—the modelling in the implementation study about a take-up of 70, 80 or 90 per cent associated with costs. I think it was something like this: if there is 70 per cent take-up and a cost blow-out, then the profit is projected to be some three to five per cent; if there is 80 per cent take-up and there is no cost blow-out, then the profit is projected to be some five to seven percent; and if 90 per cent take it up and there are cost savings, then it is projected that NBN Co.’s profit will be some eight to nine per cent, or thereabouts. Not just in respect of take-up rates but including in respect of take-up rates, can you expand on your observation that you think the modelling is fair?

Mr Hilvert —Not really.

Senator FISHER —Maybe a simple ‘no’.

Mr Hilvert —The government has invested $25 million in the modelling. I do not have an alternative model.

CHAIR —Not for free, anyhow!

Senator FISHER —You are kind of going, ‘I hope so.’ Are you?

Mr Hilvert —Senator, with respect, no.

Senator FISHER —I am glad there was respect to that no!

Mr Hilvert —We have had two of our leading accounting firms actually doing this modelling. I would like to know what the basis is for challenging that. There are a lot of naysayers that will do that. There are people with their own agendas that will say, ‘So say you.’ Our view is that there is a generational growth of interest that is taking broadband as being similar to a utility like water and electricity. It is a little bit like: ‘Let’s save money and just have cold water.’ Okay, we can do cold water. No-one ever died from just having cold water. But, trust me, if there is hot water available they will take it. As far as we are concerned, fast accessible broadband is hot water to this generation.

CHAIR —Perhaps some would say with the implementation study that if you are paid $25 million and you are given where you have got to end up—which is what McKinsey actually said; they were quite restricted in their terms of reference—perhaps that is why you get the results you do.

Mr Hilvert —Okay, you can make that critique, but we do not see anything outlandish about that modelling, nor does the EU.

Senator FISHER —You said, if I got it right, that the naysayers should trump up with the basis upon which they are criticising the findings. I guess that also begs the question as to upon what McKinsey based its findings in the 25 mil report—the supposed evidence upon which McKinsey based its assumptions that there would be a 70, 80 or 90 per cent take-up, cost blow-out, cost neutral, cost saving. That is a fair observation in the other direction, is it not? For 25 mil you would expect to know as well upon what they based their assumptions or presumptions, wouldn’t you?

Mr Hilvert —Yes, indeed, but I do not have the report with me at the moment to—

Senator FISHER —I am not convinced it—

Mr Hilvert —Are you saying that they just did that on the back of the envelope?

Senator FISHER —I would hope not, but I am not sure it is clear from the report the basis upon which they did come up with the modelling. That is something we would pursue, I think, at another time. It is not really a question.

Mr Hilvert —I understand your point.

CHAIR —I think what Senator Fisher is saying is that the Holland and the US experiences are said to be plateauing at 30 per cent. It is also reported that 20 per cent of Australian households do not have a computer. That makes it difficult to understand how you can get to figures like 70, 80 and 90 per cent on the basis of those backgrounds and, as you rightly say, with the huge take-up, for whatever reason, of wireless.

Senator FISHER —People would agree with you that this is hot water to this generation, but this generation is so ‘yip-yip quick’ there may be something beyond hot water that you and me ain’t even thought of, Mr Hilvert, that this generation would leap to and just skip the hot-water step.

Mr Hilvert —That could well be.

Senator FISHER —I have a question about wireless versus fibre. I am not a tech-expert in this. Are you convinced there is no way through scalability in terms of wireless? Have you or your members seen any evidence that there is a way to resolve this, that if it be wireless we can make it so that the more that use it do not stuff it around? Is that a way through that or is it accepted worldwide that there is nothing you can do about that problem with wireless?

Mr Hilvert —On what we know at the moment, wireless is a very important complement and an important part of the take-up of the internet, but it will not scale. We know that today from America where we are seeing what will be happening three to five years from now. It will not scale.

Senator FISHER —Okay.

CHAIR —Mr Hilvert, you said at the beginning that Australia needs a very fast broadband service. I think everyone agrees with that. But at what cost? Do you think it should be there regardless of cost? Is it important to have the very fast regardless of what it costs us? That has been the concern, of course. It is $43 billion, plus, it now appears, everyone who is going to be connected will have to pay to be connected as well, so the taxpayers will be paying the $43 billion, plus getting the thing connected. Sure, let us have it, but is cost an element?

Mr Hilvert —Cost is obviously an element. When we had digital TV, did anyone ask about the cost of a new TV? I do not remember that. We happily went ahead. Where was our business plan? Where was our major implementation rollout plan? It ain’t there. It was taken as something that was quite natural and was thought to be appropriate for our future in terms of spectrum.

Senator IAN MACDONALD —It did not cost the taxpayer $43 billion, though.

Mr Hilvert —No, but I am taking your point that some of the costs will be shared. Some people will be willing to pay for their premises; others will be looking forward to subsidies. We are not saying ‘irrespective of the costs’. This is a good model. It is being viewed very carefully overseas as a benchmark for how substantial rollouts are done over large regions like this. This is a fair cost and is not in any way—

Senator IAN MACDONALD —Do you know what percentage of Australian users could now get up to 20 megabits per second, at a cost? Would you agree that would be currently about 50 to 60 per cent of users?

Mr Hilvert —The Bureau of Stats published some figures on that. I would have to check. It is the fastest-growing area and it is the area where, significantly, the telcos are offering their best deals. In terms of value for money, for many people the real value for money is at the high end, the 20 plus.

Senator IAN MACDONALD —You said you represent lawyers and big users. Obviously they would be very keen on 100 megabits per second, but have you done any research on how many of Australia’s prospective total user base would want 100 megabits as opposed to 12 megabits or, if they are really keen, 20 megabits?

Mr Hilvert —We are talking about capacity and flexibility. The model that is being rolled out by NBN allows for that flexibility through various value-added offerings by retail providers. I do not think we have to second-guess the market in that regard. What we are talking about is making sure that we do not constrain ourselves to such an extent that we become a digital economy backwater.

Senator IAN MACDONALD —You would have seen Primus’s announcement yesterday. They said that their introductory offer in Tasmania would be $45 going up to $90. My information is that there are at least four other providers at the moment who are providing the same speeds for $40. Do you have any comment on why people would pay $90 when they can currently get about the same take-up for $40?

Mr Hilvert —No. I have read about the news release but am not familiar with it. Obviously this is the nature of competition. There are probably other value-added services. Some ISPs, such as Internode and iiNet, offer free downloads. We do not know the full picture. It is not just a utility-pricing thing. The nature of retail markets is to put in a whole series of value-adds over and above. We do not think much is gained by just looking at the downloads at all.

Senator IAN MACDONALD —The NBN will give us all 100 megabits per second if we want it. Whether we want it or we do not want it, we can get it—that is, except those of us who live in the country, as I do, who, following the implementation study, may not even get the 12 megabits promised to them. You mentioned the EU being committed by 2013. Do you know what speeds they are talking about?

Mr Hilvert —They are setting 30 megabits per second as their target at that point.

CHAIR —And yet Australia, which is much smaller and more diverse, is going for 100 megabits per second. Do you think there is any inconsistency there?

Mr Hilvert —No, we do not think so. Let’s not get hung up on the ultimate speeds. What we are talking about is infrastructure. Once the infrastructure is there, it can scale via optical fibre. There is no necessary limit to how fast it can go. We will find that, if there is a lot of interest in 3D TV et cetera, that is going to use even more bandwidth. The real issue is that it has to be fast; it has to be more reliable. We suspect 100 megabits may be, if anything, inadequate by 2020, frankly.

CHAIR —Pity poor Europe with only 30, then.

Mr Hilvert —No, they are talking about that by 2013.

CHAIR —I will leave it there. Mr Hilvert, thanks very much. We do appreciate your time; we know you are very busy. We particularly appreciate your giving us the benefit of your expertise—and we are not paying you $25 million for it, mores the pity!

Mr Hilvert —Sir, we have one shot—please get it right.

CHAIR —That is all what we are all here trying to do, I can assure you. Thanks very much.

[10.46 am]