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Wednesday, 8 February 2012
Page: 453

Mr FLETCHER (Bradfield) (18:49): Following on from that remarkable collection of Panglossian non sequiturs from the member for Robertson, I would like to return the debate to the issue at hand, which is the oversight of the rollout of the National Broadband Network by the committee. What do we know about how the rollout is going and how satisfactory is the committee process?

I would like to make three points in the brief time available to me. First, the committee is being provided with inadequate information and much less than would be required by a private sector investor in similar circumstances. Second, on any view the NBN Co. rollout is going extremely badly. There is no other way to put it. This rollout is hugely behind plan and the signs for investors, and that means all of us because we are all compulsory investors in this project, are flashing red for danger. Thirdly, the indicators of the commercial risk the NBN will face in terms of getting the required amount of traffic onto the network are also increasing at a steady rate.

Let me turn first to the question of inadequate information. This committee is supposed to be overseeing what we are repeatedly told is the largest infrastructure investment ever made in Australia. Unfortunately the amount of information we are provided is extremely limited. The attitude of both the department and NBN Co. has been disappointing. It has often taken a long time to get answers to questions on notice and there is often a reluctance to engage with the real issues. We have had a to-and-fro process regarding what are described as key performance indicators. By any ordinary private sector standard as to the kind of key performance indicators you would expect from a company like NBN Co. what has been provided to the committee is hopelessly unsatisfactory.

I can state with some confidence, having spent many years on the senior leadership team of a large telco, that NBN for its own internal purposes and for board purposes will be monitoring on a very close basis—very likely daily, certainly weekly or at the very least monthly—such metrics as: the kilometres of new fibre installed; the number of homes passed; the number of new connections; the number of cancellations; churn; average revenue per user, one of the most closely watched metrics in the telecommunications industry; customer acquisition costs; and customer service metrics such as call answer rates and abandonment rates in the call centres. These metrics will be reported on a budget, actual and forecast basis. That is how things are done in managing large companies like NBN Co. and existing telcos in Australia like Telstra, Optus and Vodafone. I am very confident that reports of this nature are going to the board and management of NBN Co. on an extremely regular basis, but very little of this information comes to the committee. Instead we are repeatedly exposed to this charade where we ask for information, there is a lengthy and elaborate dance of the seven veils before a tiny bit of information is dropped before us.

Let me make a simple plea to the department and to the management of NBN Co. to give us just this simple thing: a consistent report every six months just in respect of the fibre network, not the wireless or the satellite network. NBN Co. has a bad record of trying to confuse the position by quoting fibre and satellite numbers together. I would like NBN Co. to be able to provide a report to the committee which addresses the following three metrics on the fibre network: first, the number of homes passed by the network; second, the number of homes connected to the network; and, third, the number of services in operation—three core metrics that NBN Co. I am certain will be tracking very closely and almost certainly on a daily basis.

It is very hard not be highly suspicious when in its public statements NBN Co. flits between these different metrics which mean very different things. As I have already mentioned, it is highly misleading of NBN Co. to report conflated together satellite numbers and fibre numbers when at the moment the fibre services are being provided over the network NBN is building but the satellite services are being provided over a satellite operated by another operator under a contract with NBN Co. I do not criticise that arrangement by the way. I think it is vastly more sensible than the extraordinary decision announced today for NBN Co. to own and operate its own two satellites, but that is another matter. I would also like to add to my simple request that NBN Co. report those metrics on a basis where they compare what is in the business plan with what the actual number is. I do also make the point that they could quite easily produce it with far greater frequency than six monthly, but let me start with that basic and simple request and see whether it is responded to or, as I rather gloomily expect, whether it will be ignored. In sum, on the first point, as a mechanism for scrutiny and oversight this committee is not working well at all.

On the second point, what can we glean from the scraps and fragments of information which NBN Co. deigns to share with the national parliament, the people's parliament, charged with overseeing this massive project, this massive piece of public expenditure? What can we glean from the information that has been provided? The answer is simple: this rollout is going very badly. If this were a private sector organisation conducting this rollout, I put it to you that the management team probably would not be retaining their jobs at this point.

In June 2011, according to the business plan, there were supposed to be 58,000 premises passed by the fibre network. By June 2012, according to the business plan, there are supposed to be 259,000 premises passed by the fibre network. On a straight line interpolation that would mean that, as at December 2011, we should be at around 160,000 premises passed. We are nowhere near that number. In late October, NBN Co. disclosed that it had passed 18,200 premises in the three Tasmanian and the five national first-release sites. The information I have received from sources within the telecommunications industry is that the rollout is proceeding very slowly indeed and, although NBN Co. announced last year with great fanfare a number of contractors to build the network in a range of different states, very little is actually flowing to those contractors. Very concerningly, if the NBN Co. business plan is to be achieved, as the committee's report notes, it is supposed to scale up to reach the performance level where it passes 6,000 premises a day. There is very little in its performance to date to give any confidence that it is going to achieve that objective.

The Labor government's policy on NBN was announced almost three years ago, and what has been achieved to date is quite underwhelming. They have received $1.3 billion of equity from taxpayers and have so far racked up accumulated losses of $400 million, and the build is, as I have indicated, very substantially behind plan. I would draw one recent comparison with the outcome achieved by a private sector company. Several years ago, Telstra set out to build its Next G network, its new 3G network, nationally within a 12-month period. That was achieved. It was quite a significant and in fact quite impressive engineering outcome and a good indicator of the benchmark NBN Co. ought to be aiming for. They are a very long way behind it.

I have talked about homes past. A very different metric is services in operation—that is to say, the number of premises taking a service and generating revenue. By June 2011, according to the business plan, we were supposed to be at 35,000. By June 2012, it was going to be 102,000 fibre services in operation. Again using straight line interpolation, NBN Co. was accordingly planning to be at around 70,000 fibre services in operation in December 2011. In January 2012, NBN Co. proudly reported it had 2,315 customers using the fibre network. That is why I say that, on any objective measure, this rollout is going very badly indeed. If you were a private sector equity investor in this project, right now you would be hitting the brakes and going for a complete restructure.

The third point I want to make in the brief time available to me is that while on the one hand the build is going very badly, on the other hand the drumbeat which indicates the scale of the commercial risk inherent in this project is gathering more and more every day. This business plan depends upon almost all Australian households taking up a service on the NBN. It also depends on customers moving up to higher tier, more expensive plans in very large numbers—in other words, taking more data and paying more. If those two things do not happen, the business plan will be spectacularly missed.

Why should Australian citizens care? They should care first of all because all of us are compulsory investors in this project, and the massive financial mess that is being created here will have to be cleaned up at the taxpayers' expense. Secondly, if you have a project which turns out to be a yawning financial disaster—and all the indicators are that within a few years that conclusion will be unavoidable—it is very hard to see how the build is ever going to be completed or indeed progress substantially.

Let me offer a couple of pieces of evidence as to why I say that the indicators of commercial risk are growing substantially. I fear that I cannot match the member for Robertson's Panglossian optimism, but I do have a bit of evidence, which is something she did not seem to burden herself with in her remarks. First of all, let me point to a report from the communications regulator in the UK, Ofcom, which in August 2011 reported that 57 per cent of homes were able to receive what were defined as superfast broadband services—in the UK the definition of that is 24 megabits per second. They were able to receive those services from two major operators: British Telecom, using the copper network, upgraded in many places to fibre to the node and over time with some fibre to the premises; and Virgin Cable, which offers services over the cable network with technology very similar to the cable networks of Telstra and Optus. The Telstra and Optus networks are the two networks which are, insanely—and I use that word advisedly—going to be completely overbuilt by NBN Co. under the NBN business plan, and those companies are to be paid to cease providing services.

In August 2011, 57 per cent of British households could receive a superfast service. Only two per cent of households subscribed to such a service. Why? Because people have consistently demonstrated that they are not willing to pay the extra cost to upgrade to a higher tier of broadband. They cannot see a use for it. I refer you to my earlier comments that the NBN Co. business plan is premised on massive numbers of customers taking the higher tiers and paying more.

The other point I wish to highlight is the ever-growing risk from wireless. Let us remember the business environment NBN Co. is going to face. It will have a monopoly over fixed line but it will be competing with Telstra, Optus and Vodafone, and potentially others, using wireless. Those three companies, and potentially others, are about to introduce—and in some cases have already introduced—fourth-generation wireless, or so-called LTE. Let me quote from a recent report from Goldman Sachs:

We believe that the arrival of LTE/4G heralds the beginning of a period where wireless broadband will become a true substitute for fixed broadband services.

Goldman Sachs went on to estimate that up to one million people could be tempted to ditch their fixed broadband services for wireless broadband with the arrival of 4G.

This does not augur well for the business prospects of NBN Co., because in selling its product it will be competing against privately owned companies, which are invariably better at sales and marketing than government owned monopolies. I hate to disrupt the conventional wisdom on this topic, but this is what the experience suggests is true. It will be competing against those companies, and they will have a very competitive and attractive technology to sell. This is bad news for NBN Co.'s business plan. The evidence is that NBN Co. is not going well and the prospects are not good.