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National Broadband Network Select Committee
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National Broadband Network Select Committee
CHAIR (Senator Lundy)
Conroy, Sen Stephen
Ruston, Sen Anne
Smith, Sen Dean
Bilyk, Sen Catryna
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Content WindowNational Broadband Network Select Committee - 26/09/2014
ADCOCK, Mr Greg, Chief Operating Officer, NBN Co
MORROW, Mr William (Bill), Chief Executive Officer, NBN Co
RUE, Mr Stephen, Chief Financial Officer, NBN Co
Committee met at 09:31.
CHAIR ( Senator Lundy ): I declare open this public hearing of the Senate Select Committee on the National Broadband Network and welcome everybody here today. This is a public hearing and a Hansard transcript of the proceedings is being made. The audio of today's proceedings is being broadcast live by the Australian Parliament House website, but I note for those listening that unfortunately we are not able to deliver a video telecast of the hearing today.
Before the committee starts taking evidence, I remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee and such action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to a committee. A witness called to answer a question for the first time should state their full name and the capacity in which they appear and witnesses should speak clearly into the microphone is to assist Hansard to record proceedings.
The committee prefers all evidence to be given in public, but under the Senate's resolutions witnesses have the right to request to be heard in a private session. It is important that witnesses give the committee notice if they intend to ask to give evidence in camera. If a witness objects to answering a question, they should state the ground upon which the objection is taken and the committee will determine whether it will insist on an answer, having regard to the ground which is claimed. If the committee determines to insist on an answer, a witness may request that the answer be given in camera and such a request may be made at any time.
I remind witnesses the Senate has resolved that an officer of the department of the Commonwealth or of the state shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy. It does not preclude questions asking for explanations of policies or factual questions about when and how policies were adopted. I particularly draw the attention of officers to an order of the Senate dated 13 May 2009, specifying the process by which a claim of public interest immunity should be raised. Copies are available from the secretariat.
On behalf the committee, I would like to thank all witnesses appearing today for their corporation. I would like to welcome Mr Bill Morrow and other representatives of NBN Co.
Mr Morrow : Good morning. We know that the committee wants and, in fact, needs to know what is happening with NBN, given that it is such a large taxpayer investment. It is my hope that over time we can provide answers to all of your questions in the most efficient way for both you and the company. If at all possible, a list of your questions in advance, even by a day or two, would allow us to better meet your needs.
Since we last met in May, the company has released its annual results. They show that the progress over the last 12 months has been significant. We have doubled the number of premises ready for service, we have tripled the number of end users and we have quadrupled revenues. We have also resolved conflicts with our delivery partners, reached major milestones in our technology trials, addressed the under capacity issue with the interim satellite service, advanced our preparations for the launch of the long-term satellite service and are much closer to the organisational structures, culture and skill sets we need to achieve our goals.
These are important achievements, but they are just a small part of what needs to be done. We are ramping up the speed and quality of the rollout, but we are still not going fast enough. This year, we need to again double our run rate for serviceable premises. But it is the following years that require exponential shift to meet the goals set out in the strategic review. This challenge should not be underestimated and I would like to share some of the things that we are doing to meet these objectives.
One of the fundamental shifts we are making as a company is to align all of those involved around a common goal of eight million happy end users on the NBN by the year 2020. A number of things must be done for us to achieve this, but one of the most important is to build a strong enough perception of NBN and our service providers to allow us to achieve a 70 per cent penetration level. This perception is formed from what they read in the news or online, what they hear others say and their direct experience with us.
When it comes to this perception based on experience, there is somewhat of a paradox. When they are connected, they love it; but getting connected has been frustrating for far too many people. I was in Tasmania recently where I heard from many about long wait times, missed appointments and how sometimes the work quality was unacceptable. This underscores the importance of the changes that are underway across the company. These changes start with our build and bulk-drop programs, which will ensure that the construction work is completed before a customer places an order to be connected. This will dramatically reduce the installation time.
While this will take the better part of a year to clean up, we have taken a few other measures in the interim to improve the customer experience. These include the introduction of a ready-for-service threshold where a certain percentage of homes must have the lead-ins complete before we declare that area ready for the retail service providers to begin selling. We have also rebuilt the appointment calendar system to allow customers to remain at the top of the queue if there is a missed appointment. We are also separating the simple installs from the general install program and putting them into an accelerated group, giving them a much shorter instalment window. Once again, the clean-up of this legacy issue will take the better part of a year. Until then, we will be doing our best to minimise the frustration.
As we refine the FTTP rollout, we are also making good progress with our satellite and fixed wireless programs. This past month, we have completed the construction of our ninth satellite ground station, leaving only one to go. The first satellite has advanced to the thermal-vacuum testing stage and the second is not far behind. While people wait for the new satellites, additional homes have been connected through the satellite subsidy scheme and capacity enhancements have been made to the interim satellite service. Fixed wireless continues to be a standout performer with the construction program on schedule, high activation rates and also high end-user satisfaction.
With regard to other technologies being added to the mix, we have advanced with the trials of the FTTN model. The first end users have signed up to the pilot in Central Coast's Umina Beach. It is early days, but these premises are getting peak speeds of around 96 megabits per second down and 30 megabits per second up at our network boundary. We have also reached an agreement with the relevant power utility in Victoria to allow us to continue the construction of a further 10 nodes in the northern Melbourne suburb of Epping. As the same time, we are also working with Telstra on the planning, designing and construction of a further 1,300 nodes across Queensland and New South Wales. Construction is underway as we speak.
When it comes to hybrid fibre-coaxial, we have test equipment in our labs and we have begun the tender process to select our suppliers. As you know, this technology is widely deployed in the country today, so the trials will be of a different nature than that of FTTN. Much of this activity will ensure that we hit the ground running when the commercial and regulatory products and other elements for FTTN and HFC are in place.
Finally, I would like to say something about what has been described as an NBN study or pilot in a suburb in northern Melbourne. Documents with an NBN letterhead claiming material FTTP improvements were leaked to a journalist. These were documents, I might say, that none of us here had actually seen before the media brought them to our attention. It was important for NBN to respond to this story and place context around these documents—which may have been seen by the public as representing NBN's considered view, which they do not.
I would like to make clear to the committee that, in order to meet the objectives given to us by the board of directors, we must find efficiencies across the company and across all technologies. Projects like the one described in the media are taking place throughout the company and we expect there to be efficiency gains from them, but nothing we have seen will alter the direction of the company when it comes to the MTM model. There is no conspiracy to hide information and we remain technology agnostic. We would be happy to build a new network rather than remodel an old one, but the fact remains that, even with the planned efficiencies, FTTP costs more and the takes longer to build than what is expected of us. If we were to find a breakthrough that changes this, there would be nothing stopping us from putting more fibre in the ground—that is exactly what we would do.
The NBN board is guided by government policy and its statement of expectations. The board in turn has agreed a strategy, they have set company objectives and they closely monitor our progress. The management of NBN are apolitical. We have no agenda other than to meet these objectives—and that starts with having eight million happy end-user premises on the NBN by 2020. Universal access, speed minimums and financial constraints no doubt make this a challenge, but our employees and partners working hard to make this happen. Thank you for the opportunity to make this opening statement. We are ready to take your questions.
Senator CONROY: I understand that when staff leave your organisation, they sign a number of agreements about not discussing various things that happen inside the company—which is fairly standard corporate procedure. Is that correct?
Mr Morrow : That is correct, yes.
Senator CONROY: Would that apply to them appearing before parliamentary committees? Would you expect them to not answer questions before parliamentary committees?
Mr Morrow : I would defer to legal advice on that, but my understanding would be that they would have to answer the questions in a parliamentary committee so long as it were not a breach of commercial-in-confidence requirements.
Senator CONROY: Do you understand that nothing that is said before parliamentary committee can be used in a court, no matter what is said?
Mr Morrow : I do understand that.
Senator CONROY: What I am seeking to ascertain is whether or not you would have any objection to any staff who have left appearing before the committee and whether—so that they did not feel in any way inhibited before testifying before the committee—you would waive any threat of sanctions if they were to do so?
Mr Morrow : I would like to seek legal counsel on that, but in principle I have no problem with sharing with the Senate committee whatever information they need to have.
Senator CONROY: That extends to former staff?
Mr Morrow : Again, I would have to seek legal advice about what the obligations are. I am not an attorney, so I would feel—
Senator CONROY: But you are able to release them from any such obligations. I am asking if you want to. I would be surprised if you did not. It would run against the tone and tenor of your opening statement about wanting to be transparent and apolitical.
Mr Morrow : Indeed, and I may have the authority to release them from such obligations, but, again, I would have to take advice before making key decisions that could impact the company.
Senator CONROY: Please take that on notice.
Mr Morrow : If you would like me to, I will.
Senator CONROY: I will start with one of the issues you mentioned: the Melton trial—or non-trial. I will just put the documents up on PowerPoint so they are available to everybody. I think you described it as 'purported to have NBN letterhead'. Is that a document that the company generated?
Mr Morrow : That is a document with NBN letterhead.
Senator CONROY: You are suggesting that it is not a document that was generated within NBN Co?
Mr Morrow : That is sanctioned by NBN Co? I do not believe so.
Senator CONROY: That is not what I asked. I asked whether it was generated within NBN Co.
Mr Morrow : We cannot confirm that. We do not even know who the author is. This is a report that was provided to us by the media. We look back at this trial and we see similar documents. That says, 'August 2014'. This was concluded in 2013, so it is our belief at this point in time that somebody else other than an official NBN person has either altered the document and/or represented it as their opinion under the NBN letterhead versus management's opinions.
Senator CONROY: This is a document that details an actual deployment that took place long after August 2013, so it cannot be a document based on—
Mr Morrow : I am not familiar with what this document is, but I can tell you—
Senator CONROY: I think you have accidentally misled the committee in your description of it. As I said, accidentally.
Mr Morrow : I do not believe I misled the committee. Could I clarify, please? Again, we have seen documents that were provided back to us by the press that management were surprised at because we have never seen the documents that went through. For example, Project Fox has information in it that did not materialise from documents that we had within the company when it was concluded earlier in time, and that is what I am referencing. I would ask Mr Adcock to comment on this particular document because, again, it is not a document that I am familiar with the detail within it.
Senator CONROY: Just to be clear: there is a set of documents that refer to desktop assessments that have been written about; I have not seen them up online. This is not that. This is a report of an actual deployment. You have said that this was completed in 2013, and that is not true.
Mr Morrow : Project Fox, yes.
Senator CONROY: No, this document refers to a deployment in Melton that was completed this year. Can I establish that that is factually the case, not—as you described it—that this document refers to something that was not deployed in 2013.
Mr Morrow : Again, we do not have that document in front of us, but let me—
Senator CONROY: It is up online.
Senator RUSTON: Do we have any capacity to get a hard copy of that document so that we can have a look at it?
Senator CONROY: I will happily table it.
Senator RUSTON: Thank you.
Senator CONROY: It is up online, but I will table it.
Senator SMITH: Mr Morrow, in your previous—
Senator CONROY: Sorry, I have not finished my questions. I am happy to table that so there is no confusion. Mr Adcock, do you want to supplement Mr Morrow's answer or finesse it—I am not being sarcastic when I say that—to clarify whether this is a document that purports to be about a desktop trial, Project Fox, or actually relates to a deployment?
Mr Adcock : I understand the document to be a set of presentations. As Mr Morrow said, the executive had not seen it at the time it was published in the press.
Senator CONROY: Can I clarify what you said there? It is a set of presentations internal to the company.
Mr Adcock : The document, as I understand it, was a document that was prepared and when presented to—
Senator CONROY: It was generated inside NBN Co?
Mr Adcock : It was generated inside NBN.
Senator CONROY: Which was the question I asked at the beginning.
CHAIR: It might be useful at this point to say that the document is titled '3MLT-10 deployment trial post-implementation results and recommendations—industry pack'. It is dated August 2014 and is on NBN Co letterhead.
Mr Adcock : The document is a preliminary document that was prepared by the team prior to peer review. It has not reached the executive yet, because the assertions made in it had not been subject to peer review. That review is still ongoing.
Senator CONROY: Coming back to my original question, this is a document generated internally in NBN Co? Whether you authorised it and agreed with this at the end of the day is not the question. Mr Morrow suggested that it is a fabricated document that has been changed.
Mr Morrow : I think there have been documents that have been changed.
Senator CONROY: I am talking about this one; there may be others.
Mr Morrow : Again, I am not familiar with the details of this particular document.
Senator CONROY: But, Mr Adcock, you are confirming that this is an internally generated NBN document?
Mr Adcock : As Mr Morrow is saying, without being apprised of the detail, I understand it to be an internally generated document by our project team, yes.
Senator CONROY: Good. We have established that we are talking about the same thing—that is always a good place to start. As you would know, on 6 September, Fairfax ran a story dealing with this, citing this document. The story noted that NBN Co had rolled out fibre to the premises in the Melton FSAM 61 per cent faster and 50 per cent cheaper than other FSAMs completed in the Ballarat area to that date. I am just confirming that that is what we are talking about. Mr Morrow or Mr Adcock, are you familiar with the deployment of a management system known as Render?
Mr Adcock : I have been presented with a PowerPoint pack on Render, yes.
Senator CONROY: Could you explain to us what that is?
Mr Adcock : It is a software tool that is under development.
Senator CONROY: Could you explain to us a little bit more about Render? What does it do?
Mr Adcock : It is a work-scheduling package like any available on the market. I understand its preliminary design is based on a fibre-to-the-premises deployment. Its principal is an ex-head of construction of NBN Co.
Senator CONROY: My understanding is that it uses industrial mathematics, it breaks down the construction process into discrete tasks, its sequences these tasks properly and it manages workflows by allocating the tasks to the appropriate teams at the right time.
Mr Adcock : Those are the claims in the PowerPoint pack. The software itself is in very preliminary stages and is under development. In fact, in meetings with the principal of the company, part of what they were looking to do was to try and work with NBN Co to further develop the tool, because they were aware of its shortcomings.
Senator CONROY: I think you mentioned that Dan Flemming, former NBN Co. head of construction, is the managing director of Render Networks.
Mr Adcock : Correct.
Senator CONROY: Is Render Networks part of the Biarri company?
Mr Adcock : I do not believe them to be part of the Biarri company. I could be corrected on that. I believe Mr Flemming has close relationships with the principals of the Biarri company due to his previous employment and I believe they may be working together in collaboration on this project.
Senator CONROY: Did NBN Co initially contract with Biarri in 2009 to develop FOND, which is Fibre Optic Network Design? I appreciate that I am going back in time.
Mr Adcock : It is a long way back, but I believe that to be the case.
Senator CONROY: Are you aware that NBN Co and Biarri were finalists in 2014 for the prestigious Franz Edelman prize for using the FOND fibre design for optimisation tool to save more than $2.2 billion in costs?
Mr Adcock : I recall that that was the claim at the time when we had a look at that. The dollar amount was again subject to peer review. It was based on very early costings, I think on the first one or two FSAMs. So how real those numbers were was subject to some discussion. I do not believe we ever landed on it. The tool itself, as a mathematical modelling tool, has been developed with a lot of input from NBN Co. The FOND tool is the tool that we do utilise for the very preliminary designs. As I said, that nomination was very early in my time at NBN Co. When I tried to have a look at it and understand the underlying parameters that led to the claimed benefit, it was comparing a highly automated system that had been developed against a very manual system. Again, I am not saying it is right or wrong; I am just saying that when you look at the baseline of lots of people versus an automated tool, you can generate.
Senator CONROY: I would be shocked if it did not generate, given the early stages where NBN was doing it by hand, so to speak. This is an automation process.
Mr Adcock : Yes, that is correct.
Senator CONROY: You mentioned the preliminary design stage, so I just want to tease out what you are defining as the preliminary design versus what comes next. I do not know what words you use after preliminary, so I do not want to put words in your mouth.
Mr Adcock : I understand that the FOND tool, as it is today and as it has been developed, does what is known as the high-level MDD, which is a desktop design based on input parameters and mathematical calculations.
Senator CONROY: When was a commercial agreement reached with Biarri for the Render deployment management system?
Mr Adcock : You will have to take that up with Biarri. I have got no involvement in their dealings.
Senator CONROY: No, I am talking about our commercial agreement between Biarri and NBN Co, not between Biarri and Mr Flemming.
Mr Adcock : I understand Biarri to be a separate company to Render Networks.
Senator CONROY: I am now asking about a commercial agreement between Biarri and NBN Co.
Mr Adcock : It was very early in the piece. It was before my time. I think you quoted 2009.
Senator CONROY: Biarri developed FOND in 2009. I am now asking about Render.
Mr Adcock : We do not have a commercial arrangement with them.
Mr Morrow : I think the senator is asking, 'Is there a contract with Biarri? If so, when was it signed to allow us to use Render?'
Mr Adcock : I am just trying to step through the time line.
Senator CONROY: Mr Morrow has got it right.
Mr Adcock : Biarri was 2009, with FOND. We do not have a broad commercial agreement with Render Networks at this point in time.
Senator CONROY: My understanding is that NBN does have a contract with the Biarri that allows you to use Render.
Mr Adcock : We have a contract with Biarri. Are you saying, 'Does NBN have a commercial arrangement with Render Networks?'
Senator CONROY: My understanding is that an agreement was reached between NBN Co and Biarri to use Render. I am working on the basis that Render Networks and Biarri have said that they have got a contract between them, from how you described it. That then allows them to onsell Render. I understand NBN Co has a commercial agreement which was reached in late August 2013 to utilise this.
Mr Adcock : If so, it would be purely and utterly for the purposes of a trial. There is no ongoing arrangement to use Render. In fact, one of the issues we are looking out at the moment is going to market. We have tools that do exactly what Render does. The question is, 'Are they now suitable for a multi-technology rollout and will we go to market, including Render, to look for a better tool?'
Senator CONROY: I appreciate that Render would have been designed for FTTP. What is the contract value of the contract that was reached between NBN Co and Biarri for the use of Render?
Mr Adcock : I will have to take that on notice, because I am not aware of such an instrument, unless it was specifically for the trial. Again, as Mr Morrow said, the shape of this Melbourne trial is under peer review at the moment. That will come out of that.
Senator CONROY: During the build stage in Melton, did NBN Co use the Render deployment management system?
Mr Adcock : That is what is claimed in the pack that you refer to.
Senator CONROY: That is why am I asking you. I am asking you to confirm or deny it.
Mr Adcock : The Render tool was used, as I understand, as part of the arrangement in doing it. As I said, having this brought to our attention a couple of weeks ago, part of the trial was to develop to see if it was possible to make the tool commercially robust enough to utilise. This is why part of the peer review is going on at the moment to look at and validate the claims in the pack. The claim was that the tool was used extensively; I cannot confirm this. But in its preliminary stages of peer review, it was under some challenge. I believe there was also a number of people doing the spreadsheeting for the job and not using the Render tool and feeding the outputs of that into the Render system. This is all of what trials do. We look at how we can do these things.
Senator CONROY: I agree that you have held a trial to test a whole range of things in Melton. I have got no doubt that a trial took place. Some of the people in your company have doubted it, but I have never doubted it. Now, just moving on: during the build stage in Melton 10, did NBN Co use innovative, specified equipment such as small footprint multi-ports and small-diameter cable?
Mr Adcock : Yes. The small-form multi-port is being used in other areas as well.
Senator CONROY: I will come back to where else you have deployed them. I have got pages of questions! I am just happy to be able to bring them to your attention. During the build stage in Melton 10, did NBN Co use innovative building methods and work practices, such as intelligent optical-loss measurement testing?
Mr Adcock : Yes.
Senator CONROY: In-line jointing?
Mr Adcock : Yes.
Senator CONROY: That would reduce the number of splicers needed.
Mr Adcock : That is the theory.
Senator CONROY: It did not happen?
Mr Adcock : No, the theory is that in-line splicing reduces the number of jolts.
Senator CONROY: Design walk-outs and constructability reviews, including 100 per cent asset locating prior to commencing civil works?
Mr Adcock : Again, that is the claim in the pack. It is being peer reviewed at the moment.
Senator CONROY: This is not a claim that I am making. I am quoting for a document that you accept was generated by one of your construction field teams.
Mr Adcock : If you go back, it is a document that was created by the team and it is now subject to peer review to test the veracity of the claims.
Senator CONROY: I bet it is! We are looking forward to calling them before the committee.
Senator SMITH: On why the peer review is important, I notice on the front page of the document that it says:
The contents of this document should not be relied upon by our stakeholders (or any other person) as representing NBN Co’s final position on the subject matter of this document, except where stated otherwise.
Why is the peer-review process important? I go back to Mr Morrow's original comment, where he talked about whether documents were sanctioned or not sanctioned. Perhaps you could explain it to us. I am sure that when Senator Conroy drafts a speech, the draft of the speech cannot be deemed to be the speech until it is actually given. What is the internal process that makes a document an official document that can be safely used by people and a document that might be part of the iterative process?
Mr Adcock : As I understand the process, after the trial the team that ran the trial developed the document that we are referring to and presented it up the line. It did not get to the executive and it did not get me, because the deployment standards group—when they were running through and questioning the team that did the trial and presented the results—did what peer review does and tested the veracity of some of the claims. That review process, before you go and roll something out broadly, is just good engineering practice to make sure that the claims that are being made are solid. That peer review has not concluded. It is going through the process and that is just standard practice when you do a trial. You look at the results as they present and at what lies behind.
Senator CONROY: We look forward to talking with both the construction group and the deployment standards group following all of that. They used design walk-outs and constructability reviews, including 100 per cent asset locating prior to commencing civil works. I think you said yes to that.
Mr Adcock : That is the claim in the pack.
Senator CONROY: We are not doubting the statements of your own employees. I accept the peer review process. That is a different thing.
Mr Adcock : The peer review challenges the statements of the employees and the veracity of the claims.
Senator CONROY: So a purpose-stacked trailer for drops, which is a problem-solving truck? That was used?
Mr Adcock : I have not seen the purpose-built trailer, but that is certainly a claim. I believe it would be a good thing to trial.
Senator CONROY: But as far as we know, based on the statements—
Mr Adcock : Based on the statements of the pack, that was used.
Senator CONROY: During the build stage in Melton 10, did NBN Co use project governance initiatives, such as the zero-strike zone approach and an automated quality inspection management process that is based on newly created business rules?
Mr Adcock : I do not know that they did. Again, these are all claims from the pack that are under peer review.
Senator CONROY: But as far as you know they did take place. When you use the word 'claims', that implies in one sense that they are not factual claims. Whether you peer review them and come to a different conclusion is a different issue, but I am just trying to ascertain what actually happened on the ground in Melton.
CHAIR: Perhaps I can help you. I think Senator Conroy is trying to point out the differences between a description of the work that actually occurred and any of the conclusions or observations arising out of peer-review study. He is not trying to entrap you into affirming—
Mr Adcock : No, no. I think Mr Morrow said up-front that—
CHAIR: Excuse me, I have not finished. He is not trying to trap you in asking you to affirm that the contents of the paper do reflect the nature of the trial. You are still able to have your qualification that the paper is being peer reviewed in its conclusions. I just wanted to help us move through this line of questioning.
Senator CONROY: I am just trying to ascertain what actually happened on the ground in Melton, which is not a claim. These are the techniques that were deployed. That is, not those claimed to be deployed, but those that were deployed. You might say that the outcomes and results are subject to peer review and I accept that. I am just trying to establish for the parliamentary committee what actually was done on the ground at Melton.
Mr Adcock : As I have said, the pack came to my attention in a media report. I was not on Melton. If you are asking me to personally confirm what happened on the ground, I am unable to do that. I am able to confirm what I read in the pack, as you are.
Senator CONROY: This came to light on 6 September, which was a couple of weeks ago. I am assuming that, given it has been a matter of some public discussion, you have had a chance to at least review that document prior to us being here today.
Mr Adcock : Yes, I had a look at the document. That is when I asked my team what was the status of the document. They told me it was under peer review.
Senator CONROY: But nobody that you are aware of at this stage has said to you that intelligent optical-loss measurement testing did not take place?
Mr Adcock : That is correct.
Senator CONROY: Nobody has said to you that in-line jointing did not take place.
Mr Adcock : Correct.
Senator CONROY: No-one has said to you that design walk outs and constructability reviews did not take place.
Mr Adcock : That is right.
Senator CONROY: I am trying to establish this factually. No-one in your company, including the people you have asked about this document and who are peer reviewing it, have suggested that these techniques were not deployed in Melton?
Mr Adcock : That is correct.
Senator CONROY: Can we stop with the, 'I do not know what happened in Melton.' You have asked somebody and they have said, 'We might not agree with the analysis at the end of it, but these particular things were all done.'
Mr Adcock : No-one has told me that they were not done.
Senator CONROY: I am now asking about project governance initiatives, such as a zero-strike zone approach and an automated quality inspection management process, based on newly created business rules. I was asking about them. They were used in this deployment in Melton 10?
Mr Adcock : No-one has told me that they were not used.
Senator CONROY: It would be easier if you told a direct truth, rather than a direct negative. During the build stage in Melton 10, did NBN Co use the build-drops approach for installing lead-ins in parallel with the LNDN?
Mr Adcock : I do not believe they did. I believe that they use the bulk drops. They travelled around afterwards.
Senator CONROY: I understand that few other people will understand this difference. Bulk normally goes back after something has been built, after six months or 12 months. If you are saying that you went past the front gate and then the next day someone came, I would properly still almost to define that as a build drop. Apologies to almost everyone else on the planet, who will have no idea what we are talking about. I am just trying to understand, just for accuracy, what you are defining as a bulk drop.
Mr Adcock : Again, they are only preliminary, but I understand that the network was taken to—again, what you and I understand—service-class zero 1 status. Then there was the team that came through and undertook the lead-in work to get the premise-connection device on the site of that house.
Mr Morrow : But the trigger was RFS, right?
Mr Adcock : No, it was prior to RFS. It was a bulk-drop type approach, albeit it very close to that. It is while the construction crews were in the FSAM.
Senator CONROY: Yes. In the past—and this was a decision taken which was ultimately changed—we built past the front gate and then many months later after it was decided to not follow the demand—as in someone phoning up saying, 'Come and connect me, now'—
Mr Adcock : Demand driven.
Senator CONROY: it was decided to send in bulk-drops, where you just said, 'Everyone go back in now and we will connect from the gate to the wall', if I could use simple language again. The process we are talking about in Melton was while they were all in the same area at the same time.
Mr Adcock : Correct, consistent with the practice that we have spoken about for most of these—
Senator CONROY: Yes, and that is the normal practice that you have moved to now?
Mr Adcock : Yes. Following—
Senator CONROY: As I said, I stood at a press conference and announced in 2012 that we were moving to that. That is the process. So when you try to differentiate between bulk-drop and build-drop, in Melton it is a very fine difference.
Mr Adcock : Yes. I suppose it is the difference between the team being in there versus the commercial structure of how the work gets done.
Senator CONROY: I think that is a fair way to describe it. Ultimately, at the end of the process, near 90 per cent were completed—is that right? According to the document, it was 90 per cent RFS, taking Mr Morrow's suggestion.
Mr Adcock : Can I just look at that. I cannot quite recall that claim.
Senator CONROY: It is RFS. The ultimate is that it was done 106 days RFS.
Mr Morrow : Yes, but RFS is at least a 90 per cent pass, not necessarily—
Mr Adcock : It is not service class 2.
Senator CONROY: These were on the side of the wall.
Mr Morrow : That is what you are saying is in the report?
Senator CONROY: I think that is right. We will get to that. I have jumped ahead a little. I will keep going methodically through it. During the build stage in Melton 10, did NBN Co directly engage lower tier contractors—namely, Australian Broadband Company, Celemetrix, Comms Connect and Linktech—to carry out the works?
Mr Adcock : I understood they were engaged. I do not believe they all finished. I think some pulled out halfway through, but I can confirm that for you.
Senator CONROY: I might follow that one up if we get time. During the detailed design process for Melton 10, did Telstra complete the field inspection report?
Mr Adcock : I believe they did.
Senator CONROY: During the design process for Melton 10, did NBN Co complete the DDD?
Mr Adcock : I will have to confirm that for you. It was either Telstra which is the practice today or NBN Co. It would be one of those two.
Senator CONROY: I think it is in the document. I am essentially quoting from the document.
Mr Adcock : It was either NBN Co or Telstra, as an agent.
Senator CONROY: My understanding is that it is NBN, but I could be wrong. If someone sitting behind you could use the magic of wifi or 4G, we might be able to solve that one for you quickly.
Mr Morrow : What is it you want?
Senator CONROY: Who did the design process for Melton 10—NBN Co or Telstra?
Mr Adcock : The detailed design process?
Senator CONROY: DDD. Are there any other FSAMs in Australia where NBN Co has used all of these measures simultaneously as part of the design and build process?
Mr Adcock : All of them simultaneously?
Senator CONROY: Appreciating that this was just a trial.
Mr Adcock : This was just a trial; I do not believe there is. I can absolutely say there is not. I do not believe we have used render on any other site because we are waiting for the results on it. So that would have to be a no; there is not.
Senator CONROY: Melton 10 was the first FSAM in Australia to be constructed using all of these techniques at the same time? I think that is what we are agreeing.
Mr Adcock : Yes.
Senator CONROY: Within the document, it says that a Melton 10 deployment trial was initiated by NBN Co to create an internal baseline benchmark for program productivity and cost performance. That is what they said they were doing. Whether or not the peer review ultimately says, yes, it was is a different question. But the deployment trial was initiated by the company to create an internal baseline benchmark. These guys did not just go wandering off and go, 'We're like Melton, we are going to start all these new things.' They were tasked, presumably. I do not know about you, but my employees do not just wander off and start digging holes in people's pavements without my instructions.
Mr Adcock : One of the things that came out was that it was not on the forward rollout plan. That was one of the questions I had. This is part of what the review will find out—under whose authority this was being undertaken. It is a fair point but the people who were doing it, according to the pack, believed they were doing it as a benchmark trial.
Senator CONROY: Do you want your rogue employees at NBN Co digging holes in pavements around the country?
Senator BILYK: Send them to Tassie!
Senator CONROY: They would be welcome to get any activity in Tassie.
Senator BILYK: That is right.
Senator CONROY: Let us be serious. These people must have been working under somebody's orders.
Mr Morrow : I think Mr Adcock is saying that, in his tenure here, he was not the one that sanctioned or directed—
Senator CONROY: No, I accept that we have a time issue here, when you started. I am not suggesting it was you, Mr Adcock. You should not feel that I am suggesting that.
Mr Adcock : No, I know that.
Senator CONROY: But this has been the first FSAM to use all of these deployment techniques.
Mr Adcock : And only.
Senator CONROY: You seem very confident that it has already failed.
Mr Adcock : No, I am not at all. I think there are some good findings in here.
Senator CONROY: There are some very good findings. I am hoping that they pan out.
Mr Adcock : We all are.
Senator CONROY: I know the board, the minister and Mr Morrow are all hoping that they pan out. I just want to double-check: somebody must have a commercial agreement with somebody to be using the Render system. You cannot just say that this is an overblown claim by Mr Flemming about the capacity. Somebody is using Render. It was used, we have agreed, in Melton.
Mr Adcock : No. I understand and—
Senator CONROY: I think the commercial contract is through Biarri, but if you tell me it is—
Mr Adcock : I will go and find out. I was getting confused when you were saying Biarri. I do believe that the people who ran the trial—and I believe the gentleman who ran the trial used to work directly for Mr Flemming—did negotiate an agreement with Render. I believe it was direct; I do not believe it was through Biarri, but I can confirm that. That is why I was getting a little bit confused earlier. I apologise.
Senator CONROY: That is fine. To alleviate Mr Morrow's concerns, the document believes that 85 per cent are what you would call service class 2 at the moment. Is that correct? You have had time to establish whether some of the facts—
Mr Adcock : At the moment.
Senator CONROY: I believe it states it.
Mr Morrow : For this project.
Senator CONROY: For this project, yes.
Mr Adcock : I will give you the exact numbers as we go through the day.
Senator CONROY: Great, thanks. Slide 3 shows the metrics that were agreed with all NBN Co stakeholders to assess the success of the deployment trial. It states that 20 FSAMs in the Ballarat 2 CSA—either ready for service or build-commenced—would be used as the basis for comparison. That is just what it states.
Mr Adcock : That is what it states. I am interested to know who all the NBN Co stakeholders were. I was not one of them.
Senator CONROY: If it started before you were there then you would not have been.
Mr Adcock : That is interesting, because at the start of it I was there.
Senator CONROY: You could have been, because you were helping.
Mr Adcock : I was there.
Senator CONROY: Ballarat is the epicentre of the debacle of Telstra's remediation of pits. I would not want to be claiming credit for your involvement in Ballarat.
Mr Adcock : No, I—
Senator CONROY: I personally visited Ballarat to try to assure the community they were not going to die of asbestos poisoning following your then company's remediation. It was probably, other than Penrith, the worst remediation process. So I know you were there, but I personally was not going to mention it.
Mr Adcock : Sorry, Senator. Now I am confused. I was at NBN Co. This claims to have started the trial in—
Senator CONROY: So we are back to rogue employees.
Mr Adcock : I understand it was kicked off in January or February of this year, when I was at NBN Co.
Senator CONROY: Sorry, you are right, but you possibly may have been inundated with a whole heap of other stuff at the time.
Mr Adcock : There was a whole heap of other stuff.
Senator CONROY: So I am not being critical.
Mr Adcock : All I was saying is that 'agreed by all NBN Co stakeholders'—
Senator CONROY: I would probably not define my boss as a stakeholder.
Mr Morrow : If there is any doubt on our side over here, we enjoy these. We want these kinds of projects to be in place.
Senator CONROY: Absolutely.
Mr Morrow : If we could have more of these driving better results, that is exactly what we want to do. So there is no denial about the fact that we endorse these sorts of projects and we want improvements over what we are currently processing today. I do not want to give you the wrong impression.
Senator CONROY: No, you did that in your opening statement, so we will come back to that.
Mr Morrow : We look forward to that.
Mr Adcock : Can I just confirm that, for Melton 10, NBN Co did the DDD, and Telstra did the field inspection report.
Senator CONROY: Yes, great, thank you. Slide 4 shows the headline results for Melton 10 deployment trial in time frame and cost per premise compared to the Ballarat CSA. A peer review may say, 'That's not a fair comparison; you've picked the wrong ones to compare against.' But that is not the issue that we are looking at. What we are looking to do is ascertain the results of this deployment trial.
Mr Adcock : The early results of the peer review are that those claims are wrong.
Senator CONROY: That is no great shock to me. It states that Melton 10 was completed to RFS, or service class 1, in 104 business days. Is that correct?
Mr Adcock : That is what it claims, yes.
Senator CONROY: Now we are back to: either it was completed or is was not.
Mr Adcock : Again, I am waiting on the outcome of the peer review.
Senator CONROY: No, this is not a peer review issue. I accept a comparison between two can be subject to an opinion, but a fact is whether it was completed in 104 business days. That is not peer reviewable. Either it started on a date and finished on a date or it did not.
Mr Adcock : That is fair enough. My understanding as I sit here today is that the fact that it was completed in 104 days is incorrect.
Senator CONROY: Okay. We look forward to talking to your peer review team about that. You can feel free to give us how many days it did take.
Mr Adcock : I would rather wait until the results were confirmed, rather than—
Senator CONROY: Let's go forward to slide 5. I would like to draw you to question on notice No. 49, from 11 July, which confirms that the build contract instruction for Melton was issued in February 2014. This is an answer you have given to parliament which confirms the timeline on the slide: 'Contract instruction issued 28 February 2014'—right there. Then, if you refer to Telstra's wholesale NBN Co rollout schedule, it confirms that Melton 10 went RFS on 23 July 2014, exactly 104 business days. Who is lying?
Mr Adcock : As I said, I am waiting to get the understanding—
Senator CONROY: It is right there in black and white. You gave the answer to parliament that it started on 28 February, and Telstra, on their wholesale chart, said to people that it went RFS on 23 July. That is exactly 104 days. So how is that incorrect?
Mr Adcock : As I said, I have been waiting to get the detail because I have been told that—
Senator CONROY: There are some pretty impressive facts there for you to disprove.
Mr Adcock : I understand that, and I would rather—
Senator CONROY: And you have already said it is wrong. So what is wrong? Did you not issue the contract instruction on 28 February? It is up there on your chart.
Mr Adcock : Yes, the contract instruction—
Senator RUSTON: Excuse me, can I just ask a question about why we are prosecuting a draft document?
Senator CONROY: We are establishing a fact.
CHAIR: I think that is a political point, Senator Ruston. I am going to allow Senator Conroy to continue his questions.
Mr Adcock : The answer to question 49 says February—
Senator CONROY: 28.
Mr Adcock : No, it does not say 28 February; it says February 2014.
Senator CONROY: Okay, I will come back to you very shortly on the 28 February issue. I am happy for you to tell me it was earlier than 28 February, or later, just because it generically up there says February. But it is now incumbent upon you to provide the date. Given you are challenging 28 February, it is now incumbent on you to provide a date during the course of discussion. And Telstra's wholesale NBN Co rollout schedule confirms Melton 10 went RFS on 23 July. Do you dispute that?
Mr Adcock : I do not dispute that.
Senator CONROY: So your concern is that it may have started—
Mr Adcock : I am not disputing what Telstra's wholesale website says. I do not know what—
Senator CONROY: I would hope not. They were starting to sell to meet your test, which is ready to sell to customers. So we are not disagreeing about 23 July, but you reserve the right to say that it did not start on 28 February. That would possibly be an area where there could be a reason for disagreement.
Mr Adcock : Yes.
Senator CONROY: Okay, great. So, back down to slide four. It states that Melton 10 was completed fifty per cent cheaper than FSAMs completion in Ballarat to date. You are obviously aware of that statement.
Mr Adcock : Yes, I am aware of that statement.
Senator CONROY: Going to slide six, the slide sets out the productivity results for Melton 10 compared to all of Victorian averages, rather than just Ballarat. I would like to confirm these and I want to go through it line by line. As an example, boring underground, local Victorian average is 40 metres a day, Melton 10 did 102 metres a day. I just wanted to confirm those facts. Facts are not in dispute, unless you want to say, 'No, that is not how many metres were bored that day.'
Mr Morrow : Mr Adcock, correct me if I am wrong, I believe, as we talked about back in the office, this report needs to be validated because it never surfaced to senior management. We did not hear about it until the press pointed it out and brought it to our attention. It very well may be factual but we have not validated it and unless, Greg, you have any actually gone through and validated it, I think that is what you need to tell the committee—
Mr Adcock : Absolutely.
Mr Morrow : We cannot validate this—Mr Adcock did not write it, I did not write it, Mr Rue did not write it. We have not validated within the management ranks of whether this is true or not. We do intend to do that, that was the point about completing both the peer review and us to investigate this. If there are material improvements to be made then we intend to do it.
Senator CONROY: It has been 20 days.
Mr Morrow : Twenty days since that came out of the media. Senator, as you know, we have a million things that we are doing. The very fact that we have to chase the media around for this, is nonsense. There are many other programs that we have. Because the committee would like to know about this now, we of course will follow-up and consider this a priority, but every time something hits the news, there is no way I am going to tell management, 'Stop what you are doing and focus on this.' That would be ridiculous.
Senator SMITH: Mr Morrow, what is the motivation for someone releasing a document to the media that has not been validated by the NBN Co?
Mr Morrow : There are lots of strong fibre-to-the-prem zealots out there, there are disgruntled employees that are out there that no longer have their positions—there could be a variety of reasons. While I believe giving the benefit of doubt to people that they are good, in fact some people do have ulterior motives behind this, and that is what we need to investigate. That is why right now I have to declare this as an NBN letterhead until we can validate it. You want this senior management team to be able to say with fact, 'Yes, Committee, this is something we believe happened and it is something that we believe we are going to incorporate into the economics going forward.' I know you want that; we want that too. Can we put hand on heart right now and say, 'Yes, every line item on here is true,' I do not believe it to be the case.
Mr Adcock : The other thing I am trying to do, as part of the review, is contextualise it. As you go through, you are pointing out things like the Victorian average is 40, Melton 10 was 102. But if I go forward two pages—and this is one of the things we need engineers to be looking at, this peer review—the average for defects in Ballarat is 16, through Melton 10 was 71. It was highly defective work. So we need to understand the context of the going back and fixing the defects in light of the cost claims, and we want to make sure if there are genuine savings and genuine improvements that we pick them up and run with them.
Senator CONROY: I get that. I cannot see why you have a problem going through this document. This document went to RFS—in other words, the defects were sorted.
Mr Adcock : Again, without wanting to speculate, early indications are that every lead-in is being checked because the fault rate in this FSAM, in particular, is much higher than the national average. That is why I am just trying to get those facts together because it was done so quickly.
Senator CONROY: And we can have a discussion and you can make those points, but this committee's job—
Mr Adcock : If there are other things that we can do that improve the speed of the rollout, we will.
Senator CONROY: It is a witch-hunt as to whether or not it took 104 days to roll out a FSAM.
Senator BILYK: I am new to the committee. I do have a few concerns. My first question is in regard to people being able to access NBN and there is obviously a big issue in Tasmania. Mr Morrow, you were in Tasmania recently, in Hobart or—?
Mr Adcock : Hobart.
Senator BILYK: Okay. One thing you said was that people might be able to get the top broadband service—something they had been promised for free originally—if they want to pay extra. Can you quickly expand on that a bit for me? Can you tell me what sorts of costs we are looking at; who might be entitled to it; why indeed, if it was promised for free earlier, people will now be paying for it?
Mr Morrow : In the MTM model, as you know, not everybody will have a fibre connected up to their home or to their premise. What we know is that there may be cases where people feel that an FTTN, or even one of the wireless structures, will be insufficient for their particular needs. NBN will offer a product that is either a co-funding or fibre on demand. Allow me to explain the difference between two. In a co-funding model, it could very well be a developer or planning community, where they say, 'Rather than fibre to the node, we would prefer to have fibre to the premise, and therefore we are willing to pay a portion of that.' We are working through the details as to exactly what that cost would be. Of course it will be highly customised depending on the conditions for that particular area. If it is an individual user—an individual company, say—that would like to have fibre brought up into their premise, then that is a fibre-on-demand product. That will allow them to be able to say—in Tasmania there is no HFC—'Regardless of whether I am in a fibre-to-the-node area or not, I have the ability to have fibre brought all the way up into my home.' These two products are quite common in other parts of the world. We have studied and looked at how those would work, and we think that they would be applicable to Australia. The intent is to have this available at the first part of next year. Again, the pricing will be highly customisable, but we intend to offer that to the end users.
Senator BILYK: In some situations—in the CBD, for example—we have fibre running past the buildings, but they struggle to get that in multidwelling units. We have businesses that still cannot connect. What is going to happen there? I think you have heard about the company in Collins Street, literally in Central Hobart, that had to move buildings; had to move residence. They have 10 people there. This is the future of Tasmania, to be honest, as I see it. If organisations, especially computer companies, cannot even get the broadband width they need, what is happening there?
Mr Morrow : Let me offer a high-level answer and Greg may want to offer further detail. The first thing—it is something which I have heard from a number of people and it is a valid question—is: 'I am a business and I now know that NBN has pulled fibre right in front of my street. One, I cannot have access to it—why can't I just tap into it—and, two, why am I still on fibre to the node? Why aren't I guaranteed fibre to the premise since it is right out there in front of us?' When we investigate those situations, most of the time it is because that fibre is a feeder fibre, part of the transit network, that you do not just tap into. The architecture of the network is a core kernel of a transit network running around that is fibre based, and then it has spurs that go off it to be able to connect into nodes and premises and even wireless towers for the fixed wireless side. A fibre is not fibre in the sense of tapping into it to bring it to their respective homes. I will say, Senator, that there have been some cases too where it makes perfect sense to say, 'Let's tap into that and give that particular business or customer access to that network.' That is some of the refinement that we are doing within our planning process.
Senator BILYK: Ionata Digital ordered an NBN connection when it became available—this is in Central Hobart; the absolute centre of Hobart—in mid-2013. They still cannot get it. What is the story there?
Mr Morrow : I am not familiar with the specifics of that—
Senator BILYK: Can you take that on notice and get back to me with what is happening there?
Mr Adcock : I am sorry, Senator, what was the name of the organisation?
Senator BILYK: Ionata Digital.
Mr Adcock : If I can get that back to you today, I will.
Senator BILYK: That is the business that actually moved a few buildings down to try and access it. If I can quote Mr Anderson, the managing director, he says, 'We absolutely want NBN. The bandwidth would make a huge difference to us. We have 10 people working in the office, all using one connection and pushing huge files around.' There has been a lot of contact. I know that Mr Winter from ICT has been in contact with people and tried to help sort it out. I think it is really important that we can help businesses in Tassie get a move on. Tassie originally had a 2015 completion date. Can you tell me what the projected time line is for that completion date now?
Mr Morrow : The only thing that we can assure people of is that we have been given a remit to finish the country by 2020. While we are still working through the details of fibre to the node and the variance of that, whether its fibre to the building or fibre to the distribution point, all these things are still main works, so we cannot make any other commitment than the 2020 at this time.
Senator BILYK: I think you said when you were in Hobart that fibre to the premises would be about 40 per cent in Tassie. Do you remember that?
Mr Morrow : No, I was referencing where we are in terms of the work that is in progress. Tassie has about 40 per cent of the premises that are either complete or in work. That compares to 15 per cent across the country.
Senator BILYK: So do you think that the ultimate coverage for fibre to the premises in Tassie is likely to be 80 per cent?
Mr Morrow : No, again—Mr Adcock, you may have an opinion that is more detailed than mine—I would be very careful about any sort of projections at this point.
Senator BILYK: It is just that Mr Ferguson said, when he was asked about it in estimates, that he thought that Tasmanian fibre-to-the-premises coverage would be 80 per cent. I am wondering how he might have got that figure.
Mr Morrow : He would be best equipped to answer that.
Senator BILYK: Are you able to give me a projection at all on what you think it might be for Tasmania?
Mr Adcock : No, we are still doing the planning around multi—
Senator BILYK: So Mr Ferguson, in that case, would not have been able to get any answer out of you either about it?
Mr Morrow : No, nothing that we have not revealed publically to everybody else.
Senator SMITH: What was Mr Ferguson's exact quote, Senator?
Senator BILYK: I have not got the exact quote in front of me except that he said fibre-to-the-premises coverage would be 80 per cent.
Senator SMITH: But we cannot quote him; we do not know exactly what he said.
Senator BILYK: No, Senator Smith you are quite right. I do know that he said it would be about 80 per cent, but I do not have the direct quote in front of me. I am happy to find the direct quote if you are happy to take that on notice, and maybe you will be able to answer—
Mr Morrow : Again, I can answer already. Anything that we have told Mr Ferguson is what I was very clear in public on, even on the state radio channel down there, about our progress to date. The fact that we are going to use multi-technology mix to be able to get people connected, to stay within our costs and time budget allocation, and I have not stated anything further.
Senator BILYK: Your time budget allocation being 2020, not 2015 though?
Mr Morrow : It is 2020, not 2015. Somebody else had told me 2016, so I am not sure what the commitment was before. All I can say now is our commitment to Tasmania is 2020.
Senator SMITH: You did travel Tasmania recently, Mr Morrow. If I understand the visit correctly, you were announcing some delivery partners in regards to customer connections.
Mr Morrow : That is correct.
Senator SMITH: Could you just explain why that is important, particularly what the benefit will be to those Tasmanians who are at service class 0 or service class 1?
Mr Morrow : Indeed—and, again, if Mr Adcock wants to add in more detail on this—Visionstream is the primary contractor in Tasmania. They have almost end-to-end responsibilities to be able to help us, including in the exchange and going all the way out in the build program to bring that lead-in up to the site of people's homes. Because of this vast amount of work on the drops that were not complete—what Mr Adcock referred to as the bulk-drop program—we have gone out and secured an additional contractor and this is UCG. That is their specific remit—to go out and accelerate the build of these lead-ins so people can have their service faster in those areas to which we have NBN.
Senator SMITH: Have you been able to quantify the number of people that might benefit from this acceleration?
Mr Adcock : I could come back to you on that. We have certainly looked at vastly improving the number of premises that are connected. I think it is fair to say that Visionstream, as Mr Morrow said, was our end-to-end partner, and they were having some difficulty, given events of the past, in securing the subcontractor base—I think that is well documented—which is why there is a strategy to get another new local contractor in to assist there, and we believe that it will substantially increase. I can come back to you with a profile if you would like.
Senator SMITH: You are quite right. The difficulties that Visionstream experienced should be well known to everyone. What has been happening in the recent past in terms of NBN Co working with Visionstream to make sure that they are now in the best possible position to meet the demands of Tasmanian NBN users? I am keen to understand what you might be doing around some of the workforce issues.
Mr Adcock : In Tasmania, again, it is well known that we signed an amending agreement with Visionstream because work had slowed down extremely towards the end of the last calendar year. Early this year we signed an amending agreement and went with them on a very focused process review to see what we could do to assist them in speeding up and getting back on track. It has not been without its challenges. A number of issues have confronted us in Tasmania, not the least of which is the well-publicised one about the angst between VPL and the subcontracting community in Tasmania.
Mr Morrow : VPL is Visionstream.
Mr Adcock : Sorry, yes. And again, Visionstream's senior management have been very open to sharing those problems with us, and we have been doing everything we can in working with them to make sure that we do secure the subcontract workforce. I think it is fair to say that the realisation is that a lot of water has gone under the bridge, but it is still not where we need it to be. One of the recent things we have done to ensure that they could secure the workforce is an agreement with Telstra which allowed VPL to do not only the network build and the lead-in work but also the remediation. So basically Tasmania is the only place where they have the end-to-end and can get in and manage the workforce. Instead of it being a serial process, it becomes a parallel process, which allows the workforce to be fully utilised. It gets rid of that stop-start.
Recently I have also been told that Visionstream, recognising the challenges, have undertaken a bit of a management review. Mr Morrow met with one of the principals last week, and I have met with him on many occasions. They have given their commitment to bringing their best people in Australia to bear in Tasmania to focus on fixing the process issues. A lot of them have been fixed, but I am not going to sit here and say it is squeaky clean and running like a well-oiled machine. That would be wrong. But is the commitment there from our partner in Visionstream to correct it? Absolutely. Recognising that they have issues in the lead-in, have they accepted the fact that we have introduced a second partner to do the bulk-drop work? Absolutely. And work is now being released to them on a regular basis. I think that since the last Senate hearing we have issued two more FSAMs, and there are two to go this quarter. We have a forward profile with them—that is on top of the 16 that were released as part of the amending agreement in December last year.
Senator SMITH: That is where I was going, actually—around the bridging contract. What is the progress on those 16? If I remember correctly, there had been some media reports about delays or problems. Perhaps you could talk to us about the 'lumpy' rollout—it is not a technical word, I know—of FSAMs and why that takes place.
Mr Adcock : I am pretty confident of this, but, from memory, of the 16, eight have already been declared ready for service and are built. There is progress on the other eight—from memory, two of the other eight have been declared ready for service this month. I took some notes for myself last night, but I do not seem to be able to find them. I knew Tasmania would be an issue, given that Senator Bilyk would be here.
Senator CONROY: We will be revisiting it—don't worry.
Senator BILYK: Yes.
Mr Adcock : Okay. Eight have concluded. I believe two more have been being declared ready for service. Since the 16 there have been another seven released—three in the early part of the year, four since the last Senate committee and we have a forward profile to continue releasing work in those areas. Again, going back to what Mr Morrow was saying earlier, the program that has been built and released in Tasmania and the forward view of the program sees, I think, greater than 40 per cent of the state covered in fibre to the premises and, with the new contracts down there, we are very much looking for an improved end user experience in connection.
Senator SMITH: I think the media comment was that there had been a lack of FSAMs declared for service. That does not—
Mr Adcock : Sorry, Senator. The media reports on the lack of FSAMs being declared for service—
Senator CONROY: That is a decision—
Mr Adcock : The senator is quite right. Thank you, Senator. There was—
Senator SMITH: Exception.
Mr Adcock : There were issues, as Senator Bilyk has called out, about people waiting for service and the frustration of held orders. As a company, we took a decision not to release FSAMs before certain thresholds had been met or where we did not have workforce in the area that could activate. That was driving the held order issue—which is, I think when I get the answer to your earlier question, one of the issues we have on held orders is: is the infrastructure there in the first place. That is the service class 0/1 issue. Secondly, do we have the workforce on the ground and the capability to manage the appointments as they start to come in? So we took a deliberate decision as a company not to release FSAMs that were actually ready for service, because the workforce was not there and it would only make a problem that we were experiencing—and trying to address while we were negotiating with a second contractor—worse.
Senator SMITH: That is part of when Mr Morrow mentions in his opening statement about the paradox—I think that was the word—and the frustration. That is a way of managing that for consumers and potential consumers.
Mr Adcock : Absolutely. No-one wants to be told something is ready and then you have to wait eight months to get a service. That just does not work and we would rather have them ready. The other point, Senator, when we get to the position of 90 per cent passed and service class 0, service class 1 and if we do not have the workforce: if we do hold it back and we send, as Senator Conroy pointed out, the second crew in to do the lead-in work, when we do declare it ready for service the time to connect is a lot shorter because the connection device is already on the side of the premise. Multi-dwelling units are still a challenge for us, especially complex multi-dwelling units, and I believe that will surface in the CBD issue getting out of the street and into what we sometimes refer to as horizontal MDUs—where you go into parks or buildings with many premises in them. Those are four challenges that we are trying to address at the moment.
Senator SMITH: Thank you.
Senator BILYK: Can I just apologise. I have to leave. I am deputy chairing another committee hearing today, so I have to leave and go and attend that this afternoon—
Mr Adcock : Yes.
Senator CONROY: But you are just nearby.
Senator BILYK: I am very nearby if I am required, so I can run back down. Thank you for your answers and I look forward to your answers on notice.
Senator RUSTON: Can I just go back to the dreaded Melton exercise. When are you expected to have that peer review completed on this document?
Mr Adcock : I would hope it would be completed in the next couple of weeks, so early to mid-October.
Senator RUSTON: Okay. That is great. So hopefully next time we see you we will be in a better position to be able to prosecute the validated data. Can I just ask you, in relation to the figures and the progress, to give us a bit of a progress report on where everything is at. Where are we at with the rollout?
CHAIR: That was my question, Senator.
Senator SMITH: I have got some as well.
CHAIR: Let's see if you can do it all in one.
Senator RUSTON: In clarifying where you are at in terms of the —
Senator CONROY: Could you table the weekly progress report from your website?
Mr Adcock : If you would like us to, yes.
Senator CONROY: That would assist to answer that question.
Senator RUSTON: To be very clear about what does it mean when you say that it is 3256 houses? Does it mean you have gone passed that many houses or does it mean you have connected them? Is the connection available to them, should they wish to take it up?
Mr Adcock : This is the website issue of the 3256. This goes to an ongoing discussion and again we do try to clarify it. We made a decision to publish on our website premises ready for service—
Senator RUSTON: Premises ready for service.
Mr Adcock : so RSP community can place orders. I am not hiding from the fact that it has caused some confusion from passed metrics that were presented on premises passed. It is what it is, and we have just got to deal with it, because we made that decision. As far as the rollout goes, I think Mr Morrow said in his opening statement that in the last 12 month we have doubled the number of premises ready for service, we have tripled the number of venues as we have quadrupled revenue. If I do the apples-for-apples comparison—again because we are reporting ready for service but from the construction metric perspective of premises passed or covered—I think this time last year, and again these figures were available in the data, we had about 300,000 premises covered across brownfields, greenfields and wireless. Currently against the same measure, we have passed or covered around 750,000, which is about 500,000 brownfields, 127,000 greenfields and 123,000 wireless. If I look at 300,000 against the commonly-quoted cohort of 12 million homes in Australia, we have gone from 300,000 covered, which is about 2½ per cent, to a bit over 750,000, which is about 6.25 per cent—give or take. So in the last 12 months from that perspective we have pushed the premises passed. We have very publicly claimed that from the passed metric we are doing the bulk drops behind and we are going back to the FSAM approvals to bring them into service clusters so that people can enjoy the benefits of high-speed broadband as quickly as possible.
For that premises passed metric, our objective was clearly to stabilise the industry. We have been very open about saying that. I know Senator Conroy asked me last time around about the 12-week rolling average at the ends of the quarters. If we are doing the like-for-like, I think we reported that at the end of the financial year we exited with a 12-week rolling average of about 6,800. We have managed to maintain that. I believe that at the end of the September quarter, which is a couple of days away, we will be able to say we have maintained that or improved on it slightly over a 12-week rolling average. I get the feeling that the industry has stabilised. We are working very hard to get the multitechnology mix forecast so we can work with industry not only with fibre to the premises, but fibre to the node, fibre to the distribution point, fibre to the basement. From that point in time we were stabilising and being consistent, and now—as I think Mr Morrow said in his opening statement—the challenge is to launch off that and go even harder to meet our commitment to have eight million happy end-user premises by 2020.
Senator RUSTON: Would it be fair to say as a comparison of apples with apples we are seeing an acceleration in the rollout?
Mr Adcock : We have accelerated the rollout but again I will be very clear that we have accelerated to a point where we have stabilised. We are not trying to go any harder until we lock down what the future looks like and then we will build again. We have built, we have stabilised and we will build again.
Mr Morrow : If you look quarter by half year over year, yes.
Mr Adcock : Absolutely. If I do the raw numbers on the premises passed, we have gone from 3,800 to 5,600 to 6,800 and in this quarter we are looking to exit at somewhere between 6,900 and 7,000.
Senator RUSTON: The statements that have been flying around in the media that the project is 'tanking' obviously are not substantiated by the figures that you are providing?
Mr Adcock : I do not believe so.
Senator RUSTON: Obviously coming from the country one of the things that are of great interest to me are the fixed wireless towers. I was just wondering how the rollout of the fixed wireless towers is going in rural and regional areas.
Mr Adcock : Fixed wireless is being extremely well received as we roll it out. As I said before, this time last year we had covered, in fixed wireless, about 39,000 premises. We are now at 123,000 premises covered. What we are seeing as we get out there is that the activation rate and the take-up rate are very positive. As we turn up the towers, people—
Senator CONROY: It is a great service.
Mr Adcock : I believe it is. The teams did a bit of end-user feedback and the 25/5 that is received off the fixed wireless is a great service.
Senator CONROY: What is the percentage between the 12/1 take-up, because earlier on that was all that was on offer, and the 25/5?
Mr Adcock : Can I come back to you on that?
Senator CONROY: Those customers obviously have not read Robert Kennedy's report that they do not need it till 2023.
Mr Rue : I did not ask them that.
Senator CONROY: You should tell them that. You should say, 'According to the study, you don't need that till 2023.' So can you cut their service back to what Robert Kennedy says they need?
CHAIR: Senator Ruston.
Senator RUSTON: Chair, taking the interjection—
CHAIR: I was trying to save you from the interjection.
Senator RUSTON: I know; I am just a sucker for it.
CHAIR: I won't bother again!
Senator RUSTON: I get so confused about all the different terminology; Senator Conroy has obviously got years more experience in this space than I have. We talk about what people need and what people want. It seems to get very confusing in the media space. They prosecute this argument of the 15 megabits, or whatever they are called; the 15 upload, download—
Mr Morrow : It is 15 down and 15 megabits per second. That is written about.
Senator RUSTON: Is that what people are asking for? People obviously want more, but do people actually want more than they need? That is probably the question.
Mr Morrow : What we see is an interesting mix in terms of our higher speed products versus the lower ones offered. The CFO has said that we see a large portion take higher speeds on the products available to them. That mix evolves over time; we see it fluctuate considerably. Quite frankly, as you would imagine, going into different demographics, based on disposable income, you are going to see people want lower priced and therefore lower speed product offerings.
I have yet to hear a case where people have said, 'It's insufficient for me.' There is the occasional business that says, 'I need to be able to have fibre to my prem because I think I have this high bandwidth component,' but it has not necessarily been because they have not had an FTTN circuit. They need something better than what FTTN can provide, for example.
Senator RUSTON: It just strikes me that we have spent our entire time prosecuting the argument: 'You will need this much upload, this much download,' instead of actually working out what they physically need. Everyone has become obsessed: 'If I haven't got 100 then I've got a substandard service.'
Mr Adcock : As Senator Conroy pointed out, we are seeing that those that get the fixed wireless satellite, the 25/5, are very satisfied. I was just having a look at our numbers here. We are in the bank line-up where we go out and acquire sites because the build time for a fixed wireless site, by the time you go through site acquisition, land access and everything, is quite substantial. It is 18 months-plus at some stages. The forward program is consistent with our objective of meeting our 2020 guideline. One of the other things that I just want to update is that I believe the issue we had that is highlighted in the strategic review around the spectrum in the outer metro areas is being addressed. We are currently working with the ACMA on getting a solution to that problem, which will drive the program even harder.
Senator RUSTON: Just back to the wireless, you just mentioned that there is a reasonably long time, by the time you go through the process to identify where the tower is going to go et cetera. So what actually is that process, and what is NBN's role in determining and having the tower built? You identify the area where you are going to commence the rollout—so what happens after that?
Mr Adcock : The planning is done and you look at what is the fixed line footprint—and that is part of what we are doing again with the multi-technology mix—and how far you can reach with a fixed line service. Then outside the fixed line service are those customers where you say, 'Okay, is there a fixed wireless solution?' If they are that far out—
Senator RUSTON: Sorry, my question was about actually determining to put the tower in the ground.
Mr Morrow : Where will you put the tower—
Senator RUSTON: Where you put the tower—what is the process to decide that the tower is going there?
Mr Adcock : You look at the customer base or the end-user premises that you have to cover and the radio propagation studies—
Senator CONROY: You probably should explain about line of sight—it is the vital part to it.
Mr Adcock : Well, there are many vital parts. That is one of them, Senator; you are absolutely right.
Senator CONROY: If it has no line of sight, you cannot deliver the service, so it is up there in the top.
Senator RUSTON: So you then—so Ericsson—
Mr Adcock : Ericsson is our strategic partner in doing the fixed wireless.
Senator RUSTON: So Ericsson would go to an area that you have identified in terms of your footprint, and they would try and determine a physical location that would deliver you the footprint that you had sought to achieve?
Mr Adcock : Invariably we look at a number of physical locations because each of them has its pluses and minuses. As Senator Conroy points out, with some you can get easy access to power but you do not get line of sight to your customer base; with others you get line of sight to your customer base but there is a huge issue in getting power.
Senator RUSTON: What is your engagement with the people who are impacted on by the actual physical structure?
Mr Adcock : There are a number of processes. There is the regulatory process we are duty-bound to undertake, but then there is a whole community engagement phase that NBN undertakes as well, because everybody knows that fixed wireless comes with its issues.
Senator RUSTON: So you do that, not Ericsson?
Mr Adcock : NBN Co does. NBN Co through its delivery partners—and at times ourselves—does the community engagement. For example, if you are building a site, our delivery partners—either Ericsson or in some cases our tier 1 partners who do the build on behalf of Ericsson—are all acting as agents of NBN Co. They may go and do the community engagement on NBN Co letterhead—their correspondence is on NBN Co letterhead. If there is an issue where we need to get involved, NBN Co representatives themselves get involved—absolutely.
Senator RUSTON: In the situation where, say, you were going to put a tower within 100 metres of somebody's house, what would your requirement for engagement with that person be?
Mr Adcock : Every situation is a case-by-case basis. Clearly we uphold the law and the regulation, and then if there are issues we sit down and try and consult and engage—try and find solutions. I have been in the industry for a long time and not everybody is always happy.
Senator CONROY: Just to clarify, early on there were a few objections from some tinfoil hat nutters. Has that level of objection dropped?
Senator RUSTON: Are you talking about health objections?
Mr Morrow : You are referring to the electromagnetic interference?
Senator CONROY: Yes. There was objection at various stages, in the early stages of the rollout, to the siting of towers, and people and councils were objecting. Have you found that?
Mr Adcock : I have not got the numbers from the early days like you might have. There is still a fair level of consultation required prior to siting a tower. It varies from council to council and constituent to constituent. And that is just a statement of where we are today. I believe there is a gentleman with a website who follows our development applications and our site acquisition notices and who emails the community talking about all of the issues. It is just the reality of building telecommunications infrastructure. We do our very best to make sure that the industry consultation is appropriate and fulsome and to take on board complaints and look at alternatives.
Mr Morrow : If I could add that, again, we know that this is important to the local communities. There is some beautiful countryside, and a lot of people do not like the aesthetics of suddenly having their view blocked. As Mr Adcock refers to, there is a consultative process that we have with our community engagement people. Most of the permits that you have in order to get the plans out there require notices to be sent out to the surrounding area when you have that sort of construction. It does vary area by area, or suburb by suburb, but generally that is the approach. In terms of the complaints about it, we have not heard anything surfacing. Over the last six months, maybe there have been one or two that we have had to deal with, that have been escalated up to us. I think it is relatively—
Senator CONROY: I think the acceptance that you are seeing with the take-up—and the quality of your service—has quelled a lot of the initial ignorant opposition. People are going, 'Oh, my God, it's fantastic.'
Mr Morrow : Right, and that is when you get the local community saying, 'I want it. I heard so-and-so has it. I want it, so I'm willing to have that tower put up.' But finding the property to be able to put the tower on, getting the local approvals—we would love for that to be quicker, and it does take an awful lot of time to be able to move out. Again, we are not done in terms of the number of towers that we have to build.
Senator RUSTON: Well, you are about to get another one, I think. The reason—
Mr Adcock : They have not gone away. As Mr Morrow knows, I was on the phone for, I think, two hours this week with some end users, just listening and trying to work through a solution. We take it all very seriously.
Senator RUSTON: Yes. The reason I ask is that a particular constituent raised the matter with me last week. I went to his property and had a look at it, and the tower is within 100 metres of his house. There would not be another house for 500 metres, so why did it need to be within 100 metres of his house? The catch is that his boundary runs about 80 metres away from his house, and this thing is jammed up on his boundary. The property owner next door got compensation, yet his house is on the other side of the hill so there is not even any visual impact, apart from losing this teeny-weeny bit of land on the side of it. But the guy whose house is within 100 metres says he was not notified.
Mr Morrow : We think we know who that person is. That is one that both Mr Adcock and I have been aware of. Again, this is one of those things that you cannot please everybody on. It is on somebody else's property; that is where the property owner wants that to be. It is necessary to serve the greater community, and it comes into this situation the same way—
Senator RUSTON: If you had moved it three feet, you would have actually paid him the compensation because you would have stuck it on his property, and he probably would never have said a word!
Senator CONROY: That often happens.
Mr Adcock : It is interesting. I understand, and it is not an isolated issue. They are diminishing, but they are still there. Again, we take them on one by one.
Senator RUSTON: Sure. Did you want to stop?
CHAIR: We are into morning tea time. We will break for morning tea for 15 minutes.
Pr oceedings suspended from 11:08 to 11:23
CHAIR: Coming back to my questions around slide No. 6, how much faster is the smaller diameter cable to deploy? The presentation indicates that it is 10 to 20 per cent faster. That should not be a surprise. That is why you moved to adopt that. Did you say that is correct?
Mr Adcock : It is faster to deploy on a percentage basis. It would be dependent on the situation. If they are saying it was 20 per cent quicker in Melton—
Senator CONROY: Ten to 20 per cent.
Mr Adcock : Ten to 20 per cent—that is fine.
Senator CONROY: That is important. It is not making a ludicrous claim. It would not be a surprise for it to be 10 to 20 per cent. But I appreciate it is under peer review. I am not asking you to clarify.
Mr Adcock : As you know, we are utilising the small diameter cable in other deployments, so it clearly has proven out. In fact, I think the CTO office had pushed for the smaller cable prior to Melton.
Senator CONROY: It is no surprise to me that you say you are using it in other areas. This is just the first quantification of it that I have seen. All the advice and evidence from your own CTO office and from you today supports that it does lead to improvements in productivity in a whole variety of ways. How widely are you now deploying that across your FTTP rollout?
Mr Adcock : I will have to come back to you on that. It is one of the standards we use. By design, they look at what cable is available and what they use. It is an option that is open to the designers.
Senator CONROY: I am just trying to clarify. My understanding is that it is lighter and more flexible making the cable easier to handle and transport, it is easier to coil, smaller layout area is required for cable directional changes during haul, there is greater utilisation of Telstra infrastructure, less augmentation is required and there is less physical strain on the crew. These are some of the benefits that I am aware of. All of that would suggest it should be incorporated everywhere.
Mr Adcock : Yes.
Senator CONROY: What are you saying—that it is an option? I think you said it was a standard and then you said it was an option. I would have thought it would have been almost mandatory to do this.
Mr Adcock : The smaller diameter cables come in varying cable accounts, so the designers have a range of infrastructure available to them. It is on a design by design, FSAM by FSAM basis.
Senator CONROY: What about small footprint multiports? How much quicker are these to install? Melton found five minutes versus 15 minutes.
Mr Adcock : As I said, the small footprint multiport is a standard. If Melton found five minutes versus 15 minutes, that is fine. They are deployed. They are a standard item now.
Senator CONROY: This is the first time I have seen a quantification. My understanding—and you are confirming that I think—is that that definitely is an improvement on the previous rollout methodology.
Mr Adcock : Yes.
Senator CONROY: Are you aware that one of the key efficiency savings introduced by former management, the reduced fibre allocation per premises from three fibres per FTU to 1.5, was not used in Melton?
Mr Adcock : Was I aware it was not used?
Senator CONROY: Yes. I am just confirming it was not part of Melton.
Mr Adcock : I do not know that, if you were saying it was not.
Senator CONROY: I think it was not, I was just hoping you could confirm that.
Mr Adcock : No. I will confirm that back to you.
Senator CONROY: Mr Morrow, I noted a comment that you made on 15 September where you state:
On fibre to the premises, we're very focused on reducing its cost, so we're looking at things called skinny fibre. Working with our suppliers, we have identified savings where you run a single fibre to a particular home, and you [prepare] all the fibre splices in a factory, and you just roll it out in a pre-measured way to where these joints are in the pits.
Are you looking at adopting a single fibre to a home?
Mr Morrow : The point being made there was we are looking at anything and everything we can to reduce the cost of fibre to the premises to where we could use as much of it as possible.
Senator CONROY: I think we said that the early rollout of NBN used three fibres per home.
Mr Adcock : As I understand the design rules, at the time three fibres was an option. There was another option for lower density of 1½. Again, they were just options that were available to us.
Senator CONROY: I think the original rollout was with three fibres. Then there was a suggestion to make it 1.5, but Mr Morrow is actually looking at a single fibre.
Mr Morrow : No. This was one of the ideas that had come up to reduce the cost even further.
Senator CONROY: I am agreeing with you. I am aware that Verizon use one fibre, and Verizon use the methodology you have described there. I will come back to Verizon's rollout in a minute. I just want to confirm that you think, if single fibre reduces the cost, it is worthwhile implementing?
Mr Morrow : In my mind you have to look at the trade-offs of that cost versus a fibre going bad or an additional service being needed within that house. That judgement still needs to be made, but indicatively I would think that that would be a wise decision, if it has a dramatic decrease in the cost and the speed and time are maintained.
Senator CONROY: If you had a recommendation that said, 'Let's adopt the single fibre to the home,' you would do it instantly?
Mr Morrow : Yes.
Senator CONROY: That seems a very sensible thing to do.
Mr Adcock : Can I just clarify something? I recall a conversation I had with Mr McLaren when we were talking about this very topic some time ago.
Senator CONROY: For the committee, that is the former CTO.
Mr Adcock : The former CTO. He said that under the design rules available to the designers three was an option, but in varying densities of housing there was a 1.5 option available. The teams that were doing the design at the time chose to use the three. I can confirm that, but I believe they had the design rules from a very long time ago.
Senator CONROY: I think the majority, if not almost all, was with three.
Mr Adcock : I believe that to be the case, by choice of the team doing the design.
Senator CONROY: Would you find it perplexing, Mr Morrow, given that you clicked your fingers? The Hansard cannot pick that up—
Mr Morrow : Darn it!
Senator CONROY: so I described that for the purposes of Hansard and those listening.
CHAIR: Very considerate of you.
Senator CONROY: If a proposal to reduce from three to 1.5 fibres to a home could demonstrate savings—and it is a fairly simple demonstration, because you are running less fibre—would you find it unusual that that would be rejected as an option?
Mr Morrow : I would have to hear the arguments as to why it would be rejected, and I would be surprised to find there were strong arguments that would suggest we should not do that, if the cost savings are there.
Senator CONROY: Well, it means you are ordering less fibre.
Mr Morrow : I know. It all depends on what the cost of fibre is relative to the overall cost of the build. You still have to do the construction components, which are the civils, which are, as you know, the higher portion of the cost.
Senator CONROY: I am just interested. Dropping from three fibres to one, which was the favoured methodology that people were using, would not mean only one-third of the cost?
Mr Morrow : That is correct.
Senator CONROY: That would be overly simplistic.
Mr Morrow : Indeed.
Senator CONROY: But any reduction from three to one could not make it more expensive, could it?
Mr Morrow : No, that is correct. We would not want to do that, if it has a material impact. For the benefit of the full committee, in my mind, we are looking at economics and problem failures—the unexpected down the road. If you build in more fibres than one per home, we have redundancy in case there is a failure.
Senator CONROY: I understand. I have lived this argument, so I agree with you. But industry standard worldwide is one fibre to the home.
Mr Morrow : It seems logical to take the risk.
Senator CONROY: Yes. Verizon's is one per home, and other deployments I understand are one per home. It would not seem to make sense for you to not introduce this, if there was a quantifiable dollar sign.
Mr Morrow : I would agree.
Senator CONROY: There was a recommendation from management to the board in August last year to reduce the fibre allocation from three to 1.5—to take up the option that Mr Adcock has identified—and it was calculated to be worth $3.3 billion. That is what was calculated. That is a document that is available on the internet, if you want to check. Was an executive decision made to roll back, to not take that up? Be very careful!
Mr Adcock : I am being very careful. Neither Mr Morrow nor I was there in August.
Senator CONROY: No, this was made later. This was a recommendation that was made in August but—
Mr Morrow : I guess at 2013—
Senator CONROY: Mr Morrow is excused from any of this discussion. I think you might be as well, Mr Adcock, to be fair to you.
Mr Adcock : I was not—
Senator CONROY: I understand it was around November 2013—so you might have just started or were not quite there yet. Was there an executive decision of the management of NBN Co to not implement reducing from three to 1.5 fibres?
Mr Adcock : Is the senator referring to the Project Fox discussion?
Senator CONROY: It comes from Project Fox, which recommended and quantified a saving of $3.3 billion and then management took a decision not to implement it.
Mr Adcock : My recollection of the time, as the senator said earlier, is I was very new and I had asked the question. As I understand it, and I am happy to come back on it, there was a paper that went to the board that was not endorsed by the board—
Senator CONROY: I accept the board did not because the board changed at that moment. But management recommended reducing from three to 1.5, forecasting a saving of $3.3 billion. The truth will be in the minutes of the executive team which will be FOI'd—truth is always a helpful answer. Did the executive team recommend rolling back and not adopting reducing from three fibres to 1.5 and forecasting a saving of $3.3 billion a few days before the strategic review was released?
Mr Adcock : My recollection is scant. I had been there, as you say, a very short period of time and there was discussions at the time about the project that was being run by finance. If you are referring to Project Fox, I asked the question at the time of the people who had pulled it together whether the savings been validated and tested. I was told that, no, it was a desktop exercise based on, I think, somewhere between two and four FSAMs, and then extrapolated over 4,000 FSAMs to come up with the number. I asked if that was a valid way to calculate the savings given that there was already an option of 1.5 fibres available, which is why I recall that conversation. I believe at the time I asked the lead engineering representative whether this was the way he would normally make changes to the deployment rules, to which I was told no. I said: 'If there are savings that have been validated and can be deployed as part of this paper then we should do them. If there aren't, we should go away and have a look and do more trials, and prove out the savings.' That is my recollection. If that has come across as—
Senator CONROY: Mr Morrow has jumped the shark to wanting less than 1.5 to only one.
Mr Adcock : I think Mr Morrow did say when he said that that he would [inaudible] and validate the savings, which is exactly the point that was made, as I believe you are referring to, in November. Being relatively fresh in the organisation, I asked a reasonably pragmatic question.
Senator CONROY: Let me ask a reasonably obvious follow-up question: if we are agreeing that three down to one will have savings—so there could be other issues—we are not suggesting that three down to 1.5 has no savings?
Mr Adcock : 1.5 was an option that was available to everybody at the time.
Senator CONROY: Yes, but that is not the point. There was a recommendation from management to make that mandatory—in other words, no-one was allowed to roll three anymore; you had to roll 1.5. I am trying to ascertain whether management made the direction that it not happen and on what basis would management have made that, given that it is fairly straightforward? This is maths.
Mr Adcock : Again, my recollection is that there was no recommendation, that it did not happen. The request at the time, as I recall, was asking the engineering team: did they believe that a two to four desktop FSAM exercise, on an option that was already available to them, extrapolated out over a rollout, post a statement that the company was going to a multitechnology mix—did they believe that was the appropriate way to go back and redesign work that had already been done, at expense to the taxpayer, without further validation? The answer was no, so further validation was sought.
Senator CONROY: More peer review validations, for a very obvious reduction in cost.
Mr Adcock : No, I had suggested in the same report that that was the small form multiport as well, which was adopted—
Senator CONROY: I just want to get you on the record. At no stage did management of NBN Co recommend not to adopt this saving?
Mr Adcock : When you say management of NBN Co, I can only speak for myself.
Senator CONROY: You have a management team that makes decisions. The management team has meetings.
Mr Morrow : If I could, Mr Adcock. I think that if you recall that if a proposal was put forward and a decision made, that is what you should answer the senator's question on. If you cannot recall any of that then I would propose that I take it on notice and get you the facts behind what was taken before the committee of the management team and what decision was taken.
Senator CONROY: Thank you. That would be wise. So coming back to Mr Morrow indicating, quite logically and sensibly, that moving to a single fibre to a particular home could see a reduction in costs. That is currently being investigated at the moment, given Mr Morrow specified it publicly?
Mr Morrow : Again, I am encouraging the entire team to find any way you can—
Senator CONROY: You do not need to, you just have to ask Verizon. I am sure if you wanted to fly someone out who knew something about fibre to the premise, rather than a clown from the UK who knows about fibre to the nodes, they could help you right now. I am sure Verizon would loan you someone to explain to you how they do their single fibres and the connect system you are describing. Is it hard to find that information? I am going to be reading it out later if you cannot, but I am happy to point you to the people you should talk to at Verizon.
Mr Morrow : No, of course it is not that hard, but again we have done a lot of benchmarking work. One of the projects that is underway right now in reducing the cost of the build, getting our CPP down involves looking at going down to a single fibre to the home.
Mr Adcock : Yes it does. It goes to fibre count.
Senator CONROY: Fibre count, okay. Moving on. The Construction Services Group has made five recommendations in regard to the outcomes of Melton 10. Before we get to those I would like to discuss NBN Co's response to the trial results after Fairfax broke the story. The day after publication of the Fairfax story on 7 September, NBN Co said about the story, directly quoting from Karina Keisler: 'It is an inaccurate report. Note the absence of NBN commentary. No such pilot. MTN NBN is cheaper and sooner.'
Given that both of you have now accepted that a pilot did take place, and Mr Adcock has described it as such and the document itself describes it as such: what is the committee to think when an officer of NBN Co misleads the public by stating a bald-faced lie? No such pilot. We have just had a lengthy discussion about it.
Mr Morrow : Again, I have obviously had a number of discussions with our PR team around this issue. When the document was first uncovered by the journalist and our media team was contacted for validation, as with any company and part of normal process, the media team contacts the senior management to say, 'We are aware of this document. Are you, Greg Adcock, and you, Bill Morrow, familiar with this document?' The answer was, No, we are not.' Therefore it appeared that this was a document that somebody else had doctored, and therefore the response from our media team was that there is no such trial. We do not have validation behind that. If the senior management team is not aware of something then the view was that it could be something from within.
Further information was then revealed over time that there was a project going on looking at the reduction of cost that appeared to have conclusions made that were not subject to the peer review, that were not validated and approved by management. Hence, the following statements that were made by the media team. I will acknowledge that I think there were some terms and some coordination within the company that could be improved otherwise. Had that been better it would not have looked like it was a defence of something. But that was not the intent, to cover anything up.
Senator CONROY: Just to run through what happened, accurately: first of all, the company denied such a pilot existed. The next day NBN Co issued a statement called 'Two sides to every story', which, again, I think came under Ms Keisler's by-line on the blog. It denied the existence of the outcome of the trial as reported in Fairfax saying:
… the work underway in Melton delivered no such conclusions.
Whereas, clearly, the document does come to conclusions. They may not have been peer reviewed but it did come to conclusions.
Then by the evening of 8 September, NBN Co had changed its line again, this time acknowledging that there was in fact 'an internal document detailing results of a fibre to the premises deployment trial'. Now, however instead of saying that there was 'no such pilot', NBN Co said:
… it was written by a well-meaning member of staff and was misguided.
That is a fairly severe reflection on the professional operation of your own staff members who actually, unlike Ms Keisler, were rolling out fibre to the premises to Australians on the ground and working hard to try to achieve cost savings. So it was 'written by a well-meaning member of staff and was misguided': is it misguided to seek to get savings in the rollout of the National Broadband Network?
Mr Morrow : Would you like me to respond to that?
Senator CONROY: Yes.
Mr Morrow : Again, the idea of 'no such trial' came out because that media team came to the senior management and none of us knew anything about it. The immediate response—you know the speed of media—was the 'no such trial'. That is behind us. Then it came back to say that there were conclusions made on behalf of NBN that it had quantified savings and time adjustments, and therefore drew out that this changes the MTM model, where fibre to the premises is actually cheaper than fibre to the node. Hence, the reason this is not an official NBN conclusion. This has not surfaced through management and has not gone through the normal rigour that anybody who is expecting us to spend the billions of dollars that we do.
Once the documents did come forward and we dug through the lower parts of the organisation, that is when there was the realisation, 'All right, there is in fact a document that is out there.' And we know that an employee who was part of this, who is no longer with the company—mind you—could therefore have just been a bit overzealous, because we cannot prove—again—right now the conclusions that were stated in that document.
It may turn out that there are heaps of savings behind these various projects and trials that we have underway. I do hope, in fact, that there are. Once we can validate those and once we can bake them in—we have a very tough CFO here who, if we make a commitment behind something, makes sure that we are going to be able to keep it. Of course we will bake these in. But this whole thing is premature and has a bad smell to it in different areas. Until we can flush this thing out we are left in this quandary of, 'Is it misguided? Is it accurate? Is it somebody who has left the company who is disgruntled and who wants to be able to push for a fibre to the premises because they don't like the MTM model? Are there political motivations behind all this?' We do not know until we can actually go through this process.
Senator CONROY: I would then go, 'Here is a study which shows the cost of installing fibre to the premises reducing.' It may not be reducing by as much as they are claiming, but it is pretty hard to deny; and you have adopted a range of the measures that the cost of fibre to the premises is reducing. Do you agree?
Mr Morrow : I do think that there were tweets, statements and reactions by the media team that in fact said just that.
Senator CONROY: But I am now asking you, Mr Morrow: on the face of this and on the face of the things that you are talking about—and we will get to Verizon rollout—it is fairly obvious that there are reductions in the cost of fibre to the premises.
Mr Morrow : Absolutely. I completely agree and I am thrilled that that is the case. And do you know what? We need it in order to stay within this very tight budget in the time line that we are working with.
Senator CONROY: Okay.
Mr Adcock : I just wanted to clear up something from earlier. I have just been told that Render was contracted through Biarri from Melton only. It was contracted for the trial. I believe the contract was a $330,000, so I would be interested to see if that is in the cost per premises passed.
Senator CONROY: Now you are being a little cute.
Mr Adcock : I am just asking the question.
Senator RUSTON: Senator Conroy is the cute one.
Senator CONROY: I am trying to be less cute.
Senator RUSTON: You are not succeeding.
Senator SMITH: On some levels you are succeeding!
Senator CONROY: I just wanted to clarify something, Mr Morrow. You may not have bothered to look at all of the old documents—
Mr Morrow : Correct.
Senator CONROY: which would be perfectly reasonable. There is this famous document called version 13 of the corporate plan.
Mr Morrow : Version 13?
Senator CONROY: Version 13. It was written by management and put to the board at the infamous meeting where the board was asked to resign. But the document exists; the minister refuses to release it.
Senator SMITH: So it is not a board endorsed document?
Senator CONROY: No, I think I just made that clear.
Senator SMITH: I was making sure that I heard you clearly. It is not a board endorsed document.
Senator CONROY: I have not sought to misrepresent it. So management put in to the board and the board were asked to resign. It was forwarded to the minister and the minister has never released it. Would you be happy to release it?
Mr Morrow : I do not think it is up to me to release corporate plan documents; it is a ministerial issue.
Senator CONROY: That is alright. I just thought I would check. Within that plan was the discussion of fibre allocation. It says, 'In the current architecture it allows up to three fibres for single dwelling unit, two fibres per commercial premises, and 1.5 fibres per multi-premises sites.' So you were right—there were different options—but they were also for different buildings. The three fibres per SDU is made up of one fibre for the premise, one fibre for any future growth on the same cadastre and one fibre for future use including non-addressables. It says, 'It is proposed to modify the fibre allocation per premise as per outline below.' So there was very much a proposal along the lines that you are now considering a year later, though you are being bold and going even further, based on the international standard. So I just wanted to make sure we are all on the same page.
I know you have covered it a little bit. I am trying to understand why the first reaction of NBN Co was to tell a flat-out lie. The second one was to denigrate individuals who worked on the trial. Then, finally, I think you yourself accepted, Mr Morrow, and Mr Adcock indicated, that many of the identified savings had actually been rolled out now further across the whole network. So even the smaller diameter SQUIDs and that sort of stuff were actually being rolled out. Why were we so defensive about wanting to identify that savings that were being discussed had actually been implemented, not just in Melton but across the broader rollout?
Mr Morrow : As I said earlier, until the senior management can do its normal due diligence around any kind of finding of any kind of project or trial, it would be irresponsible of us to confirm publically statements and conclusions of that nature. I do take exception to and do not agree with your characterisation of lying to the public. Again, that was the information that the media team had had at the time, based on the senior management's information that it had at the time, and it was not unreasonable. In retrospect, clearly, or in hindsight, we would go back and say, 'Let us investigate this further,' rather than offering a response. But again—and you can imagine the political tension that exists around NBN—we just assumed that it was not something that was valid within a company.
On your last statement, I do believe and have a high confidence that the result of this project will help us reduce our costs of fibre to the prem as we move forward. The actual number of that has yet to be validated, by both the COO and the CFO, and by me along with the rest of the executive committee. I do hope that the number is as high as possible, but it is too premature to be able to specify what that is.
Senator CONROY: Just to confirm what you said earlier, you have already found savings in the rollout of fibre to the home. They have already been implemented, these smaller diameters? Everyone is nodding, but I need a 'yes' for Hansard.
Mr Adcock : Yes.
Senator CONROY: Mr Morrow, I think you indicated again today, as you have always said, you are happy to roll out more fibre.
Mr Morrow : We would love to.
Senator CONROY: You would like that opportunity rather than using fibre to the node. If you had the opportunity to do more FTTP rather than using fibre to the node, I think 'You bet we will' is a quote from you.
Mr Morrow : Absolutely.
Senator CONROY: You are comfortable to stand by that?
Mr Morrow : Yes.
Senator CONROY: I know we have not quite finalised the debate around the 104 days. Are there any updates on that?
Mr Adcock : No.
Senator CONROY: Nothing coming through?
Mr Adcock : Nothing coming through at this point, but I would like to close it off by the end of the day.
Senator CONROY: Let's pretend it was 1 February. So let's add 27 days to that. That would be 131 days. That is still a record rollout—even if the 28 February date is wrong.
Mr Adcock : I do not believe that that is the case.
Senator CONROY: One of the things that Ms Keisler indicated in the article was that you are achieving better results in other places. Can you tell us about them?
Mr Adcock : Again, without having all the data before me, the rollout is governed by many, many things.
Senator CONROY: You are the chief operating officer.
Mr Adcock : Yes. As Mr Morrow said in this opening statement, if we knew the questions we could have a lot more data.
Senator CONROY: You did not think that we were going to be asking about the Melton document?
Mr Adcock : The peer review is going on and time to rollout is governed by many things. I understand one of the early findings is that the augmentation or new network build required in Melton was about five kilometres against an average in Ballarat of 16.4 kilometres. That is just part of—
Senator CONROY: I am accepting that the comparison point might have been wrong. I said that from beginning. What was achieved in the individualised build on the ground in Melton is not within dispute. It was done in X days, subject to—
Mr Adcock : We will come back to the days.
Senator CONROY: Yes. It was done for Y cost, et cetera et cetera. You may say 'invalid comparison point' and I accept all of that. I am just trying to establish that if a combination of these methodologies plus a combination of the things that Mr Morrow and you said that you are thoroughly investigating all show substantially cheaper rollouts faster why you would not want that to be part of your rollout?
Mr Adcock : As Mr Morrow said, where it can be proven and deployed, and taking into account stock that is already on hand and all that, we would absolutely utilise it.
Senator CONROY: I did have a cheeky go at you about your opening statement where you talked about there being no conspiracy to hide information. You then went on to say, 'Rather than remodel another one, the fact remains that, even with the planned deficiencies'—but you do not have all of the planned deficiencies yet—
Mr Morrow : That is true.
Senator CONROY: You than say, 'even if FTTP costs more and it takes longer to build than what is expected of us,' but there has never been an argument FTTP costs more to build than FTTN, has there?
Mr Morrow : No.
Senator CONROY: So it is not a function of suddenly FTTP is going to be cheaper to build than FTTN. That would be almost a nonsense to say that.
Mr Morrow : Agreed.
Senator CONROY: So the question here is whether or not FTTP is substantially cheaper—as you have been going through the learning process, in the same way, for instance, Verizon has been going through the learning process and getting the cost down in the way that they have successfully done. Again, I am confused when Mr Adcock says, 'Oh, we need to trial it.' It has been trailed; it has been done. It is working and it is very cheap in the US.
Mr Morrow : When I look at the challenges for the company—and I will use back of the envelope calculations so that it does not reveal any of the commercial-in-confidence stuff and redacted components of prior documents—to get this eight million end user connections by 2020 and a 70 per cent penetration, that means we have to get universal access. You are aware of that. And you know we have minimum speed standards that we have to deliver and we have these—
Senator CONROY: I was not aware that you had minimum standards; I knew you had 'up to'.
Mr Morrow : Minimum speeds.
Senator CONROY: That is not a minimum standard. I am going to come back to that issue.
Mr Morrow : I have an up to speed, minimum level I have to build and I have to stay within the $29½ billion equity envelope and I have to produce a positive internal rate of return. I say 'I' but I mean the company. What that really means when you forecast out to the building and the conclusion of the build of this network is that we are going to have to take our cost per premise down substantially from where it is to be less than $2,000 per premise and we are going to have to lift our ARPUs from today's $38 up to about $52 to be able to make the economics work. We have to keep our operating expense down to a bare minimum in order to produce net overall this internal rate of return. And, today, there is not a clear operational plan that puts us there. So, when I say planned efficiencies it is, right now, mobilising the management team, mobilising our equipment providers and our delivery partners to say 'You all need to help in this to be able to reduce our costs to where we can stay within these constraints that we have.' Is it feasible or reasonable? We think so but, again, do we have a clear path to all fibre-to-the-prem efficiencies, all fibre to the node efficiencies, all HFC efficiencies? The answer is no, not yet. This is what I am directing the team towards, and the management are very engaged on this issue.
Senator SMITH: You have had a tremendous amount of experience before coming to this role. How does the magnitude of this task compare with the magnitude of tasks you have inherited when you have gone into previous roles?
Mr Morrow : They are all very different. I am not afraid, if that is what you mean. I have seen uglier situations that I have been tasked with. But I do not want to sit here and say this is going to be a breeze and everything is going to be fine. We have to take this strategic plan and build a detailed business model that Mr Rue is working on and then translate that into a true operating tactical plan. That is in progress as we sit here today. Until I can have that line of path to where I can talk to Greg and say 'Tell me everything you are going to do and what time frame and what milestones to be able to reduce that cost per premises' and have John Simon lift that ARPU level and have the rest of us reduce our operating expenses—we are not at that level of confidence yet. In the grand scheme of challenges given to executives, this is within reason. So, again, I am not afraid—no-one is running from the task here.
Senator CONROY: Coming back to your investigation which, as Mr Adcock has indicated, is on single fibre to the home, international evidence suggests that there are substantive savings compared to where NBN Co was. Previous management estimated that even reducing from three to 1½ was to the tune of $3 billion-plus. Putting aside that management appear to have, on the surface, directed for that not to take place just prior to the publication of the strategic review, some might find that a strange coincidence. If you found that your single-fibre option saved billions of dollars, you would have to recommend it?
Mr Morrow : Against the trade-offs, assuming the trade-offs are not problematic—absolutely.
Senator CONROY: I want to clarify the improvements that you have indicated. In your NBN statement you say:
The efficiencies that our construction crews had applied to construction in Melton - such as smaller diameter cables and smaller multiports (or splitters) - are already being employed in the NBN build across Australia.
Can you indicate what savings are you picking up from doing part of that?
Mr Adcock : I will have to come back to you.
Senator CONROY: I did not expect you to have that with you. Can you identify which improvements and the savings against them. Are you planning on rolling out the new testing method, iLOM, which was trialled in Melton, across the network?
Mr Adcock : Again, the review is looking at that. As I understand it, at its macro level, the concept was to go from testing all 12 fibres in the ribbon to testing fibres 1 and 12 on the basis that, if one and 12 are okay, those in the middle are. But, as I said to you earlier, the early results are showing that we are having some—
Senator CONROY: How was that testing done previously to using this new approach?
Mr Adcock : I believe all 12 fibres were tested. The reason for the savings is that you are testing fewer fibres.
Senator CONROY: I will be interested to follow that one up on a different day and to have a conversation with you.
Mr Adcock : As I said, my preference would be to wait for the review so we can have an informed discussion.
Senator CONROY: We could both use a bit more information. I will come back to that when we both have a bit more information. I think Mr Morrow and Mr Adcock accept that the cost of FTTP is coming down. Verizon would indicate that. I thought we might look at a quick video of someone else who thinks that the cost of fibre is coming down.
A video was then shown—
Senator CONROY: There we are. We have a unity ticket.
Senator SMITH: In some respects.
Senator RUSTON: Yes.
Senator CONROY: That is consistent with the evidence we have had.
Senator RUSTON: If we just said 'unity ticket', it could be with anyone. I think we should say—
Senator CONROY: I appreciate it if you do not want to go on a unity ticket with Malcolm Turnbull. I get that.
Senator RUSTON: Are we allowed to listen to all of it, to get it in context?
Senator CONROY: No, you can go to YouTube and look at it yourself. I am not wasting the entire 10 minutes on all of that drivel.
Senator RUSTON: I have seen this demonstration by Minister Turnbull, Senator Conroy—
Senator CONROY: Commiserations.
Senator RUSTON: and I have to say—
Senator CONROY: Drivel.
Senator RUSTON: that little tiny, weeny snippet is not reflective of what Minister Turnbull was saying. You are being outrageous, Senator Conroy.
Senator SMITH: Out of order—again.
Senator RUSTON: As usual.
Senator SMITH: You might want to transcribe the whole presentation and make it available.
Senator CONROY: I am happy for you to table it at the next meeting, and I note your allegation of outrageous.
Senator SMITH: It is not my credibility at stake, Senator Conroy.
Senator RUSTON: Exactly.
Senator SMITH: It is your credibility at stake.
Senator CONROY: I note your description as outrageous and I look forward to you tabling the full transcript.
Senator RUSTON: Seriously, Senator Conroy, you are out of line.
Senator CONROY: Are you getting quicker at rolling out the fibre?
Mr Adcock : I think I have pointed that out earlier; yes.
Senator CONROY: I am confused. We have virtually a unity ticket. Senators on the right might not want to sign up to support the minister, but that is okay.
Senator SMITH: I am very supportive of the minister, Senator Conroy.
Senator CONROY: The strategic review document owned by Mr Adcock—you can inherit it, I will not describe you as having to own it—states that FTTP is becoming more expensive to roll out, rather than less. I am very confused that the actual evidence that the company is producing eight months later is that fibre to the premise is coming down; but the company produced a review, which management at the time swore was its review, which said the exact opposite.
Mr Morrow : Do you have the specific quote in that review?
Senator CONROY: A 70 per cent increase in the average cost per premise for LNDN including provision from $1,100 to $1,997, and a 50 per cent increase in the cost per premise for connections from $1,300 to $2,100. That is the actual—
Mr Morrow : Senator, do you know if that was against what the prior forecast was, or—
Senator CONROY: I quoted the numbers going from $1,123 to $1,900—that was the old number and the new number; and $1,300 up to $2,100—that is the old number and the new number. Incredibly, the strategic review also alleges that there will be virtually zero efficiency and productivity benefits for NBN Co for the next 10 years. I did say at the time that you must be the dumbest management I have ever met. I think you can check that in Hansard. The grand total over 10 years was a 2.5 per cent increase in productivity. You have achieved more than that in six months. That is ignoring the fact that they deliberately did not adopt $3 billion worth of savings. I just want to make sure you are aware that you should be getting a double bonus, because you have so outperformed Mr Rousselot's predictions that you should be getting a double bonus, and so should Mr Adcock on the basis of that. A strategic review conducted by a whole range of people—not Mr Adcock—said you were going to make no productivity savings whatsoever and actually directed that the productivity savings that could be incorporated in the study not be incorporated and the company not billed by doing it. So the tragedy from that strategic review's assumptions—I will not ask you to comment on the assumption that says that NBN Co can make no productivity savings; you are already doing it, so you have proved it wrong.
The cost-benefit analysis then alleges FTTP again is becoming more expensive to roll out, rather than less. I know you have quite a few views on the cost-benefit analysis, Mr Morrow; I heard you chuckle on radio even though there was no camera on you. The cost-benefit analysis takes NBN Co's models for scenario 2 and inflates the costs by a further 15 per cent in net present value terms. So not only do we not incorporate a whole bunch of productivity savings but we then go, 'Oh, my God, we've still got to inflate the cost by another 15 per cent.' I am trying to understand: on the one hand NBN Co initially tries to deny the existence of cost savings actually in productivity improvements taking place. I mean, there was not some reason that you could not afford to contradict the strategic review or the cost-benefit analysis. That had no play in why initially cost savings were being denied by the company—they are not linked at all.
Mr Morrow : I agree, and I do not think it was a denial of efficiencies; I think it was the statement of whether that document officially had gone through the rigour that it is supposed to.
Senator CONROY: Was the minister's office consulted on how to respond to the Fairfax story?
Mr Morrow : No, of course not.
Senator CONROY: If I asked for all emails and SMSes between Ms Keisler and the minister's office during that period, it would confirm that the minister's office were not consulted—in other words, there would be none?
Mr Morrow : I would assume so.
Senator CONROY: Would you like to check that and take that on notice? You might want to inspect them yourself.
Mr Morrow : I would be happy—
Senator CONROY: Would you be surprised? Would you be concerned if there were a lot of correspondence between the minister's office and Ms Keisler at that point?
Mr Morrow : I would not be surprised to find correspondence. The minister's office often asks how things are going or what is happening with different issues, much as this committee likes to do so. But to have the minister's office direct the media team on what to say—I would take issue with that.
Senator CONROY: I am pleased to hear it. Mr Morrow, at the last hearing—and Mr Adcock was here as well—I took you through a video of NBN Co participating in the active misrepresentation by the minister of the size of fibre distribution hubs compared to fibre-to-the-node cabinets. You will remember that discussion. I am pleased to hear that you have not appeared in any more videos, Mr Adcock.
Mr Adcock : It was a good lesson to learn.
Senator CONROY: We have also talked about certain tweets being made previously that were clearly partisan, politically partisan. Then the company denies the existence of a trial that has taken place that identifies cost savings, but it takes the opportunity to plug a government slogan. We are—and I think you have indicated this Mr Morrow—ensuring that all the staff are aware of the GBE guidelines about being non-political.
Mr Adcock : Indeed.
Senator CONROY: Anyone need to refamiliarise themselves with it?
Mr Morrow : No, I think—
Senator CONROY: Everyone has got the message three months after we raised it last time?
Mr Morrow : I think there is a kind of a learning process. If you just take me, for example, I have been in the middle of this very interesting political tension that what represents defending the NBN brand name to have that 70 per cent perception versus trying to take a position on either political party side sometimes gets a little bit grey. But again I will state that neither I nor any of the executives should ever take a position of representing a policy or should ever take a position representing a promotion for either party of the government. Our position should always be in light of NBN and the taxpayer's investment.
Senator CONROY: I want to come to the recommendations in the Melton 10 and I appreciate the points you have made about peer review. There are recommendations specifically in the report—the trial document. Slide 9 says:
1. The Render deployment management methodology and system says
- Broad adoption of a deployment methodology and system by NBN Co and Contractors within appropriate commercial frameworks.
Are you looking to adopt Render, broadly, across the network?
Mr Adcock : As I said earlier, we are looking now—as we understand what is involved in a multitechnology mix—at a proposal to go out and, first of all, test our existing systems that do the same forms of function that the Render system does but also look at whether there is a refresh opportunity. I think it is fair to say that there was a preliminary commercial proposal that had been put to us by Render that was horrendously expensive. Again, it was unsolicited, so we just said, 'Look, it's all very interesting.' As I just found out, one FSAM at $330,000 is quite substantial. If you took the same approach that had been taken to the savings and multiplied $330,000 by 4,000 and something, we would not be taking it on board.
Senator CONROY: I would hope the CFO could come in to help Mr Adcock at this point to explain that you do not extrapolate $300,000 over an $8 million home.
Mr Adcock : Of course not.
Senator CONROY: It would be absurd to try to suggest it.
Mr Adcock : Yes, absolutely. So we are looking at what the right deployment methodology and systems are for us and our contractors.
Senator CONROY: Okay. Next is:
2. Innovative specified equipment
- Broad use of small diameter cable and small footprint multiports, …
I understand there needed to be an issue around seal quality, but I think you are doing that already?
Mr Adcock : We are doing that already.
Senator CONROY: You are doing that already. Next:
3. Innovative build methods and work practices—
I was blundering around before—
Broad adoption of Intelligent Optical Line Measurement testing system and procedures as the evolving Industry Standard,
I think you made some points about that earlier?
Mr Adcock : Yes, we are just going back on it.
Senator CONROY: And it was:
Implement the Phase 2 IOLM initiatives—Automation of integration to NBN Co Workbooks.
This is a new testing method. These are the recommendations. Are you looking at doing that?
Mr Adcock : That is the same as the IOLM? Yes, we are looking at it.
Senator CONROY: Yes, that is part of the IOLM. And:
Broad adoption of the Rapidmap to support the design walkout & constructability reviews (ideally) prior to completion of design and prior to the commencement of construction.
Is that something you are looking at?
Mr Adcock : Again, as I understand it, the Rapidmap is another system that was utilised in the trial. There are many that do the same sorts of functions. So, as Mr Morrow said, as a GBE we would go to the market with those sorts of things at the appropriate time.
Senator CONROY: You do seem remarkably informed about this. There is quite a bit of detail there that you are across.
Mr Adcock : For any systems update, we would go to the market.
Senator CONROY: I think that is a very reasonable answer.
Mr Adcock : Thank you, Senator.
Senator CONROY: So at slide 10:
Broad adoption of 100% asset location prior to commencing civil works.
Is that something that you are considering?
Mr Adcock : I think I said earlier, the whole pack is under review, including if there are things that we can take out. As I understand, this was something that was discrete to Melton, unlike the small-form multiport or the small-diameter cable.
Senator CONROY: That is what I am hoping to get from you. These ones are definitely proved up; they are out there; they are on their way; they are part of the full rollout?
Mr Adcock : We have informed you of the ones that are proven up. And those that are not are all part of this peer review of, 'What do we further progress?'
Senator CONROY: Out of this menu of options?
Mr Adcock : And others across several areas.
Senator CONROY: No, I hope so. Mr Morrow has suggested two that are internationally well used. There is a whole host of options. The next one is 'Utilise rigid site barricading in lieu of bunting and star pickets; use of Pit covers to avoid trap hazards?'
Mr Adcock : Trip hazards, sir.
Senator CONROY: Trip hazards, sorry. That is something to look at. And again I think that is—
Mr Adcock : That is standard field process improvement.
Senator CONROY: And:
Industry should develop and invest the bore pipe straightening methods.
Mr Adcock : That is a recommendation to industry.
Senator CONROY: Then:
In-line jointing technique should be widely adopted across the Fibre program.
Mr Adcock : Again being tested with the peer group, where it makes sense.
Senator CONROY: But the actual concept, though—
Mr Adcock : Yes, the concept is being—
Senator CONROY: The concept is sound and has been proven internationally. I do not want to sound silly.
Mr Morrow : Any of these that are good for us, we want to adopt. We would not be bashful about this. Once we validate those, if those are good for us then they will be incorporated.
Senator CONROY: So:
Utilize the Trenchless Advisory Board to assist NBN Co Field Teams teams and Delivery Partners in a Civil skills assessment and uplift, safety and Hazard identification / mitigation techniques.
Mr Adcock : I must admit that is one that I have not looked at. I do not know what the trench list advisory board is.
Senator CONROY: That is a perfectly reasonable answer. Adoption of the 'zero—
Mr Adcock : TAB has other implications!
Senator CONROY: strike zone' approach? You might be able to inform the committee what that actually means.
Mr Adcock : I wish I could! Yes, I am with you.
Senator CONROY: Broad adoption of work allocation, program scheduling, jeopardy management, project governance meetings?
Mr Adcock : Again, it is just—
Senator CONROY: All of those—
Mr Adcock : I would suggest that a lot of these things are already, such as project scheduling—
Senator CONROY: That is what I am asking you.
Mr Adcock : It is a bit broad to say that you should look at—
Senator CONROY: It makes common sense.
Mr Adcock : implementing project scheduling.
Senator CONROY: Some of that would be common sense and would be picked up along the way.
Mr Adcock : It is.
Senator CONROY: And broad adoption of build drop installation in parallel with LN/DN, which we—
Mr Adcock : We have actually discussed—
Senator CONROY: We have had that discussion.
Mr Adcock : that back in your time, Senator.
Senator CONROY: It was a press conference, as I keep mentioning. Mr Morrow, I think I asked you earlier whether you have familiarised yourself with version 13. I think you quite reasonably said no, you have not.
Mr Morrow : Correct.
Senator CONROY: I can send you a copy. Actually, Mr Turnbull can send you a copy. I think I have indicated to you that we have lost a year—
Senator SMITH: It still does not make it an official board copy.
Senator CONROY: I did not say it was. If I said to you it was a board approved document—
Senator SMITH: I am just adding.
Senator CONROY: I have indicated some of the innovations. Some of them have been adopted across the company already; some have been identified to be adopted through Melton 10. Had some of those been adopted 12 months ago, version 13—I think you have indicated you do not know this—of the corporate plan indicated the completion date was the end of calendar year 2021. The total cap ex to end build was $37.4 billion. The total revenue to the end of the build was $23 billion. Mr Rue, are you interested in some of these? The government equity was a staggering $30.4 billion—just on $1 billion more than you argued for—and peak funding was $44.9 billion. I just thought, given you were not there, that you should be aware that those were the figures based on cost savings put forward but then ultimately rejected by management. I am looking forward to that explanation. First of all, we have to confirm that it was rejected, and people had better be accurate about that.
Senator SMITH: Did not enjoy the ultimate peer review of a broad consideration there.
Senator CONROY: Well, the board was sacked on the day. There is no argument about that. When I had these discussions with Mr McLaren on 11 December—I actually discussed these with Mr McLaren—I think, Mr Adcock, that might have been your first torturous meeting and you were still—
Mr Adcock : Absorbing.
Senator CONROY: saving Vodafone. We asked Mr McLaren how he would describe these Project Fox savings. He quoted and used the word 'incremental'. I believe his exacts words were 'not a big bundle of change'. I said, 'I also believe your predecessor made that point on 2 December last year.' He said:
At the end of September, NBN Co was on track to implement these cost reductions, as any sensible company would.
Can I congratulate you: you seem to be moving down the path of these quite well and have even got some bolder ideas which you are bringing on. I think you said to ZDNet last week that you confirmed NBN Co is using the funds of Project Fox—and I am quoting you, I think—'to reduce the cost of rolling out fibre to the premise today.' I think I have indicated to you that the strategic review did not include these, which is as bizarre to me as I suspect it is to you. The committee asked NBN Co last year why these incremental changes—using Mr McLaren's word—were not being rolled out across the country and were not included in the main FTTP scenario and the strategic review. In one answer NBN Co said:
The Revised Outlook considered the operational and financial position of the company based on the continuation of current rollout plans. As highlighted in paragraph 3.2.8—
of the strategic review—
these potential efficiencies may be realisable through a step-change and transformation of the organisation.
NBN Co again gave another answer:
Scenario 2: Radically Redesigned FTTP contemplates NBN Co making significant changes to its FFTP deployment approach to improve NBN Co's productivity and construction techniques. Within this scenario, it is expected that these 'radical' changes will increase rollout speed and decrease costs.
Costs identified by management previously, rejected by your predecessors in that interim period, had to be acknowledged as they would increase rollout speed and decrease costs. That all seems very fair and reasonable?
Mr Morrow : It does.
Senator CONROY: And you are working on many of those right now?
Mr Morrow : If I can provide an answer to one of the QONs that you had given and this was with regard to the question about whether I would be okay with authorising a former employee to come before the parliament to speak on behalf of—
Senator CONROY: Would you publically waive their confidentiality?
Mr Morrow : Yes. I mentioned that I needed to get legal review. They did not respond back on this. Essentially, the advice I am getting is that the parliamentary committee actually overrides anything—
Senator CONROY: Yes, I know. I was going to make that point if you said no. I was asking whether you would give them open permission, given that they do not need it. Acknowledging that that is the case, do they have permission?
Mr Morrow : I think, therefore, Senator, that we would have no objection—as long as it is within the law, and I know that you would keep it there. There are still restrictions around commercial in confidence that need to be adhered to.
Senator CONROY: Tragically, your definition of commercial in confidence is incredibly broad now. You are now denying to this committee information that was publically revealed by NBN Co on contracts—and even revealed by the companies receiving your contracts because they are required to by the continuous disclosure laws of this country. You are even now denying information on the value of a contract.
Mr Morrow : Can I offer perhaps that, what is the term when it is called 'in camera,' so it is not public and then—
Senator CONROY: Let me be clear: these companies are required by continuous disclosure obligations of the stock exchange to reveal the value of contracts they receive.
Mr Morrow : And where there is public information, of course, that commercial in confidence would not apply.
Senator CONROY: So were NBN Co's previous board breaking a law when they revealed the value of the Silcar contract?
Mr Morrow : I do not know what the terms of the contracts were that the board was revealing, but in the way the documents—
Senator CONROY: Just the total value of the contract.
Mr Morrow : I do not know. I feel that it is my responsibility as well as the responsibility of the executives here to—
Senator CONROY: I am confused. You have got the same chief legal officer that was there previously, and I am not aware that the chief legal officer of NBN Co indicated to the board at any stage that revealing the value of a Theiss contract or a Silcar contract was commercial in confidence. But that seems to be your legal advice at the moment. I am just completely perplexed how that could be true.
Mr Morrow : Again, I think we would have to get into specific examples of what we are saying is commercial in confidence for us to divide that up—
Senator CONROY: The value of your construction contracts. You have written to this committee and said you will not reveal them because they are commercial in confidence.
Mr Morrow : Senator, I can tell you right now that the team that we have that is negotiating on a lot of these DP contracts right now, would love to find out what the total value is, because naturally that information serves them and not—
Senator CONROY: Theiss revealed to the stock exchange, Visionstream revealed to the stock exchange and Service Stream revealed because of the stock exchange requirement. These are contracts that they publically revealed the value of. They do not talk about their internal cost structures work and how they make money off them, but the total value—
Senator SMITH: Excuse me, Chair; we are moving into sort of hectoring—
Senator CONROY: No, I am just asking how the same chief legal officer—
Senator SMITH: This is not taking the form of questioning.
CHAIR: I think it is a fair point. Thank you, Senator Smith. I ask the questioner to finish the question and the answerer to finish the answer.
Mr Morrow : Again, we would have no objection, of course, to the committee bringing in these former employees. If there is a discussion around commercial in confidence that would taken in camera, out of the public eye, and kept confidential. As a courtesy, we would ask that we be involved to help put it in context and defend NBN should there be something that is—
Senator CONROY: What do you mean—protect and defend? Saying that you have given a $280 million contract to Theiss to do Victoria—and that is not true; I am just making that up—clearly is not commercial in confidence.
Mr Morrow : Again, I think there is reasonableness that we would apply here too. We are not—
Senator CONROY: I have an answer to a question on notice saying you are not going to reveal any of that. That is actually what you have said in the letter back to us.
Mr Morrow : Again, I would presume, therefore, that there is a judgement made that could damage the value and interest of the taxpayer if we revealed that information.
Senator CONROY: So did the previous management who revealed all of this information damage the taxpayers?
Mr Morrow : I cannot speak to them. I do not know the specifics of what they revealed.
Senator CONROY: They revealed that Silcar had a $280 million contract to do Queensland. Did that cause damage?
Mr Morrow : Again, Senator, that was before my time. I cannot speak to that. I feel my responsibility is to protect the interests of the investors—you as well—and that, if there is any information that is given that could damage our ability to negotiate the best possible price, isn't it prudent for us to keep that in confidence?
Senator CONROY: How did revealing that Thiess or Silcar got a $280 million contract to do the work in Queensland or wherever they got it—but I am making these numbers up—which was publicly revealed by the NBN Co management and board last time, damage the taxpayers' interest?
Mr Morrow : If there is public information already revealed then it is no longer in confidence; it is out there and available.
Senator CONROY: Now you are trying to draw on the fact that I have exposed the fact that companies are required and have done—and I will read to you, after lunch, about a company that has revealed the value of a contract because it has to, to the stock exchange. It is called 'material'. I am now coming back just to you and why you are refusing to provide information that was freely available to the Australian public for four or five years before you became the CEO.
Mr Morrow : Again, I gave my reasons earlier about protecting the value: that we could damage—
Senator CONROY: What legal advice have you received that is different from that same person who gave legal advice to the company before?
Mr Morrow : It has not necessarily come specifically from the chief legal officer; it has come from the legal team.
Senator CONROY: I would have thought the legal team would give consistent information.
Mr Morrow : I cannot answer that. I do not know the answer to it.
CHAIR: Perhaps you could contemplate that over lunch, Mr Morrow.
Senator CONROY: We can mull over it at lunch.
Mr Morrow : I will contemplate that.
Proceedings suspended from 12:31 to 13:29
CHAIR: We will resume. Thank you to NBN Co for being here.
Senator SMITH: Prior to the break we were having a discussion around the cost per premises of the fibre-to-the-premises rollout. I just wanted to stay with that for a moment to explore the composite elements of that cost, how they might change over a period of time and what trends there might have been. I do not expect you to reveal the actual cost. I am trying to get a sense of what the variables are and what might be more valuable for this committee in terms of understanding cost-to-premises considerations.
Mr Rue : The definition of cost for premises is something that I would like to have a good look at going forward. For example, we have always broken up FTTP into LNDN, customer connect and so on. So the answer to your question is that the LNDN costs are obviously all the civil costs, the fibre overheads et cetera. But that only gets you to a certain point. You then have to connect the customer. Depending on the work that needs to be done, there are bulk drops or build drops, as we talked about earlier, there are lead-in conduits and there is an in-premises cost of the NDD. But on top of that, you have got other costs. You have got our own internal labour costs, you have got duct lease, pole rental costs et cetera. So there are a lot of costs that go into a cost per premises that are not always captured in a headline number that I would just like to go back and look at. It is an analysis I would like to do over the last few years, to answer your question. It obviously depends upon what type of FSAM you are looking at. We talk about cost per premises at a high level. It is like a national average, if you will. Clearly, the cost per premises will vary, depending on the complexity of the work that needs to be done. Again, it depends on whether it is an MDU or it is a greenfield. It is exactly the same analysis if you are doing fibre to the node or if you are doing HFC. So I enjoyed the conversation this morning because it is all about how we bring down those individual component costs. You clearly will have labour costs coming down over time, you would hope, with efficiencies. You would hope that the sort of analysis we discussed this morning on technological advances or better ways to do things will bring down costs. But they are only certain components of the costs, and what I would like to do is make sure we, as a management team, are capturing all of those going forward.
Senator SMITH: When we have talked about cost per premises previously, is there anything in the composition of those costs that we need to be alert to. You have mentioned that the ease with which making a connection will have a substantial impact on the actual cost to the premises. When we are looking at previous cost per premises, is there anything we need to be alert to that indicates that that might not have been giving us as accurate a figure as possible.
Mr Rue : I am not sure whether the company has been giving inaccurate figures. All I am simply saying is that we need to very clearly define what we are talking about because when we talk about the cost of a fibre to the premises compared to fibre to the node or HFC we have got to be very clear that we are capturing all of the costs. In the past, I think some of the definitions, for example, have not captured all the internal labour costs we have or some of the expenditure things that we may write off like designs or certain lease costs.
Senator SMITH: When you talk about doing more work internally, what does that actually involve and what is the time frame around that?
Mr Rue : It is something we need to do very quickly. As we move to financially model the operating output of the MTM we need to be very clear that we know what costs we are talking about so that we run the business properly from a cost point of view and then, obviously, from the revenue point of view. It is several weeks. I am not quite there yet.
Senator SMITH: You said that having a national average does not necessarily provide people not inside the company with an accurate assessment of what might be happening. To what extent do we expect large variations between those population groups around those FSAMs?
Mr Rue : They could be very significant. There could very significant differences—from several thousand dollars in cost per premises—depending on where you are talking about.
Senator SMITH: That would be because of what? It might be a greenfields estate, or you might be—
Mr Rue : The types of civil works that are needed; the length of fibre that has to be laid; and the complexity. If you are dealing with an area with lots of rocks, for example, that has to be drilled through.
Senator SMITH: Is it the civil works element that is the most—
Mr Rue : Civil works is some of it. Also, depending on how the construction is run, there are the build-drops, or the bulk-drops, will also have a significant component—the sort of thing that Greg was talking about this morning in terms of running it all together. What we are trying to do is make sure that we do not have to go back to an area and do a bulk drop after we have been to that area.
Senator SMITH: When we look then to the rollout of the fibre network, what sorts of changes in customer end experience are you seeing?
Mr Rue : The customers in the past have been frustrated because they think they are able to get NBN and they have had to wait. The order queue has been too long. The order queue is coming down at the moment, but it is still too high. The actual clean-up work will probably take another nine months to complete. As customers are able to connect when the NBN is in their area, the quicker they can connect the happier they will be, and the more likely they will be to prosecute NBN as a great program of work for the community.
Senator SMITH: When looking at the provisioning, are you seeing less disruption as the program is rolled out? More disruption? How are you addressing that?
Mr Rue : There are still some disruptions.
Senator CONROY: What is your definition of disruption?
Mr Rue : By disruption, I mean that people are unable to connect in the time period they would like to connect—
Mr Morrow : And digging up their yard, and all the construction mess that occurs from that.
Mr Rue : Yes. It is still a work in progress, It is getting better, but it is still a work in progress.
Senator SMITH: I was keen to get an update with regard to the rollout, particularly as it relates to Western Australia. If those figures are available that would be great—as best as you have them available. But more particularly, what you might be experiencing in the Western Australian context in terms of difficulty of rollout or ease of rollout.
Mr Adcock : In Western Australia, there were some early problems associated with Syntheo—I think the senator recognises that—but I am glad to say that they are now somewhat behind us. A lot of the concerns that were raised in and around the Geraldton area have settled as the rollout in Geraldton 4 and 5 have continued and progressed under the new contractor that we have put in there, WBHO. In fact, WBHO are looking to bring forward Geraldton 06 to maintain continuity. Downer are working well in Mandurah and Victoria Park, as well as Applecross, South Perth and Pinjarra. There is lots of work going on with Downer on the drops program, and that is consistent with making our focus on the premises as serviceable to service class 2 at the time of build as close as possible. We have got 10 FSAMs now released into construction and under construction, with Downer doing eight and WBHO doing two. I have picked up on those other points I make.
When I was speaking to the regional director over there yesterday—just to get a sense before I come here, because I know it can be Tasmania, or Western Australia or the ACT—
Senator CONROY: And add Queenstown to it!
Mr Adcock : The general sense was that the Syntheo issues that were burdening the company and causing concerns as they closed out those contracts are now behind us, and Downer and WBHO are picking up and going, and the relationship with both of them is extremely positive.
Senator SMITH: There are risks but there are no exceptional risks that have been identified in the context of Western Australia and the rollout?
Mr Adcock : Not to my knowledge, apart from the normal program where we are going back and cleaning up, and focusing on getting everything up to service class 2. I ask for people to tell me where the risks are and no-one has come and told me, and there are none making their way to me.
Senator CONROY: On your new definition, your 'postulating' for costs on fibre to the prem, as you can imagine, that is likely to be an interesting area of discussion. Notwithstanding that you have not finished that, and you can take this on notice and get it back to us as quickly as you can, what do you think are the components now that you intend to add to the costings? Any future discussions will clearly no longer be apples with apples and attempts to portray these with the real costs back then are likely to lead to a healthy debate that is probably worthless ultimately if you have gone with a new definition. We could then spend many, many moons subpoenaing people to come and give us different definitions. All three of you have used, both publicly and privately, this concept of a 'clean-up', which is again an emotive phrase. I think it has been reported that the previous company took a decision, not an exciting decision from my perspective, to only do rolling past the front gate. What would you call that? Service class 0, service class 1 or service class 2?
Mr Adcock : The lead-in is service class 0.
Senator CONROY: Your background is Foxtel or News Limited?
Mr Rue : My background is News Limited, which included Foxtel.
Senator CONROY: So you are familiar with the Foxtel model?
Mr Rue : I am, yes.
Senator CONROY: Foxtel has about 31 per cent penetration, which includes a large amount of satellite—30, 31 or it could be 35. I will not ask you to quote or misquote, but it is speculated that it is between 30 and 35 of which quite a bit is satellite.
Mr Rue : Correct.
Senator CONROY: In the footprint area, it is about three million, roughly.
Mr Rue : That sounds about right.
Senator CONROY: I will pick the midpoint—33—that is about a million homes. The model for Foxtel is that you go down the street; you do not put a lead-in to every house. So that would be service class 0. Does Foxtel need to clean-up all those homes?
Mr Morrow : They would be service class 1 because, as you would recall, the rollout and the tap was held in there. So that is the similar thing—there was a tap in the street.
Senator CONROY: Foxtel would probably have the tap in the street—
Mr Adcock : Correct.
Senator CONROY: but not all. I appreciate the point you made, and it was an important point, that in some places they just do not put in a tap. But that was not the entire rollout.
Mr Adcock : No.
Senator CONROY: I am just trying to clarify that.
Mr Adcock : As I recall the discussion last time we were here, the analogy was drawn between the Foxtel rollout and the NBN rollout. Yes, the Foxtel rollout of HFC was—and this is my recollection—a premises passed and as you rolled down the premises, you pulled the distribution cable, which is similar to drawing the fibre. You then put the tap on which was the box from which the lead-ins come. You put one up for every four homes—not dissimilar to multiport in the pit for every eight homes. The HFC rollout in its original form was get down the street, which was service class 0, put the box on which was service class 1—
Senator CONROY: I appreciate the point you made that, in some cases, you had found that people had not done the job properly—
Mr Adcock : Absolutely.
Senator CONROY: But it comes to this concept of 'clean-up'—a phrase you all use regularly, which is now misreported regularly; apparently, Ms Keisler's twitter account stays silent at this point—this idea that you could not order a service if they had gone down the street. The model that NBN pursued was that we went down the street and then, if someone wanted it, they could contact and a truck would roll in—providing that the tap was there, and I accept that point—
Mr Adcock : Demand drop.
Senator CONROY: to do the connection, so it was a demand-drop model.
Mr Adcock : Yes.
Senator CONROY: It was a decision of the company. They took it themselves after much discussion and debate. So to continually portray that you cannot order a service if you are what you are defining as service class 0 is not true, and we—
Mr Adcock : I just want to be absolutely clear because I do not want this misunderstanding. You cannot order a service if it is service class 0. If there is no tap there, you cannot order a service.
Senator CONROY: But they were not instructed to not have a tap there.
Mr Adcock : No. Correct.
Senator CONROY: There is a difference between shoddy workmanship that was done and what you actually expected to be done. That is the point I am trying to get to.
Mr Adcock : Again, I would not make that blanket statement, because there was a lot of iteration around the design as they were optimising, and there were some points where designs were signed off that did not have taps, so it is a case-for-case basis.
Senator CONROY: I will come back to you with some other evidence on that.
Mr Adcock : Okay, that is fine.
Senator CONROY: But I accept your point that taps were not put in place when clearly they were supposed to be.
Mr Adcock : Correct.
Senator CONROY: I just want to clear up this idea that, just because you are in the street, that does not mean you cannot order a service. Foxtel works entirely on the basis that, if it is in the street, you can order a service even though it is not connected to the side of your house—
Mr Adcock : Correct.
Senator CONROY: putting aside that important connection point.
Mr Morrow : Can I just qualify something.
Senator CONROY: Yes, please.
Mr Morrow : You are absolutely right. Once 90 per cent of the premises are passed within that FSAM area it is declared ready for sale, so RSPs are off and running on this regardless of the state of that lead-in issue. In the case of HFC, the coaxial bed, the majority of it is up in the air in an aerial perspective. I have done this. I have climbed poles myself early in my career, stringing the drops from those down into the side of the house. That is an hour-long job with a single technician that goes out.
Senator CONROY: If you want to tell me that doing an overhead rollout of NBN Co, on balance, without access to existing infrastructure is cheaper and quicker, there is no argument.
Mr Morrow : What I am saying is that, in the comparison of the fibre to the premises versus HFC coaxial on saying it is ready for service, the customer experience on the coaxial is going to be far better because it is an hour-long installation; one tech that goes out; no construction design. Somebody is just looking at the best way to run it down the span and what part of the house you are going to—
Senator CONROY: I can take you onto Whirlpool and introduce you to lots of people who have had bad experiences because it has taken hours or people have had to come back, so I am across that. And I can introduce you to people on Whirlpool who say it was all done in a couple of hours. So it is a premises-by-premises situation.
Mr Morrow : Indeed. However, as I think you can appreciate, if you are talking about digging up someone's driveway or garden to get to the side of the house, that is far more intrusive. This is where we talk about the impact on the customer, on the end user that is out there. The construction work takes a lot longer. You are talking about digging trenches and clearing tree roots and a whole lot of other things that are very sensitive.
Senator CONROY: I am very familiar with it.
Mr Morrow : So the length of time and the volume of those orders that were taken without those lead-ins have been what has overloaded the delivery-partner capacity. When we say 'clean-up', it is going back out there and sorting all of that before the order is actually placed, to where that experience is just far better. 'Clean-up' is not meant to be derogatory either; it is just finishing the job.
Senator CONROY: Again, an issue that we have slightly, perhaps, been confused on is around contracts that were meant to be signed that brought in new contractors—whether they were the existing contractors or related to other existing contractors—to do what you phrase as 'clean-up' because we were moving to the next stage, which is doing bulk drops. 'Bulk drops' are, by definition, contracts to come in and do the lead-in from the front gate to the house.
Mr Adcock : Correct.
Senator CONROY: Bulk-drop contracts were signed some considerable time ago and were talked about publicly some considerable time ago. I cannot remember the exact date—if you want me to try and track it down. This was something that was in process and budgeted for within the company. What was not budgeted for is for us to stay at the front gate and then say, 'No, we're not doing that.' It was all part of the original corporate plan. There was always a cost attributed. I accept the point that you are making that it may have proved to be more challenging, especially if the early work was not done correctly. But that was actually all part of the corporate plan, albeit that some would criticise and say it should have been to the side of house at the beginning, and I would struggle to argue with those people. It would be untrue to say that that was not part of the corporate plan and was not costed within the corporate plan. At least with a cost it may have been under what it has turned out to be not. I have read media reports that suggest there is a blow-out in costs because an extra contract had to be signed. I have left scratching my head thinking, 'But it was always the plan to sign an extra contract to do that last part.' That is a fair characterisation?
Mr Adcock : Yes. It was always part of the plan to connect the customer. There is the last point on the analogy—and, again, this is what confronts us as a company—that is drawn with the HFC Foxtel rollout. Pay TV was always an opt-in and even the Optus Vision was an opt-in, whereas, as you know yourself, Senator, the NBN is a disconnection. It is a hard disconnection.
Senator CONROY: It is an opt-in in the beginning, but it becomes a hard disconnect at the end.
Mr Adcock : And that is why, as Mr Morrow said, it is not meant to be a derogative term. To make that disconnection possible to deliver the benefit to the end users and to NBN Co's business plan, we have to be in a position where we can connect the customers as quickly and as efficiently as possible. I have got some feedback that goes to Senator Catryna Bilyk's question about her customer in Tasmania. Again, part of the reason for the delay was getting into the premise and the landowner wanting the whole driveway and everything replaced after we did the lead in. The negotiation was why it took so long. They are the problems that confront us when you are at an 18-month disconnection, you are closing out and you have to go through those issues. That is the challenge for the company at the moment that we are attempting to address.
Senator CONROY: Fair enough. As always is the case, some people are following this online and there are lots of questions they would like me to ask. If I get a chance I will ask them, but I will put them on notice for you to answer them if I am not able to get through them all. So the questions will be asked and answered in one or other format.
I want to talk about Verizon's costs. This is helping to warm the cockles of Mr Rue's heart. Verizon's cost per premise fell from $2,600 to $1,600, and that was back in 2004-06. Capital expenditures necessary to pass and connect the home to Verizon's fibre network continue to decline. If you look at their trajectory, they started off with a higher cost and then, sensibly, found new ways. Mr Morrow has noticed that people previously in the company had not noticed. The cost to run the fibre through neighbourhoods is also falling below $760 per home passed. I could table it all; I will not bore you with it all. If you look at Verizon's example, they were able to drive significant cost savings, quite sensibly through productivity gains and learnings. It is very pleasing to see that you are investigating all of the same sorts of things that they did, even if the strategic review written by your own management staff said that NBN Co would be incapable of making any productivity savings. I know Mr Rue would have never have accepted an answer like that and I know Mr Morrow is not going to. It was before your time, so you are safe. I will pass over to Senator Lundy.
CHAIR: I want to go back to the broader question about the rollout. A lot of seriously agitated constituents are contacting me about the rollout, not just in Canberra. For the sake of capturing the conversation, I want to refer primarily to the region which I represent. To give you a flavour of this, the sorts of submissions that the committee has been receiving—and I know you will be keeping an eye on it—say things like this from jxeeno:
I am concerned with the decreasing levels of transparency at NBN Co, especially regarding information available publically.
Since the change in Government, NBN Co has stopped publishing a number of documents previously publicly available.
… … …
Removal of such files from the public has hampered public efforts to track the progress of the project, especially the removal of the Monthly Ready for Service plan, which limits the ability of individuals within rollout regions to finding out when they can expect to have service available in their area.
That is echoed in a number of submissions.
Mr Adcock : Sorry, who was that from?
CHAIR: It is jxeeno.
Senator CONROY: This is the 17-year old—
Mr Adcock : This is the gentleman that runs the alternative website.
Senator CONROY: Yes, that is the one. He is currently doing his HSC, so he is not online at the moment, I have read.
Mr Adcock : It is school holidays, sir!
CHAIR: Only for some.
Mr Adcock : Good point.
CHAIR: I have lots of quotes, but the point is that there is a pressure building up because it has been quite some time now and NBN Co has not given any deeper indication. Whilst not wanting to track over our perennial discussion that Senator Conroy and others have already given a workout this morning, I just want to go to the area of general provision of information. Putting aside the technical constraints that we have heard about, I think it is reasonable to try and give people—who in the past were able to have some indicative process of accessing that information—something. I do not think 'before 2020' is good enough for people who are making business decisions as well as personal decisions about where they either locate their residence or conduct their business in the absence of information or knowledge. So I want to ask you, quite specifically, when Australians can expect some kind of rollout plan, based on your current projections and your current endeavours in this regard.
Mr Morrow : I appreciate the fact that people realise this is their taxpayer money at work and that we have been talking about NBN for quite a number of years. People are aware that this is billions of dollars that are going into this infrastructure project. The hard reality of this is this is a decade-long project. Some of the historians were telling me that it took Telstra, or the company that is now named Telstra, seventy years to connect all of the homes across the country. We are trying to do that within a period of 10 years. There are going to be people, homes and businesses that are at the front of that and at the end of that. It is an unfair process, but it is just basically to get it built and that is the direction that we are taking. The government has issued a statement of expectations and the board has looked at the strategy behind making sure all homes are covered by 2020, and hence that is the commitment that we can give.
In saying all of this, I am quite sympathetic to: 'When will my neighbourhood receive NBN broadband services? Because either I don't have it today or what I do have is insufficient.' Our intent at NBN is to be able to show, address by address, when a home is ready for service and therefore RSPs can contact them. If it is not ready, is it in the construction phase? If it is not in the construction phase, is it in the preparation phase? If it is not in either of those, today there is no information. Our hope and intent is that as we refine the processes around the MTM model, understand more about the node and the HFC, and have the agreements—as I mentioned before, the regulatory and the commercial deals with the two companies that we are dealing with—we will be able to put out a bit more of a forecast. When I say a bit more, I am referring to a six-month advance notice, possibly a year if we can perfect our processes. I would caveat all of this by warning people that are attempting to make decisions on whether they buy a home in a given area based on one of these forecasts to be very careful—in fact, not to make their decision based on that. There will inevitably be changes in a decade-long project, and there will be no guarantees that NBN can make, even if we put a forecast out for six months or 12 months, that these are the homes that are next on the list. That would be quite risky and problematic, so again our advice is that we look at 2020 for it all to be completed. We will give some indication soon as to when those six-month and 12-month forecasts will be put together and, in the meantime, people can see if they are already in this construction and build-preparation phase.
CHAIR: So what does 'soon' mean, in this context?
Mr Morrow : We would love it to be sooner. Trust me, there are a lot of people asking this and we want to be able to give them the answer, but I would say that, until we can complete some of these trials and until we have all of these deals done, 'sometime next year' is the best I can give you at this point.
CHAIR: Has the minister given you a deadline?
Mr Morrow : All I hear is 'Hurry up; let's do this as soon as possible.' But I will tell you that no-one—including, I believe, the minister—wants to put information out there that is unreliable. For example, with regard to putting those reports back up—the ones that were there before—with the potential for change or inaccuracy behind them, the people we have spoken to have said, 'Don't do that; don't take the risk and throw that out there, because there are a few people who would like to see those numbers.' That is not the purpose behind those.
CHAIR: My understanding is that NBN Co is required to issue a deployment schedule to access seekers under the special access undertaking that has been accepted by the ACCC and that the relevant clause 1H.2.1. It very explicitly requires that:
On or before 31 March of each year during the Initial Regulatory Period until the Rollout Built Date, NBN Co will publish a 3-year construction rollout plan that includes the following information:
(a) a high level description of the geographic area in which NBN Co plans to deploy the NBN Co Fibre Network in the 36 months commencing from the 1 July following the publication;
(b) the dates on which NBN Co expects to commence work on the NBN Co Fibre Network in that geographic area; and
(c) the estimated number of Premises within that geographic area.
Also, 1H.2.2 requires a one-year construction rollout plan that has quarterly obligations, including a high-level graphical depiction of the geographic area.
Based on that technical and very formal requirement in accordance with the special access undertaking, I understand that NBN Co wrote to the ACCC back in March this year noting the shift to the MTM has delayed the issue of the one- and three-year deployment schedules and that NBN Co would 'use its best endeavours to complete and provide these plans as soon as possible'. I have that letter and I would like to table it today. I know that you are aware that it is in the public domain. Notwithstanding your explanation, is NBN Co using 'its best endeavours to complete and provide these plans as soon as possible', given you are in technical breach of a statutory undertaking to the ACCC?
Mr Morrow : We are using our best endeavours to do this as soon as possible and comply with the intent of what the ACCC has asked us to do. I would remind the senator—if you are not already aware—that, in talking with the ACCC, the intent is for the access seeker to have enough planning and guidance for them to make preparations to market those various areas. It was not the intention to put this out to the general public, for people to make decisions about which homes or which neighbourhoods they would seek out.
CHAIR: But that was obviously a big part of the implication of this when this information was made available. Can I ask you today to commit to a timetable for releasing the one- and three-year schedules?
Mr Morrow : I am sorry, Senator, I cannot do that until we have concluded these other deals—and it is uncertain at this point as to when they will be complete.
CHAIR: In relation to this obligation, what is the current status of your communication with the ACCC? Given that this is a letter to the ACCC from NBN Co, what was the ACCC's response?
Mr Morrow : I think that they were understanding of the fact that there is a major change taking place and that there is a high degree of uncertainty behind the various technologies that we will deploy and therefore the idea of putting out information that has a high probability to change does not meet the intent that the ACCC had originally set out in those expectations.
CHAIR: Did you receive that response in writing from the ACCC?
Mr Morrow : I do not recall. It was our regulatory team who conveyed that information to me.
CHAIR: Could you take that on notice and provide the correspondence, if there is any?
Mr Morrow : If there is correspondence, we will indeed.
CHAIR: Going back to the big picture, you made the point in responding to my earlier question that we are dealing with a substantial amount of taxpayers' money. There are the complexities of the technology change to MTM and all of the subsequent issues that you just listed, like renegotiation of agreements and so forth. The frustration felt by people waiting for the NBN is going to remain, as far as I can see, unsatisfied for an unspecified amount of time. Given the focus on transparency, what do you have to say to those constituents who are desperate for more bandwidth?
Mr Morrow : I would say that we understand; that we are empathetic; that we are doing everything that we can to provide information for people to understand how their taxpayer money is being used; that we are doing everything that we can to reduce our cost, given the current discussion that we have been having; and that we want this network to be built as fast as possible, meeting the specifications that have been given to us by the government and to do that within the budget and the constraints that we have been given. We are focused on that. This is a complex project. There are still a lot of uncertainties behind that and as soon as we have those uncertainties settled we will convey more information.
CHAIR: What do you say to those competitors who in, as you describe, the spirit of the original undertaking are now facing business uncertainty because you are unable to provide the information that allows them to build a business case around selling a retail product on the NBN?
Mr Morrow : We have had many discussions with our access seekers or RSPs—which term you like to refer to—and they assure us that they would rather us wait to give them the information than to give them information that is inaccurate or that will change. We are very close with them on this issue. We update them on the very issues we have updated the committee here. We believe we have a good relationship with these people. They understand the complexities. They understand the work programs that we have in place to address a number of the concerns that they have expressed.
CHAIR: What is the nature of their concerns in relation to the timetable, or lack of timetable?
Mr Morrow : They all would like to have the network built as soon as possible, naturally. This is a revenue source for many of them. It is what many of them are basing their business models on going forward. So the first is that they would like it to be built as soon as possible. Second is that they would like predictability as to when they can expect it and rely on us to deliver that. Third, in terms of the experience that we offer, they want that to be better than what it has been. So it is less about the speeds and more about the installation process that we have been talking about that is mostly related to the lead-in issue.
CHAIR: On this point about the lead-in issue for access seekers or RSPs, one of the problems, as I understand it, is that for them to operate in a given geographic area requires a substantial investment. Are you intending to give them information in advance of information entering the public domain to allow them to progress their business model, for want of a better description?
Mr Morrow : We are obligated to provide to the public the same information that we provide to these RSPs, for the most part, and that is exactly what we do. Therefore, in the consultation process that we have with them, whether it is discussing a new product or discussing the rollout expectations, this information also typically ends up on our website or is available to the general public.
CHAIR: So how far in advance of the information being made to the general public about which particular technology is going into a given geographic area does that occur? At what point does that occur on the time line?
Mr Morrow : As far as what is given to the RSP?
CHAIR: Yes, about the actual technology you are contemplating for a given geographic area, given we know, or it appears, that there are some areas that were previously listed for fibre to the premise that will now be listed for fibre to the node—though as yet unspecified at least in the public domain.
Mr Morrow : Senator, we have not revealed that information. These are the guidelines that are being created to determine—
Senator CONROY: You must have finished them by now. You have had six months.
Mr Morrow : I will give you an update. These are the guidelines that would specify in which case we would use fibre to the prem, fibre to the node, fibre to the building, fibre to the DP, one of the wireless solutions, or HFC. There has been quite an effort put forth, and I would say we are close—within a matter of probably four or five weeks—to being able to nail this down. That will generally spell out how many premises will be on each of these various technologies.
In the work that we have done thus far, we have some general sense as to how many homes fall into each of these categories. It gets a little bit more technical when you start talking about, for example: if there is a greenfield application within an HFC area, do you put fibre in? Do you extend the coaxial cable in to do HFC? How should that be resolved? Equally, if you are in an area that may not get rolled out—call it fibre to the node—until 2019, yet there is a development in that area or a retrofit of an MDU, how do you deal with that now? If you do not have the feeder distribution cable going into that area, could you really, truly, put fibre in? Most of the developers want that. There is a bit more complexity to this than what had met the eye to begin with.
Senator CONROY: I thought there was a legislative requirement to roll out fibre to the premises in greenfields. You are not suggesting you would be overturning that, notwithstanding what you have just described?
Mr Morrow : No. Again, we are looking at how you deal with that. As you know, Senator, in these areas where we have yet to deploy, if a developer wants to put fibre into those areas and NBN is not there—NBN actually is not able to do it—then they go to an alternative provider, an OptiComm or whomever, to take care of them for that area because we do not have that workload or that fibre in those areas to even serve that small development. All of this is actually on the table that we are looking at, which has to do with these guidelines on which home would get which technology. That is completely being reviewed right now. But, as I said, I expect in five or six weeks to have this completed.
Senator CONROY: So we will be able to chat about it in estimates? Or will it mysteriously become available the day after estimates?
Mr Morrow : I think we are going to complete this right after the estimates meeting, yes!
CHAIR: Sorry, I should not laugh. Outrageous! Absolutely outrageous!
Mr Morrow : It is terrible, I know!
CHAIR: We need it before estimates.
Senator CONROY: We would not want to have to call the committee again straightaway.
Mr Morrow : There is always a comeback! I am partly joking here; we know this is important to get done, Senator, and that is what we are committed to do. Again, we have some general guidelines—principles—that we are looking at. For example, if you already have HFC in an area, we are going to go HFC in that area. If you already have fibre to the premises in train and in pipe—what Mr Adcock is working on today—naturally, that is going to be fibre to the premises. The satellite and fixed wireless areas are almost all already defined. Hence, the rest is going to end up with fibre to the node, with the exception that if that copper is not in a good enough condition then we are going to use an alternative.
Senator CONROY: Like in Williamstown!
Mr Morrow : Perhaps.
Senator CONROY: I do not even know. I have satellite Foxtel, Mr Rue. No-one wants to dig anything in Williamstown!
Mr Morrow : I hope that answers your question.
CHAIR: I certainly appreciate that answer. I would like to apply it now to a geographic area, just to try to draw out its meaning. For example, for the Scullin exchange here in Canberra, 23,000 homes were on the original schedule to have NBN connected or completed by June 2016. There are six exchanges varying between 23,000 and the smallest one, which I think was the Manuka exchange with 13,000, all by that date. So they are all sitting there going, 'We don't know what's happening to us.' Are you saying that in five to six weeks you will be able to tell those 23,000 people from that Scullin exchange what their technology will be to deliver to that geographic area—or that exchange area, if you like?
Mr Morrow : In a rough guideline perspective, yes. They will be able to see the criteria that we are applying and know. So, for example—
CHAIR: Sorry—'see criteria', or will you say, 'For the Scullin exchange area, it will be this'?
Mr Morrow : That is still up for debate. I am happy to provide as much detail on this issue as people want, with the caveat that, should something change, should we actually find that we can knock the price down on fibre to the premises, we may replace that. I do not want people to buy homes thinking, 'This one is definitely going to be this technology,' and we have to change that because the conditions and the economics change on something. That is where, without a commitment but a guideline and an intention, absolutely we can provide that level of detail.
CHAIR: Okay. That is not time frames, though?
Mr Morrow : That is not time frames.
CHAIR: Just to make that clear. But it is potentially which of the technology mix—
Mr Morrow : Yes.
CHAIR: will be deployed in a given geographic. Will you do that by FSAM or by exchange area? How granular will that be?
Mr Morrow : We would have to look at that. Let us get the guidelines written, and we will, I am sure, be having this discussion again, and we can talk about that. To me it is whatever is helpful for people and not too onerous to provide. We do not have any preconceived ideas. This is not an attempt to hide information. Whatever is helpful for people, we would be happy to do that.
CHAIR: Will you be issuing maps?
Mr Morrow : I do not think it will be on a map basis. Do you have a sense of that, Greg?
CHAIR: Well, someone will mash it up straightaway.
Mr Morrow : That is right.
CHAIR: You may as well do the maps yourself.
Senator CONROY: There is a 17-year-old kid I might have mentioned before.
Mr Morrow : Who is that? I would love to be able to write this design. When we talk to the team, it is like: 'What's wrong with you guys! Hurry up and get this done! Where there is HFC, it is going to be HFC; where there is fibre, it is going to be fibre; everywhere else is to the node.' Unfortunately, like I said, they look at me kind of odd and say that it is far more complex.
Mr Adcock : Just building on what Mr Morrow was saying, as the planning rules get locked down and a model is done—all these things start with a model—there will be an indication. But as you go out there and test the existing infrastructure—because we are picking up existing infrastructure—there may be things that change the technology that is available.
CHAIR: We are pretty familiar with what those variables are including profoundly improved efficiencies—
Senator CONROY: Soggy copper in Williamstown.
CHAIR: in rolling out the fibre network, amongst others. Just to clarify, you are not able to give any time-based commitment to anyone. The best you have been able to give me today is: some time next year.
Mr Morrow : Let me paraphrase everything back to make sure there is no confusion. By the end of this year we will be able to make available—we will have this in the five or six weeks—the criteria for which technology goes where. We will—already today—provide on a by-home basis whether they are complete, in construction or in preparation phases. We will, sometime next year, be able to take a look at a longer period of time of when they can expect this. So today you may look at your home and find that it is in construction, but you still do not know when you are actually going to have that service available. So it is our intent to be able to say: over the course of the next six months, here are the homes that will actually have service available for them to start; over the course of the next 12 months, here are the homes—the objective is to go with 12. If forecast accuracy we start with six and we move to 12, this is what would I cannot tell you, but that that is the thing that I would look at to make sure accuracy—
CHAIR: And that is what you think will be available sometime next year?
Mr Morrow : That is correct.
CHAIR: So is it your intention to honour your obligations under the special access undertakings to provide—
Senator CONROY: How long an exemption are you seeking.
CHAIR: Yes, to provide the one- and three-year projections as required under this statute.
Mr Morrow : The spirit and intent of what was written by the ACCC: we are working with them to be sure that we can do that while we provide accuracy. To give you any further information about next year, being able to provide a six-month or 12-month window of what homes will become available, that is as much as we can do.
CHAIR: Sure. So at this stage the evidence I am hearing from you is that—in particular the first point about the three-year projections—it is not something you can foresee you are going to be able to satisfy in formal terms.
Mr Morrow : It depends. The reason I am hesitant—I do not want to dance around any issue, Senator—is that I would not be able to make the statement that in three years it will be this many houses down there. I would not be able to make that statement, unless people said you can change it any time you want, because then it would then just be putting a swag down in terms of what the intentions would be. Three years away—Mr Adcock does not even start looking at that for another year and a half. That could change so much on a number of other factors. However, if the intent of this is to give a broad-based element about which areas we are going to start to move into, intentionally move into, that may change. Sure, we can start doing that within the next year time frame. We can meet the spirit of what that expectation would be straightaway. But if the ACCC says, no, you have got do it by home, and expect that, then we are going to be arguing back that that is unreasonable, and it is going to cause other problems, because you can never predict that far out into the future.
CHAIR: Alright, thanks.
Senator SMITH: I just want to stick with this issue of roll-out plans and maps. We have heard a couple of times today people saying, 'This was going to be done by 2016 and this is what we saw.' How reliable was that information, and how reliable is that information still today, as a baseline indicator of progress?
Senator Conroy interjecting—
CHAIR: Senator Smith—
Senator SMITH: This is a very critical point. We have in actual fact been over this at previous committee hearings, but I think it is important to be very clear about this. I have some comments by the chairman in front of me. Be very, very clear about how reliable that information that was previously available was to business owners, to electors and to others. I would argue that people in Western Australia got their fingers burnt because they trusted information when they should not have trusted the information. That is my first question, Mr Morrow, or Mr Adcock.
Mr Morrow : I would start and I am sure Greg can provide more detail. In short, it was highly unreliable, and for a lot of reasons. I will just say, and I am not trying to defend or protect anybody here, that to predict anything within a project of this magnitude down to that level of detail—you are just asking for trouble if you go out and produce those sorts of reports.
Senator SMITH: I think that is a fair point. When we get to the point when NBN Co does issue other maps or does issue new roll-out information, why can we trust that more? Why will that be more reliable than what people might have seen before? I am looking for a bit of an understanding about what internal rigour might be being gone through to establish it as more reliable information than people might have had previously.
Mr Morrow : I would start again on this one. As to what is on the maps and on the websites today, clearly if you are serviceable, you are serviceable. So that is an easy one. Second, if you are in construction, we know there are people in the streets and we know there is Telstra remediating. We know that Corning glass has arrived. There is clear predictability that you are under construction; that is fact. What we do not do is say when it is going to be complete because that has high degrees of uncertainty and therefore the unreliability behind that.
Equally so, we know in fact when we actually start to do the preparation for the construction of sending surveyors out and Telstra is out looking at the pits to see what kind of remediation will be required. These are just fact based pieces of information that we put onto the website so people know that if they see a truck running around they can look and see, 'We're in preparation phase, that's why,' hence the confidence we have in the material that we are sharing with the public.
Senator SMITH: I just want to turn to project risks.
Mr Morrow : I think Mr Adcock has a good point to make there as well.
Mr Adcock : I was just reminding Mr Morrow that it has been brought to our attention, just to push that, that people do make mistakes. I believe there is one FSAM at the moment where a contract instruction had been issued—it was back in July 2013—the contractor had handed it back, and it is still up there. That is one FSAM that is a mistake. To the extent we are confident that the information we put up, to the extent that people are human—I just want to make sure that is clarified.
CHAIR: You can rest assured if I had known about that, I would have asked you.
Mr Adcock : That is why I would rather be up-front and tell you.
CHAIR: Thank you, Mr Adcock.
Mr Adcock : It is not in the ACT, Senator.
Senator SMITH: By any measure, it is a big project. I just want to turn briefly to the issue around continuing risk in the project. This month the minister gave a speech where he outlined the legacy issues—that is fine; we do not need to go there now—and some of the continuing risk with the project. Could you share with us, from your perspective, not every risk but some of the structural risks or risks around technology et cetera that might still be in the project?
Mr Morrow : I am happy to talk about this because it is, in fact, what we think about on a regular basis. First and foremost are these regulatory and commercial agreements that we need to get in place to be able to deliver on the expectations given to us. Without those, we cannot meet the statement of expectations; the board's objectives that they have given to management. That, first and foremost, is one of the risks. The second one is in terms of scaling up the business to be able to handle the volume in the time frame that we need to, to be able to have universal access by 2020. The third is the IT systems that need to be able to support the volumes of orders that are going to come through to connect eight million happy end users by 2020. Finally, there is the element of making sure we pull together this culture within the company and within our delivery partners. I think you have heard me say a couple of times, Senator, that we are about 2,900 employees, but there are about 5,000 external employees that are helping us build this national infrastructure. To have 8,000 people aligned around a common objective and working together is going to be critical to make this happen.
Senator SMITH: The minister acknowledged that in the speech when he said, 'It would be misleading to minimise the significant risks that the project involves as it proceeds'.
Mr Morrow : Yes. And as I was answering one of the questions earlier—we cannot go at a steady state with our cost per prem the way it is. We must find efficiencies across all technologies to be able to meet the objectives. We cannot go as a steady state with the current level of revenue we are pulling today on a per user circuit basis. We must find ways to create more value to lift that revenue number up to be successful. And then again, finally we have to find ways to be able to reduce the cost, overall, of running the company.
Senator CONROY: They are constraints put on you by the new management—the new limits that have been placed on you by the government.
Mr Morrow : Well, the board is what has given us the objectives. They have used the strategic review as the basis for that, which includes the policy—
Senator CONROY: Tragically, a document that is deeply flawed, but I accept that that is what you are constrained by. Those are constraints that are imposed via the dodgied-up strategic review. The point I am making is that they are artificial constraints.
Mr Morrow : They are constraints.
Senator CONROY: They are constraints.
Senator SMITH: In February, the chairman made a statement around this issue of transparency and reporting. I just want to be clear that this is still a true statement or if it is not still a true statement, why that might be. The chairman back in February said to this committee:
We get feedback from our construction partners, from analysts who follow telecommunications companies and fund managers … that the level of reporting, disclosure, transparency and updating of data is the best that it’s ever been.
Is that still an accurate statement, in your mind, as the chief executive?
Mr Morrow : I believe those same constituents are quite pleased. I can affirm that with the last results presentation that the three of us, in fact, made. The kudos that we were given after for being open and giving guidance for the future was something very welcome, and something that has been improved from the past.
Senator CONROY: You could release the corporate plan. That would be truly transparent. If I could just go to my next slide—slide 11, I call it. According to an answer to a question on notice—and apologies to those who are only listening because we have no video today—
CHAIR: Is that fully redacted, Senator?
Senator CONROY: The corporate plan has been on the minister's desk—this is from one of your answers—since 24 May. I am just confirming—that is correct?
Mr Morrow : It is on the minister's desk; yes.
Senator CONROY: So I refer you back, again, to exhibit 411 on page 109 of the strategic review. I keep coming back to this because after four months the minister has still not published the corporate plan, and the taxpayer has no way of actually tracking your progress against your own targets. Mr Rousselot had previously indicated to the other estimates committee that exhibit 411 is redacted because of the Telstra renegotiations and he said:
They were part of the redacted section of the strategic review for commercial reasons not to put us at a disadvantage in our negotiations with Telstra.
Will NBN Co's 2014-17 corporate plan provide some clarity on the implementation schedule when the Telstra renegotiations are complete and you are no longer at this disadvantage?
Mr Morrow : 2014-17—so the one that we have submitted that is tabled today?
Senator CONROY: That is yours, yes.
Mr Morrow : Obviously, it does have quite a bit of detail within it—
Senator CONROY: So when said 'tabled', you mean given to the minister?
Mr Morrow : Given to the minister, yes.
Senator CONROY: If you are tabling it now, we are all ears.
Mr Morrow : Right. That would be interesting, wouldn't it!
The ministers do have what we have submitted in the corporate plan. But I would like to point out something about that plan—that is, in the absence of these commercial regulatory approvals and in the absence of actually concluding the trial—
Senator CONROY: Really?
Mr Morrow : Yes.
Senator CONROY: Oh my goodness. So to criticise changed dates because of those things would be an unfair thing to do?
Mr Morrow : No, what I am really pointing out is that the greater detail with greater accuracy can only come after these milestones have been met. So what I would suspect is that there that there is going to be far more detail expected in the next iteration in the next three years of the corporate plan.
Senator CONROY: So this would be the one you would prepare roughly around November or December—that is the timing—and submit to the minister about April or May next year?
Mr Morrow : Yes.
Senator CONROY: I am not being critical. I have lived with the process and fully understand the points you are making. They are very reasonable points that not everybody agreed with in the past.
Mr Morrow : Again, we are trying to be as open as we can. We have no agendas here. So obviously what is disclosed and not blacked out in the beautiful slide up there is not up to us; it is up to the minister.
Senator CONROY: But I think you guys decided to black that out. That is your strategic plan and you decided to black it out when you tabled it here.
Mr Morrow : I am sorry. I thought that was an element of the—
Senator CONROY: The strategic plan is blacked out. We do not have a copy of the corporate plan you have provided.
CHAIR: But you can provide one any time.
Mr Morrow : I can.
Senator CONROY: When will the corporate plan be released?
Mr Morrow : You would have to ask the minister's office.
Senator CONROY: So before the corporate plan is released, the government will obviously have to talk to NBN Co to establish a communication strategy. Has that occurred?
Mr Morrow : Could you ask that again.
Senator CONROY: Before it is released, the government will need to talk to NBN Co about a communication strategy for the release of the corporate plan. Has that occurred?
Mr Morrow : It has not, no.
Senator CONROY: So the government at no stage has given you a date of when it intends to release it?
Mr Morrow : No, it has not.
Senator CONROY: Has it told you it is going to release it?
Mr Morrow : It has not.
Senator CONROY: The minister repeatedly stated that NBN Co should be more transparent. In fact, you may not be aware, but in 2010 Turnbull introduced a bill into the parliament demanding that NBN Co release its corporate plan. So the minister has not even discussed a timetable with you for the release?
Mr Morrow : He has not.
Senator CONROY: I note the KordaMentha report said that releasing the corporate plan was a failure of governance. Perhaps they want to draw that to the attention of the minister who tabled a bill in parliament to make it happen. Anyway, I will move on.
Mr Morrow : Please.
Senator CONROY: The question on notice I referred to earlier states, 'Changes to the corporate plan may be required following the outcomes of the Telstra negotiations and the outcomes of the Vertigan panel,' which is a point you just made again. Are you preparing a new corporate plan or are you still waiting for the final negotiations with Telstra and final Vertigan report before you begin that new corporate plan?
Mr Morrow : We have developed a corporate plan.
Senator CONROY: It is almost October now.
Mr Morrow : We have submitted. We have no intention of changing that. We have put in there are a number of caveats depending on what the outcome of these other decisions are.
Senator CONROY: So you are beginning to prepare and beginning to submit to the minister around November/December. Do you not need to do a new corporate plan?
Mr Morrow : That would be the natural sequence of events.
Senator CONROY: So plan A, plan B, plan C depending on outcomes?
Mr Morrow : So instead of FY 2015-17, it is going to be in FY 2016-18 plan. So it is that 2016-18 plan that we will submit in draft form at the end of the year and finish up with this prescribed time lines that are in the GBE.
Senator CONROY: I apologise because I may be missing something here but I described the one you have given to the minister is 2014-17.
Mr Morrow : That is correct.
Senator CONROY: And you are now talking about preparing a 2016-18?
Mr Morrow : I misspelt that.
Senator CONROY: That is why I have come back to it. It would be a 2015-18 plan, the next one. How is the development of the design rules going? I think we have had some discussion of that already. I am particularly interested, as Mr Adcock will be aware and Mr Morrow might not be, about the economic criterion that will take into account the revenue potential of the area in question. You have indicated, again, that point in a broader discussion about how can you increase from I think you said—
Mr Morrow : Taking our current $38 to $52.
Senator CONROY: Is that driving your guidelines—you need to target areas that are more wealthy to try to get a higher revenue from them?
Mr Morrow : In terms of laying out an operational plan, you would naturally look first of all at our expectation, which is prioritising underserved areas and getting universal access, and therefore within the general universal access we are going to naturally target those higher revenue, higher density areas, MDUs and things of that nature that help us with those financial constraints.
Senator CONROY: With the type of technology, though, I guess is what I am really asking. By definition you can sell higher product ranges with fibre to the premises than you can with the other products that you have. Let me pick an area in Melbourne—
Mr Adcock : Williamstown!
Senator CONROY: Not Williamstown—I am talking about revenue generation now. Maybe they are covered by Foxtel cable, so I understand that. If we discount that for the moment, you could argue that you will get a quicker and higher bang for your buck by rolling out in Toorak than you would in Broadmeadows. Is that a significant factor for you?
Mr Morrow : 'Significant' is probably too strong a word but it is certainly a factor that we are considering. If I can give my example, if there is a strong business centre and NBN is going to be focused in that area and we know they are going to want as high a product as we can provide—they are less price sensitive—we are going there with fibre.
Senator CONROY: So the richer you are, the better broadband you are going to get?
Mr Morrow : For business customers, we know that they are going to demand a higher requirement than the classic residential customer and therefore they will get fibre.
Senator CONROY: Are there many business suburbs? I imagine an airport would be a large concentration of a whole range of size of businesses—not just the physical airport building.
Mr Adcock : There are things like industrial parks in the suburbs—
Senator CONROY: So industrial parks would definitely be targeted for fibre to the premises—or there would be a higher likelihood?
Mr Adcock : It is planning for—
Senator CONROY: Yes, I can understand that you would make that point, notwithstanding that many, many small and micro businesses require the same degree of connectivity as people who are in an industrial park, and many of them are home-based—increasingly so, if you look at the statistics. In coming back to non-industrial parks—I accept that is an easy one to draw a ring around—are you making decisions about whether or not you are going to roll out fibre to the premises or fibre to the node based on things like revenue generation from a suburb?
Mr Morrow : In a suburb we would just look at the technology options according to the model I gave you. Affluence has no effect in terms of changing technology by the criteria and guidelines that we are talking about.
Senator CONROY: Check that with your CFO—he may have a disagreement with you about that! I am being cheeky. My understanding is that an FTTN network will need to be designed using the existing copper run architecture, especially the distribution areas served by an individual pillar. It is also my understanding that the HFC network boundaries do not follow DA boundaries, and that an efficient FTTP deployment does not follow them either. So you have three different definitions. I think you did allude earlier to something like this. What is the unit of geographic area that we use for the analysis in the design rules?
Mr Adcock : That is a good question and it is part of what the team are doing at the moment. As you know, the whole geographic structure was based up on a geographic unit of measure of an FSAM, and that is one of the challenges that is confronting us at the moment. The current thing is a SAM—a serving area module—but what is the boundary? That is going to how we engage the industry, how do we plan, what technology drops are. It is a very good question.
Senator CONROY: I am sure it would be vexing you.
Mr Adcock : It is.
Senator CONROY: So is it correct that there are certain issues that need to resolved before the design rules can be finalised? We have talked about this. Will you need to know exactly what the actual cost of accessing the copper and HFC assets is, and the cost of remediating and maintaining them to minimise peak funding, optimise economic returns and ensure NBN Co's viability?
Mr Morrow : Have we estimated these costs?
Senator CONROY: I am saying: will you need to know them exactly?
Mr Adcock : No, not exactly. It will be modelling assumptions, of course.
Senator CONROY: The revised statement of expectation states that NBN Co is to determine the technology to deploy in each area on the basis of minimising peak funding, optimising economic returns and ensuring NBN Co's viability. Exhibit 4.2 of the strategic review sets out that by the end of the rollout the fixed line footprint will be 24 per cent FTTP, 28 per cent HFC and 44 per cent FTTN/B. An answer to a question on notice submitted recently states that the design rules could result in a different technology mix from what is outlined in the strategic review. I know you have made this point publicly, Mr Morrow, but has NBN Co done any modelling on this—on the strategic review set-out, how sensitive the technology mix in the strategic review is to the design rules, and to what extent the fixed line footprint could change?
Mr Morrow : Taking the last one first, it is going to change significantly from those numbers. As we learn more and as we get further into this, as I said, it will probably change again before we complete the rollout in 2020.
Senator CONROY: So there could be more FTTN/B, less HFC or less fibre?
Mr Morrow : That is correct, yes. For example, I know that the HFC was going to be higher than that number that was quoted there, so you are obviously going to have diminished numbers in the other technologies.
Senator CONROY: So there will be less FTTP than 22 per cent, or 24 per cent?
Mr Morrow : No, I do not think we can actually go that far to say that. In fact, the number that I recall is a bit higher than that in the early stage of the modelling that we are working on right now.
Senator CONROY: FTTP is 24 according to the strategic review. The Prime Minister promised Australians before the last election that it would be 22 per cent fibre.
Mr Morrow : I think it will be higher than 22 per cent.
Senator CONROY: Higher than 24 per cent? That is the strategic plan.
Mr Morrow : Probably. I think right now it is early in the modelling, but the number that I recall is actually right at about that—maybe slightly higher. But, again, we are going to reserve the exact notification of all of this until we have worked those guidelines through.
Senator CONROY: We did have a conversation about this before, and I just want to delve into it a little deeper. Is NBN Co seeking to acquire access to Telstra's entire copper CAN, or are you seeking to only take ownership of it progressively—that is, after the FTTN build in an area becomes ready for service and the copper is looped through the model? Presumably we are not buying the copper in the HFC area, where you would not be using it?
Mr Morrow : That is correct.
Senator CONROY: So it is possible that you might only want, according to this, about 40 per cent of the copper network from Telstra? I am just going on the strategic plan here; I am not holding you to it. I just want to understand—
Mr Morrow : But you can appreciate that the deal is not signed yet. Any discussion of that deal—
Senator CONROY: No, but I need to understand whether or not you are going to buy a piece of copper that you do not need.
Mr Morrow : I think that it has been revealed that the infrastructure would be handed over to NBN free of charge, already. I think Telstra—
Senator CONROY: 'Free of charge' is a misleading statement when you have to actually pay for the maintenance.
Mr Morrow : I am talking about an asset purchase, so that again—
Senator CONROY: You can hide the opex by saying it is an asset purchase, but the issue I am genuinely trying to get to is that you are not going to buy 60 per cent—and I am just picking the number here, so I am not holding you to the exact percentage. But there is 60 per cent of the copper that you do not want if you are doing 41 per cent of FTTN.
Mr Morrow : I will say this: there certainly is a portion of the copper that we will not require nor take ownership of, because we have alternative technologies in those areas.
Senator CONROY: I am not trying to hold you to 41 per cent but, in the FTTP area, by definition we are turning off the copper—so you will not want the copper in that area. In the HFC area, you do not need the copper. Or do you need the copper?
Mr Morrow : No. I think we have to be careful, since the deal is not signed yet and we are working between NBN and Telstra, not to get into too many details.
Senator CONROY: Alright. Why would you want to own the copper in the HFC area? Can you give me a technical reason?
Mr Morrow : It would not be to provide service to those end users. We would be using the HFC network.
Senator CONROY: Yes. So you would purchase copper—albeit allegedly for free—that you have no intention to use.
Mr Morrow : As I said, in areas where we do not intend to use fibre to the node, there would be no reason to take ownership of the copper.
Senator CONROY: I am happy for you to make sure I am not misrepresenting you and you are being very accurate. So if we assume, and I appreciate that it is an assumption, that a strategic plan is correct—it is not, and you have indicated it is not—allow me to play with it.
Mr Morrow : On those portions, yes.
Senator CONROY: For 41 per cent, you definitely need the Telstra copper to do FTTNB. I am reading from the strategic plan. We have agreed it is wrong, so we are not holding you to say that these numbers matter. But it is broadly consistent with what I think you said.
Mr Morrow : Yes.
Senator CONROY: You have absolutely got to have the copper for 41 per cent FTTNB if you followed the strategic plan, which we know you are not. I am trying to avoid pinning you down to a number. I am just trying to get the principle.
Mr Morrow : Yes.
Senator CONROY: So, by definition, you cannot deliver FTTNB without the copper. You have got to have the copper in that 41 per cent. By definition, we are closing down the copper in the 24 per cent FTTP, and if you are using HFC—and, again, just using these statistics which are incorrect, and we know that—there would be no reason that you would take possession of the copper network in the 28 per cent. I am not trying to sneak my way in.
Mr Morrow : Nor am I trying to avoid anything other than the fact that the agreement is not signed, so I cannot actually answer you with conviction as to what is going to happen.
Senator CONROY: Why would the Australian taxpayer pay for maintenance for a copper network in the HFC footprint when you are not planning on using it?
Mr Morrow : Until the agreement is signed and public, I think my talking about any terms or conditions or what is a part of this would be premature and potentially damaging.
Senator CONROY: I think I have got the sense of your answer, and I am not trying to prejudice the discussions. But I would be bemused, as would the Australian taxpayer, if you took possession of an asset that you were not going to use.
Senator SMITH: We should not speculate while there is a commercial negotiation going on.
Senator CONROY: I can speculate all I want. Mr Morrow is doing fine in avoiding speculating.
Senator SMITH: I think some people might take your speculation incorrectly.
Senator CONROY: I think Mr Morrow has been very accurate.
Senator SMITH: Mr Morrow said it would unwise to divulge anything that might reflect on the commercial negotiation.
Senator CONROY: Coming back to the FTTNB portion, is your preference to take possession of all of it in one lot, or would you access it as you needed it?
Mr Morrow : It would be the latter.
Senator CONROY: As you needed it.
CHAIR: We are scheduled to have a short break. We will suspend for 10 minutes.
Proceedings suspended from 14 : 48 to 14 : 59
CHAIR: I welcome back senators and witnesses for our final session. We are planning to finish at 4 o'clock. I will call Senator Conroy now.
Senator CONROY: Mr Morrow, you are on the record saying:
In order for us to stay in the AU$29.5 billion limit of equity funding, we have to find numerous efficiencies in how we deploy and how we operate. We have the entire company trying to find different opportunities to improve processes and change the way technology can help us to lower the cost.
How would you characterise the $29.5 billion funding envelope you have been given to roll out MTM to 12 million premises? Is it comfortable? Is it tight?
Mr Morrow : It is tight.
Senator CONROY: You are aware of course of the ACCC's recent decision in regard to TPG's roll-out?
Mr Morrow : Yes.
Senator CONROY: The ACCC notes that it has decided to take no action because:
The ACCC has reached this decision based on information and evidence that TPG’s networks were capable of supplying superfast carriage services to small business or residential customers at 1 January 2011, and confirmation that TPG is not extending the footprint of these networks by more than one kilometre.
Does this accord with NBN Co's view? I am trying to recollect.
Mr Morrow : Do you mean in terms of the interpretation of the Telecommunications Act?
Senator CONROY: Yes.
Mr Morrow : Our outside counsel has looked at this and suggested that it is a very fine line and it can lean either way.
Senator CONROY: I would have thought that the pipe networks could not offer a residential FTTB service as of 1 January 2011, but now it can because TPG has upgraded the network.
Mr Morrow : That is our interpretation and understanding as well.
Senator CONROY: Are you satisfied with the ACCC's response?
Mr Morrow : We respect the ACCC is a regulatory authority and we know that their decision is final. We believe it was a very fine line as to whether or not it was in violation of the act. We thought maybe it was on the side of a violation, but again that is the ACCC's decision not ours. So we appreciate the clarity now and we are off and running to try to offer a competitive response.
Senator CONROY: Do you think they should have at least tested it in a court rather than just walking away?
Mr Morrow : I think that there has been some outside counsel's view that a court might want to look at this, if there is ever an opportunity, and that could have a different outcome.
Senator CONROY: TPG announced its plans to do this more than a year ago, shortly after the 2013 federal election. In that time, the issue has been handballed to the ACCC and handballed to the Vertigan panel and, in the midst of all of this, TPG has been progressing with its roll-outs. In fact on Tuesday of this week TPG indicated it would continue with its rival roll-out to CBD areas, which to me indicates that it does not consider the declaration measures flagged by the ACCC, or the license condition flagged by the minister, to be a disincentive. Is that your reading of the situation?
Mr Morrow : I do not know what is happening in the minds of the TPG executive team, but it does not seem as though they are concerned about that.
Senator CONROY: NBN Co's chairman, Dr Switkowski, had previously said to this committee:
… if organisations like TPG capture perhaps 500,000 high-value customers, that would have an economic impact at the five to 10 per cent level in that case alone. I am just talking off the top of my head. If you amplify that with the inclusion of other infrastructure based competitors, the economics of NBN would be severely impacted—and it could be allowed, depending on the government's policy in this area.
That was Dr Switkowski earlier this year. This is clearly a critical issue for the NBN Co. Have you sought advice? Have you done an analysis yet? Mr Rue, have you sat down and crunched the numbers on losing 500,000 high-value customers?
Mr Rue : We have done several pieces of analysis, yes.
Senator CONROY: Could you highlight to us the outcome of those analyses?
Mr Rue : The analyses obviously depends on the assumptions you make. It certainly is a detrimental impact to our revenue stream, yes. But that assumes there is no competitive response of course.
Mr Morrow : And I would point out, Senator, that I think TPG by itself is manageable for us to stay within the model prescribed by the government and objectives prescribed by the board. However, if TPG are allowed to do this, it begs the question of whether there are other larger carriers that are allowed to do this and, if those larger carriers come in and this becomes a material deployment issue, then the model for NBN is clearly in jeopardy.
Senator CONROY: I have seen reference—you may have seen it as well, or not; Mr Rue is probably watching more closely than anyone else—that Telstra have indicated they might resell on TPG or Optus might resell. In other words, they will not even bother deploying their own; they are just going to resell on top, which would fall into that category you have just described, I am assuming.
Mr Morrow : Not necessarily. Stephen, do you want to elaborate?
Mr Rue : No, you are right.
Mr Morrow : If Telstra decides to ride on the back of a wholesale agreement with TPG going into these buildings, we have lost the building, and it is no more than that particular building that TPG has. I think the real threat to us is if Telstra says, 'Boy, this is a lucrative business, and if I can find regulatory open pathways for me to do this, and use all of my infrastructure that I still own today,' then the model itself is in jeopardy. But if it is strictly Telstra riding over TPG, I think the TPG model is threatened.
Senator CONROY: But if that encourages TPG to put in an even deeper build, because they are guaranteed that they have wholesale to a whole bunch of other companies, then that is the same equation at the end of the day?
Mr Morrow : That is correct.
Senator CONROY: Dr Switkowski said TPG would cause an economic impact. I think he defined it as a five to 10 per cent one—and I admit he said he was talking off the top of his head—we have a CFO now, who possibly can assist us further. I accept your point about 'depending on response', but you have to do modelling first to decide, 'We need a response.' I appreciate the point you make that your response does have an ultimate impact, but you must have an estimate of what you think their impact will be on you. I do not see why you could not share it with us. Dr Switkowski has already shared a figure.
Mr Rue : The estimate depends upon how many streams of revenue we lose in the future, obviously. Whether I want to put a number on it today, I do not think is appropriate, given that the modelling relies on a whole pile of different assumptions and different competitive responses we—
Senator CONROY: There is no commercial issue in terms of commercial-in-confidence, is there? It is just, 'What is your revenue hit?'
Mr Rue : I do not want to mislead this—
Senator CONROY: Are you misleading your management team? Are your figures so unreliable that you mislead Mr Morrow? If it is good enough to give to Mr Morrow it is good enough to give to the committee and the people of Australia.
Mr Morrow : Could I clarify? The modelling that Stephen is referring to is based on the current information that is available today. We can only estimate where they have previous pipe network access. If they go further than that, to your point: if Telstra is suddenly using their service, they think there is a greater economic model here. That justifies further investment in other areas. That one-kilometre extension that they are allowed to make, that then has to be modelled as well. I do not know if it is necessarily a number to be able actually to put on the table today. We have seen the indication of it and, again, we know that if it expands, there is a risk. But as far as the actual number is—
Senator CONROY: I am very confused. Dr Switkowski, who was the acting CEO at the time, was able to give us an estimate and no-one fell off their chair or died. There was no commercial-in-confidence. He felt able enough to give us a broad indication. I am surprised that the CFO is not in a position to give us a broad indication.
Mr Rue : The broad indication is that it is an issue that we are concerned about and that we are working on. It is not insignificant.
Senator CONROY: TPG has also recently released its retail prices: $59.95 for unlimited data on 50 to 100 MG plans. Are you factoring that into your modelling now as well? That is a very competitive price, I would have thought, for that product.
Mr Morrow : Yes.
Senator CONROY: Is NBN Co still planning to charge the same wholesale price for VDSL as for FTTP—that is, for the 50 to 100 MG tier?
Mr Morrow : For the same speed levels, yes.
Senator CONROY: Do you think that this will be a problem, if you end up competing with another player on an FTTB versus FTTB basis?
Mr Morrow : Yes.
Mr Rue : Yes.
Senator CONROY: If Telstra can offer a product based on whatever wholesale price it will get under $59.95?
Mr Rue : Yes.
Senator CONROY: What about the amplification that comes from other carriers? We talked about this a little bit. If Telstra were to decide they could do the same, that would be a dramatic hit.
Mr Rue : Absolutely.
Senator CONROY: So the threat to NBN's business case is a direct result of a change in government policy. The reason I say that is that TPG only announced after the election a fibre-to-the-apartment model they were not planning on competing with. But a fibre-to-the-basement model was clearly something they thought they could have a crack at. Have you been raising the problem with the minister?
Mr Morrow : No, the minister does not need to have this issue raised to him. I think he is quite well aware, as evidenced by his response to the ACCC ruling on what else he needs to consider from a licensing point of view. I think that says a lot about his views. Just to be clear in terms of the policy shift and change—and I am not here to defend the policy other than to just make sure the committee is aware that if we were doing fibre to the prem to these locations, which we are in the ones which we have already started on—
Senator CONROY: I am pointing to them anyway.
Mr Morrow : I do not think that this would necessarily change TPG's view. In fact, if anything, because fibre to the prem takes a bit longer—because naturally you have to run up to each one of the units—that gives them a jump-start to say it is going to take NBN longer to do this than what I can do in a FTTB type of a fashion. The fact that we are allowed now with technology flexibility to put in a FTTB solution accelerates our ability to go into these locations.
Senator CONROY: Yes, but you are comparing a like-for-like. When we were having the discussion before—and apologies, I cannot remember if it was you or Dr Switkowski—it was indicated that your competitive response would be to put fibre to the premises. That was what he indicated because you had no fibre-to-the-basement product available at that stage, and I am not sure you have still got one yet, though I think you are pretty close if you have not already announced the pricing and everything. There is $29.5 billion of taxpayers' money being put at risk here by the minister and the ACCC taking the positions they have taken. When will NBN Co communicate publicly the effect this will have on your business case?
Mr Morrow : We will communicate this if there is a threat to us meeting the expectations set out to us, and naturally the communication path would be first to our board.
Senator CONROY: So I am assuming you have provided your estimates to the minister.
Mr Morrow : No, we have not.
Mr Rue : I have not spoken to the minister.
Mr Morrow : Again, I think we have to be a bit careful about the premature element. If I can remind the senator of what I mentioned earlier—part of this corporate planning process is where you are still taking that strategic plan and converting that into a detailed business model, and that in turn goes into an operating model, so we are still taking these three steps to be able to have a tactical plan for everybody to run with.
Now that we know more about the TPG situation and have at least an idea of what the change to our model would be, that will get factored in. If we end up having to position to say that that threatens our $29½ billion or peak funding or IRR, or any of the other constraints that we are operating under, we would be raising it to the board at that time.
Senator CONROY: So does the 2014-17 corporate plan that you have already submitted take into account the TPG impacts?
Mr Morrow : No, it does not because they were not conclusive at the time.
Senator CONROY: Mr Morrow, on 12 September you said:
If that were to be a case where this is going to happen on a larger-scale basis, then we would have to consider what that economic model does. Is there more taxpayer money that needs to be given for the remote areas to have access? Do we just say we’re not going to provide the same pricing?
I would like to confirm that is what you said?
Mr Morrow : That is correct.
Senator CONROY: Are you saying that if the economic model for NBN Co is compromised by cherry-picking, which is essentially what this is, the $29.5 billion funding envelope may no longer be enough?
Mr Morrow : Yes.
Senator CONROY: Might you need to charge more in regional areas, or get an explicit subsidy for regional Australia?
Mr Morrow : Yes.
Senator CONROY: Do you have a preference for either of those, or are you just saying those are the two options you have got?
Mr Morrow : I do not make policy based decisions, fortunately.
Senator CONROY: Have you discussed these eventualities with the government?
Mr Morrow : The government is aware of them.
Senator CONROY: Has the Department of Finance expressed concerns to NBN Co about this?
Mr Morrow : Not directly—
Senator CONROY: My knowledge of them was that they should be knocking on your door on a daily basis, Mr Rue.
Mr Rue : They have spoken to me about it, yes.
Senator CONROY: I would be shocked if they had not.
Mr Rue : So would I.
Senator CONROY: So it has been five months since your 15 April response to the cherry-picking. Telstra Wholesale's NBN Co rollout schedule, which I have in front of me, indicates that NBN Co was due to connect the number of MDUs to FTTP by 24 September, last Wednesday. That is what the Telstra Wholesale schedule says. Did you meet this timetable for Millers Point?
Mr Adcock : I will come back in here. If you are going to go through them one by one, we will just come back—
Senator CONROY: Four of them are Millers Point, and then there is Haymarket.
Mr Adcock : I will attempt to answer that before the—
Senator CONROY: Sorry, to be fair, there is also Melbourne Docklands, South Melbourne, Teneriffe and Fortitude Valley.
Mr Adcock : So you want all of them?
Senator CONROY: Yes. I am just going off the Telstra Wholesale—
Mr Adcock : That is all right.
Senator CONROY: I would have thought that you would have known if you had connected any customers yet.
Mr Adcock : It was the completion I was worried about.
Senator CONROY: Okay. Millers Point: how many premises? Haymarket: how many premises? Docklands: how many premises? South Melbourne: how many premises? Teneriffe and Fortitude Valley: how many premises? Have you have completed the rollout, and have you then gone to the next stage?
Mr Adcock : Sorry. If the rollout completion were on 24 September, it would be unlikely—
Senator CONROY: I accept that. I have no problem with that. That would make sense. I am just trying to establish whether you have met your own targets. Has NBN Co, in any of these locations, overbuilt the existing TPG FTTP network? When you have gone wandering in, are they already in the basement, or are they planning to be in the basement? Do you know that they are in these basements?
Mr Adcock : We pick these buildings on their merits. I am not aware of whether TPG are in the buildings, but I can certainly check for you.
Senator CONROY: Do you know how many MDUs TPG has connected yet in total? They have been rolling out for nearly a year, so I would have thought they would be pretty well advanced. Any ideas? Does anyone have any guesstimates? What is the industry goss?
Mr Morrow : On TPG's rollout?
Mr Adcock : That may or may not be in their results.
Mr Rue : It was not.
Senator CONROY: I want to just return to Tasmania. I am conscious that Mr Adcock is trying to get us the information while we speak, so apologies if I distract you from doing both worthy things. I think the earlier discussions that I heard were that you have held back some FSAMs on the basis that there is not enough of a workforce.
Mr Adcock : Activations capacity.
Senator CONROY: Yes. Even though you have rolled past—you are active on your service class 2 definition, as opposed to the old definitions—you have still not released them, because you do not have the workers in place to actually propel the construction order to the gate, to the home, if I can use a shorthand.
Mr Adcock : Not having workers in place is probably incorrect, but the workforce has been struggling with the volume.
Senator CONROY: Sure. The minister said back in December that Tasmania was back on track. It is now 12 months since the election, and I am a little surprised to find that you have not been able to create a workforce in the 12 months that Mr Turnbull has been the minister. I appreciate that neither of you has been there for the full 12 months, but there are people in your organisation who have had responsibility for this. The minister has given open, long attention to this, so I am just surprised that after 12 months you do not have a sufficiently trained workforce—and I am trying to find the softest way of describing that. It just amazes me. We were constantly criticised previously for not being able to manage contractors. I am just amazed that you do not have—I appreciate that you have now got one, but I am just shocked that after nearly 12 months there are basically not enough people on the ground in Tasmania to connect people's homes.
Mr Adcock : As I said, I cannot begin to contextualise what the minister may or may not have been saying when he said Tasmania is back on track. But what I do know is from the time I have been there—and I pointed this out earlier—we worked very hard with VPL, in a quite tumultuous environment on the ground, to restabilise that rollout and get the build back on track. I believe that is the case. I think, as I said—
Senator CONROY: So you are now saying that it is back on track?
Mr Adcock : The build, I said. I am very clear on that. We need to get the build back on track. We have been working with Visionstream on the connections piece and the activations piece, and it has been somewhat troubled by a number of issues. I am quite happy, before we go, to close out on Senator Bilyk's issue with the troubles that we are having in Tasmania. First of all, from a workforce perspective, as I said, with Visionstream having the connections, the field service delivery contract and the challenges they were having with the subcontract workforce down there because of the historical issues, it did not make it easy and we did work with them for quite some time. We were quite open in trying to resolve it with them and to work with the partner, but we have come to the realisation that—
Senator CONROY: It is a year. It is a year since new management took over at NBN Co.
Mr Adcock : We had to bring new contractors in, as I have said.
Senator CONROY: You did that in Western Australia, South Australia and the Northern Territory. I am very familiar with it. I am just questioning why it has taken a year for a clearly identified and public problem to still not really be resolved. You have not released the FSAMs yet.
Mr Adcock : We have not released the FSAMs not only in Tasmania but in a number of areas where we do not have an activations workforce.
Senator CONROY: I am going on a state-by-state basis, Mr Adcock. If you like, I can go through the other ones.
Mr Adcock : I am quite okay to take it on, because we have been working to try and get the premises to a point where there is a known body of work and where you have a consistent workforce going in, finding a premise connection device on the side of the house and knowing what they have to do to bring the customer on to the National Broadband Network. Tasmania has proven quite challenging, and as I said we held back two FSAMs in there recently because we did not have the workforce on the ground. We have now signed up with UCG. We now have the alternative workforce and, I think I said earlier, we are looking at the profile and we will come back to you with that.
Senator CONROY: Any news on Millers Point and Haymarket, et cetera?
Mr Adcock : The email has gone out. You saw me sending it.
Senator CONROY: I would have thought it was fairly straightforward. I thought the construction team would have got back to you in a heartbeat and said, 'Yes, we've completed all of those.'
Mr Adcock : It may be the network here.
Senator CONROY: I wanted to come back to our discussion about your guarantee to deliver 'up to' 25, Mr Morrow.
Mr Morrow : Yes.
Senator CONROY: That is not guaranteeing 25, though, is it? There is a clear difference. The reason you put the words 'up to' in is that there is a clear difference.
Mr Morrow : There is an element of guaranteeing 25/1 and eventually 50/10, I think it is—that, for a peak up to, there will be guarantees on the 12 and the 25, which is what we are guaranteeing now. As we get out and do service qualification to find out what it could be then we can also do the same thing for the faster speeds.
Senator CONROY: I am afraid you have lost me completely there when you used the word 'peak'. I think the ACCC dealt with this industry a while ago on burst speed and peak speed. You are not really allowed to say those sorts of things, so you have confused me on the definition there. But that is because you were not here when the ACCC stopped companies engaging in that sort of misleading and deceptive conduct. So could you help me by finding some different words.
Mr Morrow : No.
Senator CONROY: No?
Mr Morrow : It is peak information rate—we guarantee up to 12/1 and 25/5. For us to go above that, to 50 megabits per second, for example, that on an FTTN basis has to have a service call component, where we can go out and look at it.
Senator CONROY: The Prime Minister of Australia insisted they were going to deliver a guaranteed minimum of 25/5. To be fair, Dr Switkowski refused, and so far you have always refused to be as bold as that. I am just checking, because the minister keeps making these statements. As recently as 6 September, he said, 'By the way, we are delivering 100 megs over fibre to the node right now,' and Jason Clare says, 'But you can only guarantee 25,' and Turnbull says, 'No, that is not the case.' So he is trying to claim that not only can he deliver 25 but also he can deliver more than 25. I just want it to be absolutely clear that you are not guaranteeing that a minimum of 25 can and will be delivered into every Australian's home?
Mr Morrow : That is my understanding. As you know, people like to talk about this in so many different ways, and speed changes constantly—
Senator CONROY: I accept that the minister might be talking about other things, but you are the CEO of the company and you have not before and Dr Switkowski has not before but I wanted to make sure there was no change in language from NBN Co and you are not guaranteeing a minimum speed. You are guaranteeing up to 25 but you are not guaranteeing a minimum of 25.
Mr Morrow : Again, let me clarify this in my own words.
Senator CONROY: You can requote your whole statement—I am happy for you to put it on the record.
Mr Morrow : Thank you. We are going to launch FTTN using the 12/1 and the 25/5, which we will guarantee. However, the caveat is that this is—
Senator CONROY: You will guarantee?
Mr Morrow : Yes. However, this is a peak information rate.
CHAIR: Experience tells me that we are going to get into all sorts of trouble talking about anything other than the maximum or the minimum—whatever you are able to do. We know you are only able to talk about maximum speeds. Whatever the technical descriptions are within the organisation, it is not always useful.
Mr Morrow : Can I take this on notice and come back and be very explicit. Clearly a lot of language has been used and apparently there is a bit of excitement and history here. Let me come back specifically from an NBN point of view with what is guaranteed—
CHAIR: It is all Telstra's fault.
Senator CONROY: It is the fault of the whole sector, to be fair.
CHAIR: But I spent many years at estimates quizzing Telstra about exactly what they meant in their product offerings.
Mr Morrow : I have been around this world for a long times and there have been a lot of different interpretations behind this.
CHAIR: I can blame Telstra because they were the only ones who came to estimates—no-one else had to.
Senator CONROY: And the reason for that is that telcos have continually deliberately misled their customers about the products they sell them. In spite of our deliberate effort, and we have used consumer law for years to chase them to get the truth—
Mr Morrow : To be sure that we are accurate, let me retract my earlier statement and come back on a QoN and provide the specific detail about what we will guarantee.
Senator CONROY: So moving off 25/5 to 50/10 or 50/20—I am not sure which one—
Mr Morrow : Ultimately it will be 50/20.
Senator CONROY: Roughly, without tying you down, with the same caveats, what are your intentions and abilities to deliver that?
Mr Morrow : Initially we expect it is going to be at 50/10, 20 on the up. As we put it over fibre to the prem, that is clearly a much more straightforward approach.
Senator CONROY: Do they offer 50/10 on FTTP or is it 50/20? Are you creating a new class of product?
Mr Morrow : As you know, we do have a different class that is symmetrical in nature, and that is TC4 I think it is, that we offer. As far as the FTTN product is concerned, because we need to go out and qualify the copper, depending on the loop length and where that particular home is that could have a very different service offering. Until then, it is a 50/10 product that we are going to be looking to deploy, and then ultimately the 50/20.
Senator SMITH: It is 50/20 over FTTP.
Senator CONROY: That is what I thought. I did not think we had a 50/10 product, from my recollection. So you are creating a new product in the short term. Do you think you will get to 50/20 in the long term?
Mr Morrow : Yes, up to 90 per cent of the fixed-line footprint.
Senator CONROY: What year? I heard this rubbish from Mr Turnbull about how they are going to do this, but he did then go on to qualify that will be the second iteration further down the track. I do not want you to mislead by accident, Mr Morrow.
Mr Morrow : No, of course not. I cannot give you that specific answer at this point in time until we run through a number of these other trials and see just exactly what condition this copper is in. But I can tell you that clearly, as you know, Senator, when we stand up a node next to a pillar, depending on that wood plank out there, there are going to be different speeds. There is a point when it drops below the 50 meg line, and there is a point when it drops below the 25 meg line. We have some estimates in terms of the distances behind that. We have to think of alternative solutions to be able to meet the statement of expectations requirements.
Senator CONROY: Ultimately you are not going to be able to mislead consumers as well. You might think you are meeting your expectation statements.
Mr Morrow : We do not want to mislead anyone.
Senator CONROY: Good. It is a good place to start. Now, I want to move on to some answers you gave to questions on notice. It comes to these issues of the value of contracts that we were talking about just before lunch. I have here an article: 'Thiess signs NBN contract to connect 170,000 premises per year'. It says:
Under the contract, the main scope of work is to connect customers premises to the National Broadband Network in Queensland, NSW and the ACT. With estimated forecast revenues of up to $183 million, the contract is for an initial two years with an option for a one year extension…The previous contract, signed in June 2011, was worth $380 million, with a specific value of $285 million to Thiess.
As you can see, both your current contract and the old contract are in the public domain. But you refuse to reveal to the people of Australia—and more importantly the Senate—on the spurious basis that somehow there is a commercial-in-confidence issue about releasing the value of these contracts today, when there has not been for five years.
Mr Morrow : Can I clarify, because some information was provided to me on this. Historically, you are right; this was provided. However, by providing that information it has created great confusion among the delivery partners as to how much other people are getting for doing similar or equivalent work.
Senator CONROY: Perfect.
Mr Morrow : Not necessarily.
Senator CONROY: That is called competitive tension.
Mr Morrow : No, not in this case, where people do not understand the details, and we are not allowed to reveal those details with each of them. It creates problems for NBN that hinder and hurt the efficient use of taxpayer money.
Senator CONROY: You actually cannot not tell the Australian public how much money you spend on things. You actually cannot.
Mr Morrow : We are happy to tell how much we spend on things, but to give that on an aggregate basis, to break down into the detail, Senator—
Senator CONROY: No. Individual contracts that you sign: you cannot not tell. I give you notice that we will move, at the Senate committee hearing, to press you on this. You will need to get someone to explain what you mean, and you will have no basis of saying no. We can take you through other companies, other GBEs, who all have these contracts, and they all have to cough it up.
Mr Morrow : Okay. But we will cough it up under forced conditions. Because, again, it is our opinion that it hurts the taxpayer in terms of providing this information and could cost us more in the long run by holding back on revealing it.
Senator CONROY: It is just not an acceptable position for the value of the contract not to be revealed. You do not have to reveal—I cannot remember what the phrase is—all the details of the contract, but the actual headline value of the contract. It is just not acceptable, Mr Morrow. And it is being done deliberately.
Senator SMITH: Mr Morrow has not said that he will not. Mr Morrow has invited you to test the system.
CHAIR: I think we know where we are at.
Senator CONROY: I am just wanting to make it very clear to Mr Morrow that it is not acceptable for you to hide the value of your contracts, whether they be with a contractor, with an Alcatel supplier or with any other people that you make purchases from. It is just not an acceptable practice.
Mr Morrow : Even if it is to the detriment of—
Senator CONROY: It is not to their detriment. It is just complete drivel for you to pretend this. I have been the minister. I have sat here. I have had senators who are now defending this process attack me if I was not prepared to reveal this information—although we did reveal all of this information—and, given the hypocrisy from other senators, I will leave them to their consciences.
Senator SMITH: No, Mr Morrow is inviting you to go down a path. That is what he is doing.
Senator CONROY: He does not need to. He does not need to invite me to go down a path. He could do the decent thing and the correct thing and reveal it.
Senator SMITH: He is doubting your judgement about whether it is a wise course of action.
CHAIR: Senators, I do not even think that is the case. But I think Mr Morrow has indicated that if he is compelled under the rules to provide that information, when requested, he will do so.
Senator CONROY: Even when they were required to provide this information to the public themselves, it makes a farce of your position. Thiess have revealed the value of the contract because they are required to. So it is a farce for you to pretend that, because Thiess have put it out, they have harmed the taxpayer.
Mr Morrow : Not all of them have put it out, though. That is the issue. Not all of them are publicly traded, and, again, there is information that you can reveal. I, too, have run publicly traded companies and I understand the laws of stock exchange and rules about publicising this information, and I can assure you that the detail behind those things is often not included in them. But I will comply. I would never violate policy of the parliamentary committee here. I feel it is my fiduciary responsibility to protect the interests of the investors and to make sure we are getting the best possible deal. Right now, I believe that we are doing the right thing. But should the committee and the process require us to do something different, of course we will comply.
Senator SMITH: Just sticking with the issues of speeds, there have been some media reports in the United Kingdom about G.fast. Do you have a view about that? The media report I read—in the Telegraph, I think—carried a number of quotes from BT Openreach CEO. Are media reports to be relied upon? Is it the way of the future? I think it was talking about 700 megabits per second.
Mr Morrow : Up to a gigabit per second is what they have observed with the G.fast technology, but on a very limited number of metres. But in a case of an MDU, this could be very applicable. When we come back and talk about a competitive response, if we have fibre into that basement, into that building, and it has within this loop length the ability to offer up to a gigabit per second, naturally you would do this rather than deploy fibre, given the economics, the justification, the service levels and everything there. So that, I think, is good news for MDUs. The practicality of that in a fibre-to-the-node environment is limited, if used at all. In an FTTDP situation, it is possible, if it is out in the front of your house or running down the street. I come back to the alternatives from a fibre-on-demand or a co-funding model. If you want a gigabit per second service or 700 megabit per second service, there could be other products we can envision with this kind of technology so that we might have a cheaper way to give that to you than building fibre all the way up into the home or into your building.
Senator SMITH: It does demonstrate the value of the mix of technology approach, though, does it not?
Mr Morrow : I think it validates that there is evolution in high-speed over copper, and I think that is really important. But to be fair to copper, it needs shorter loop lengths, which requires fibre to get closer and closer to the end point, for that to happen.
Senator CONROY: Also out of the UK, are you aware that the British government has put out a paper discussing closing down the copper network completely on the basis that it cannot provide sufficient capacity for the future?
Mr Morrow : I am not aware of the details from the government itself, but I had heard that it is not necessarily the last kilometre or two.
Senator CONROY: So, they turn down the rest of the copper network and just leave a little bit of copper.
Mr Morrow : For the very reason that Senator Dean Smith had mentioned: there are alternative technologies. But, again, I am not aware of the details.
Senator CONROY: No, I am just saying that the British government have announced it.
Senator SMITH: So you are defending David Cameron.
Senator CONROY: He is smarter than your bloke. Just like the New Zealand minister is smarter than your bloke.
CHAIR: Senators, it is getting late in the day. Back to questions.
Senator CONROY: Notwithstanding the fantasies that Mr Turnbull has about BT, do you know whether BT are engaging any fibre-to-the-premises trials?
Mr Morrow : I do not know about trials. I know they have fibre on demand—
Senator CONROY: No, that is not what I asked; we all know they have got that. Are you aware if they are doing any of that?
Mr Morrow : Maybe you are aware, Greg?
Mr Adcock : I am not aware.
Senator CONROY: You need to get out more! I am very conscious of the time and I want to finalise all the questions. I noted your NBN Co scoping of HFC product options and I did want to have a chat about that. I am happy to wait until we see Mr Symon at estimates regarding the HFC product overview, the summary of HFC product features. I am keen to have a conversation about that. Broadly, what are the speeds? They would have a shared service, and it appears from this—12/1, 25/10, 50/20 and 1/40—that that is what you are targeting with HFC. I understand you have got contracts out?
Mr Adcock : We have issued an RFP for the CMTS equipment, the DOCSIS equipment. They have all been responded to, but not the external plant.
Senator CONROY: Should I get the CTO along for estimates so that we can have a conversation about what changes need to be made to the HFC? Mr Adcock can help me with 'Yes, we have to run a lead from there to the house.'
Mr Morrow : What changes we need to do with the existing—
Senator CONROY: Yes, but what it is you have got to do within the pipe to create—
Mr Morrow : If that is the scope of the question, we will make sure we are prepared so we do not have to drag him down here.
Senator CONROY: I do not think Mr Adcock can ever escape, unfortunately. In terms of the CTO—I am sorry, I do not know his name—
Mr Adcock : Mr Steiger.
Senator CONROY: I understand he is the person to ask about HFC. I would be interested in having a conversation about all of those sorts of issues with him. I understand that there are investigations into a new FDH—fibre distribution hub. I understand there are new developments in FDH sizes.
Mr Adcock : New developments in FDH sizes?
Senator CONROY: The size of an FDH.
Mr Adcock : I do not know that there are new developments in the size of an FDH. Are you talking about the nodal cabinet?
Senator CONROY: Depending on what we want to describe it as. Tell me about the node cabinet. No, it is not the nodes; I am now talking about fibre-to-the-premise equipment getting smaller.
Mr Adcock : I understand the FDHs that we have are the two sizes that we responded to the—
Senator CONROY: No, I understand that there are newer models coming on the market that are getting even smaller. I was just wondering whether you are aware of them and if you can tell us what their sizes are.
Mr Adcock : I am not aware of them, so I cannot tell you what their sizes are.
Senator CONROY: I am just going to when people like to stand next to them. I will probably come back to this one. I just wanted to highlight one of your answers. BCG—they seem to be doing pretty well out of NBN Co. They wrote the minister's plan before the election. I get it they are up to $13½ million that they have received from NBN Co. That is a pretty good pay-off for writing the minister's policy before the election. Is that right: $13½ million BCG have received from NBN Co? Is that the latest figure? This will be an old figure by now. This was only to 30 June and we are well into the new financial year.
Mr Rue : I do not have a figure—if there is any for this financial year. But that 13.5 sounds correct; yes, it is.
Senator CONROY: Are you comfortable with that amount of money for one company, and particularly the company that wrote Mr Turnbull's policy?
Mr Morrow : I cannot speak to anybody who wrote the policy, but I can say that this is a lot of money to spend on consulting, and I understand the exceptional circumstances with a strategic review also with a fixed wireless and satellite review. If I pull those components out, I do think it falls within reason, but when you add all of those together the number is a big number.
Senator CONROY: And Deloittes have got $3.2 million. What are they doing again? I am just trying to remember what we discussed before.
Mr Rue : Deloittes assisted us with the strategic review, which was a piece of it.
Senator CONROY: Yes, a piece, but I am trying to work out what else they picked up. I did not think they got $3 million for the strategic review.
Mr Rue : No, they provided some assistance looking at systems in the finance department as well.
Senator SMITH: It is still a significant falling short from the half a billion dollars worth of contracts under the previous government. I just wonder if this is going to take us till four o'clock, Senator Conroy.
Senator CONROY: We will be finished probably soon, provided that you do not keep interjecting.
Senator SMITH: I am just keeping a running tally, just seeing at what point we get to half a billion dollars worth of contracts under Labor. To be fair, I do not think—
Senator CONROY: We will end up going all the way to four if you keep talking.
Senator SMITH: I do not think Senator Conroy will be an authority on who wrote the coalition's NBN policy.
Senator CONROY: So you are denying that BCG had anything to do with it?
Senator SMITH: I am denying that you would be an authority on who wrote the coalition's NBN policy.
Senator CONROY: Are you denying that they—
CHAIR: Senators, we have 15 minutes left for questions.
Senator CONROY: I will take that as a yes. Now I want to come again to your deliberate secrecy in one of your answers. You are refusing to release design CI information, even though you have released build CI and Telstra remediation information. We revealed that information publicly. What is the problem with telling people when you have released a design CI?
Mr Adcock : The issue at the moment, Senator, is, as you know—
Senator CONROY: You are not releasing any; I appreciate that that is why you want to hide the fact.
Mr Adcock : I am sorry; that is not what I was about to say. What I am saying is that the way we do design now has changed. We are not releasing it to the original tier 1 contractors. I think that has well and truly been publicised. Where the previous model was for a design and construct, so a tier 1 contractor got a design contract instruction and then got a construction contract instruction, the design process now is somewhat different. The design rules being settled for MTM, as Mr Morrow was saying, are further making it less clear, at this point, what the design criteria are. To release information that we are not a hundred per cent sure is correct or will be delivered again runs the risk of setting back—
Senator CONROY: What are you talking about? You know when you release them. You know when you release the design CIs. It cannot be that you do not know when you release them.
Mr Adcock : No, I am saying that we do not have a problem with when we release the design briefs. Whether they are CIs these days or briefs is different. What I am saying is that, when the design goes on, what comes back from those designs may change. With the multitechnology mix overlay, we are currently doing designs to work out what the best technology is. To release information around design CIs at the moment, again, has the potential to lead people to false expectations. All we are trying to do is make sure that, when we release information—
Senator CONROY: What you are trying to do is to cover your proverbial. You just do not want people to know. Here is your answer: 'The design information requested is commercially sensitive as between NBN Co and its relevant contractual partners.' What could possibly be commercially sensitive? Just for the record, that contradicts your answer of a moment ago, where you said you do not want to mislead people, so get your answer straight. It is either one or the other.
Mr Adcock : There is—
Senator CONROY: What could be commercially sensitive about telling us the date you issue one of these? What could be remotely commercially sensitive about a date? Not how much; not even who to; just a date. This is your answer, not mine.
Mr Adcock : The date issue again, for me, is that it gives the impression that a design has been released and that there is an imminent build, which again is an issue for us. The 'commercially sensitive' would arise from the fact that the contracting partner that would be constructing that may be led to believe that it is imminent, whereas, as I said, in the design piece that we are doing the moment, the uncertainty at this point in time about what the MTM rules are means that, when we do release an area, a SAM or, as you say, whatever the geographical unit is, there is no guarantee that we will proceed.
Mr Morrow : Senator, could you offer, perhaps, why you feel this needs to be public or what use it would have?
Senator CONROY: I do not know why it is being withheld. For an organisation that says it wants to operate transparently, you were refusing to release information the previous government released regularly—all the time, in fact; it is on the websites.
Mr Morrow : If it is transparency, we could release what time everybody gets in to the office in the morning—
Senator CONROY: You will not tell people what people are paid, you will not tell people the value of the contracts you are issuing, you will not tell people when you are going to roll it out, you will not tell people you have even issued designs. Shall I go on, on the lack of information that was freely available under the previous government but is not available under your watch, Mr Morrow? These are not decisions that you can blame on other people anymore. You are the one who could choose—sitting here right now, as I have said to you before—to release this information. You are forcing 17-year-old kids to FOI you to get the information, and you will lose these cases, ultimately. Yes, you have got a bigger chequebook than most people out there, but it is an abuse of taxpayers' money for you to be engaged in these cases, and you will not supply this information to the parliament.
Mr Morrow : But again, if you can explain what you feel the public needs this information for, perhaps we can find a solution to be able to meet those needs and still have a sense of reason in terms of—
Senator CONROY: The public has a right to know how you are spending its money. It is not for you to decide when you are going to tell it. You have signed the contracts, you have issued these things, which means it is a contract. And you are saying, 'I'm not telling anyone. I'm not telling you the value.' It is unacceptable. It does not meet the 'we are willing to be transparent' axiom.
I have left it sitting up there deliberately, to demonstrate to you that you are utterly unaccountable for the conduct of your company at the moment. You refuse to release any targets, anything whatsoever to do with an independent judgement that could be made of your performance.
Mr Morrow : I would disagree with that. The board is constantly reviewing a lot of numerate components about the performance of NBN; they are highly engaged in ensuring that the taxpayers' money is being looked after—
Senator CONROY: Parliament is the oversight for this board, and of you. We do not have to worry what your board decide. Just because you can say, 'My board is looking at this all the time, making sure we are doing it properly'—we oversight the board. And we do not call the board here; we call you here. So we are entitled to ask these questions. I have detailed a whole heap information and left it up there deliberately, to continue to try and shame you into actually doing your job.
Mr Adcock : I was just going to say, on one of your points Senator, Mr Morrow and Dr Switkowski have always said the remuneration information is available in the annual report—
Senator CONROY: Let's not have this argument again.
Mr Adcock : It is available. It is in the annual report.
Senator CONROY: It is well hidden and disguised.
CHAIR: We are familiar with that. Senator Smith has one or two questions.
Senator CONROY: I was just going to wrap up if you want to let me wrap up? Then I am finished.
Senator SMITH: If you are prepared to stay here while I ask my—
Senator CONROY: No, I would not pull the cord on anyone! I do not play those games, thanks. I just wanted to, as I usually do, thank all of those who have been listening intently and passing comment. And as I did indicate to Sir Ironpie, I will put your questions on notice and see if we can get you some answers. UTC, Glenhope and Sir Xenocaust—Dazed and Confused is listening. He or she is very keen. They are keen to meet you when you next wander the streets of Umina. Sir Tailgator, tompa, Scottatron, RockyMarciano, and, despite promises that he would not stick his head in because he was studying, Jxeeno did; as have many others. So thank you to all of you who have been following, and we will keep chasing up the questions that you have asked.
CHAIR: Thank you Senator Conroy. Senator Smith.
Senator SMITH: Senator Conroy, you have asserted that BGC wrote—
Senator CONROY: BCG.
Senator SMITH: that is right, wrote the coalition's policy. They did not, and I understand that they have publicly said that. More than that, they worked extensively for the former government under your stewardship when you were minister, and I invite you to correct the record.
Senator CONROY: I stand by my statements.
Senator SMITH: Secondly, Senator Conroy, you allege that the British government was making some arrangements around the copper network.
Senator CONROY: No I did not. I said they put out a paper discussing it.
Senator SMITH: I am not so sure that is true. Can you present that to us?
Senator CONROY: Yes, I am happy to table it.
Senator SMITH: Great, excellent. Thank you.
Mr Adcock : Can I close out some things, rather than have them on notice?
Senator CONROY: How are Millers Point and all those going? Did you complete your target?
Mr Adcock : Can I confirm that the fibre count in Melton 10 was three.
Senator CONROY: Sorry?
Mr Adcock : The fibre count in Melton 10 was three—that was an earlier question of yours—three fibres per premise.
Senator CONROY: Yes, I knew it was. I was being rhetorical. The company rejected doing it.
Mr Adcock : On the question of whether we met our targets, I can go through all of them. 2 Albert Road, South Melbourne, was scheduled for 24 October. I understand that it is now 30 September, so that would be next Tuesday. 18 Albert Road, South Melbourne, was ready for service on 24 September. I think that was the one you asked about. 88 Park Street, South Melbourne, is scheduled for 24 October. 25 Connor Street, Fortitude Valley, was RFS'd on 24 September. 1 Gray Street, New Farm, was done on 24 September. 743 George Street, Haymarket, was RFS'd on 24 September. 93-105 Quay Street, Haymarket, was done on 24 September. 168 Kent Street is scheduled for 24 October. 127 King Street was RFS'd on 24 September. 161 Kent Street was RFS'd on 24 September. 183 Kent Street was RFS'd on the 24 September.
Senator CONROY: Just so we are clear and everyone listening understands: you have done fibre to the premise in those?
Mr Adcock : Yes, sir.
Senator CONROY: As in fibre to the apartment?
Mr Adcock : Fibre to the premise, yes.
Senator CONROY: From recollection, you may have started that process in April. That was when that statement was made. You may have been working on it before then. I am just trying to work out when you started. It seems you have completed that pretty quickly, which is very impressive. I was going to congratulate you.
Mr Adcock : Thank you, Senator.
Senator CONROY: Could I confirm when you started the planning and design of those? I am happy for you to take that on notice.
Mr Adcock : I tried to close it out. I will take it on notice.
Senator CONROY: He was going to answer a few more questions.
Mr Adcock : If they are on notice, I will come back to you.
Senator CONROY: Does 28 February still stand as the official date? You have not been able to get anyone to unconfirm that?
Mr Adcock : I will take it on notice.
Senator CONROY: You are confirming it?
Mr Morrow : It is on our desk. We will provide that answer.
CHAIR: I would like to thank Mr Adcock, Mr Morrow and Mr Rue for appearing today on behalf of NBN Co, and the senators who attended. I would like to thank the secretariat and Hansard as well.
Committee adjourned at 15:57