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Environment and Communications Legislation Committee - 14/02/2012 - Estimates - BROADBAND, COMMUNICATIONS AND THE DIGITAL ECONOMY PORTFOLIO - Special Broadcasting Service Corporation

Special Broadcasting Service Corporation

[17:31]

CHAIR: Welcome. Mr Ebeid, do you have an opening statement?

Mr Ebeid : Yes, I do. Since the last Senate estimates, I thought I would update you on three key things that have happened. We have had a terrific start to the year with the success of Once upon a time in Cabramatta, which aired in January. It was a three-part documentary series that charted the course and the struggles of the Australian-Vietnamese community through their experiences in the western Sydney suburb. Community members offered touching and heartfelt accounts of the events that shaped their lives and their families. Of course, as you know the Cabramatta community has endured much hardship over that time and it was certainly the backdrop of Australia's only political assassination.

We had terrific results both on TV, with almost two million viewers over the three episodes, and online. Also, our community outreach program, which we did through the Lunar New Year, really extended both the reach and the impact of the program. What was involved was the community members were able to record their stories and memories about Cabramatta, which has been collated to become a permanent resource, not only for the community, of course, but for generations to follow. The series was a true cross-platform effort for SBS across television, radio and online. It really shows that SBS is excelling. It is starting to think beyond traditional platforms to deliver audiences compelling content using our new technology. It has also been a great example of how SBS has been able to use traditional forms such as documentaries to tell compelling and charter based content that resonates with the mass audience. That has been terrific for us as well. It builds on our considerable success with things like Go back to where you came from, which was very successful for us late last year. The Vietnamese community has been overwhelmingly positive with the program. In fact, SBS will be presented with a plaque by the New South Wales chapter of the Vietnamese community to mark their appreciation. It is this sort of appreciation from the community that keeps our staff very passionate and motivated to do more of this sort of thing.

The second thing I was going to highlight was around our World News Australia. We have updated our World News set, which has been terrific for us. At the same time we launched our new fully automated studio for news operations, which will start to give us some operational efficiencies in the following years. The new news set and the new format and the automatic studio were launched last Monday. We are pleased to say it has gone off without technical glitches, which is normally the case when you do things like this. It is going to allow us a lot of interactivity for our news bulletins and it will open up new and exciting things for us, particularly with new and large news stories and events. It is an ambitious project and we are very pleased with it to date.

The last thing I would update you on is that, late last year, SBS also launched a new mobile app for our radio audience. It is called the Your Language app. It allows our radio audience to get their language program at a time that suits them—very much on demand on the mobile phone. They can also get previous programs that they may have missed. It is truly on demand. It is a modern incarnation, if you like, of our radio services that we started some 35 years ago. I think it will also give us a great platform to be able to provide new language services for communities that we do not currently serve should funding become available so that we can expand this important initiative for more language groups. Those are the three key things I thought I would update you on.

CHAIR: As you are probably aware, there has been a lot of controversy around the drama The Promise. Obviously there is a fair bit of interest here but I do not want to have the whole of estimates dealing with The Promise, so can you just give the committee your view on the controversy arising over that drama.

Mr Ebeid : We are certainly aware that any program that we have, whether a documentary or a drama, as this was, that concerns Israel and Palestine certainly has the potential to cause a lot of controversy, as this program did. I want to firstly emphasise that it was a drama. It was not and has never been purported to be a factual or documentary program. It is a work of fiction that really presents the filmmaker's perspectives on some historical events through the eyes of fictional characters. As a consequence, the program was reviewed thoroughly by our acquisitions team and it was then referred to me to allow me to view it before it went to air. I might add that it was not referred to me because of any concern about us breaching our codes. It was simply referred to me because it was going to cause controversy and all controversial programs are referred to me.

The filmmaker's key objective in making this drama was to tell the story of the British soldiers who were there during the British mandate period in the late forties. The soldiers there believed that their story was untold. The filmmaker was prompted to do this based on a letter that was sent to him from some of the British soldiers saying their story had not been told. The project spent nine years conducting a lot of research into historical events and interviewed over 80 British soldiers who were there at the time of the British mandate.

As anticipated, the program did cause some controversy here in Australia, as it did in the UK. In a response to that controversy, after the first episode we had several discussions with some of the Jewish community affairs groups in both Sydney and Melbourne. In response to that, we tried to make sure that all of our audience members were well aware that it was a drama and so we placed a statement at the beginning of the following three episodes—it was a four-part show—to remind audiences that this was a work of fiction and a drama.

SBS did have a number of complaints. Some were before the program even aired but most were during and after the program. They went through our normal complaints review process. They went to our SBS ombudsman, who is an independent ombudsman at SBS, and then went to our complaints committee. That long-established process, which has been very successful process, concluded that, while the program clearly did take a point of view, it was not in any way racist and did not negatively stereotype any race or group.

I would remind the committee that SBS programming can be controversial and at times provocative and may at times be distasteful or offensive to some viewers. Not all viewpoints presented by SBS—or any broadcaster, for that matter—will be shared by all audiences. I guess that is the nature of television. But I think SBS definitely has a role to play in presenting difficult or controversial perspectives and showing different perspectives on these controversial issues.

All the complainants that we responded to were advised at the end of their letter that if there were any issues or they were not happy and wished to appeal the matter they would go through the normal course of events. In the formal process the next step would be to go to ACMA and they are obviously welcome to do that.

CHAIR: There was a similar controversy in the UK when it was aired there, wasn't there?

Mr Ebeid : There was. There was a very similar controversy. Their regulator, Ofcom, had about 43 complaints. Ofcom ruled that none of the 43 complaints could be upheld at all. They made a very similar finding to our committee's conclusions, which was that it was not racist in any way and did not negatively stereotype any group.

CHAIR: I enjoyed the program. I thank SBS for sending copies of the program. Because of parliamentary commitments I had not seen it. I have now managed to see it. I knew there was going to be a controversy. I enjoyed it. It has had some critical acclaim, hasn't it?

Mr Ebeid : It certainly has. It has received many awards around the world. Our film editors here in Australia and in the UK have written it up. The Sydney Morning Herald said that it was the drama of the year and that it was a beautifully filmed and shot drama, with very complex characters. That also makes it controversial. The characters are very complex. And the storyline is very complex and interwoven as well. So it is certainly not a light drama.

Senator RYAN: Mr Ebeid, do you sit on the complaints committee that reviewed this?

Mr Ebeid : Yes, I do.

Senator RYAN: You are not asserting that works of fiction cannot reinforce stereotypes here, are you?

Mr Ebeid : Sorry?

Senator RYAN: You are not asserting that works of fiction or drama cannot serve to reinforce stereotypes in a negative way, are you?

Mr Ebeid : No, I am not.

Senator RYAN: Because some of the biggest slanders in history have been works of fiction. The overwhelming majority of depictions of Jewish people in this, to use some examples, were of Jewish children throwing rocks at Arab children and soldiers standing by and doing nothing. The conflict in the occupied territories has been an issue that makes context very important. You have scenes of Jewish women settlers in Hebron—at least in the translation offered in the movie—calling Arab women 'whores'. Again, it is a contextual issue that reinforces negative media portrayals. In the historical part you have the clearing of Arab civilians, portraying Jews as the aggressors with a lack of context about what happened in that period. I understand what you are saying with respect to the voices of the soldiers, but that, again, does not remove the importance of context. The portrayal in the movie of Jewish aggression through heavy mortars and the explanation, with words like 'fleeing the Jewish army', will serve to reinforce negative stereotypes that are a hot issue today. The fact that you might have a small portrayal of other Jewish groups does not negate that the overwhelming majority of the portrayals in this portrayed Jews and Israelis in a negative way and Arabs as their victims. Do you not consider the context and what we read everywhere else today as important in considering whether or not this reinforces negative stereotypes?

Mr Ebeid : You have gone through some selected scenes, and we certainly do not have time to go through all the scenes of an eight-hour production. There is no doubting that they were in that program, but that is one view of it. There are other views; there are other scenes. I am not for a minute suggesting that the drama tried to be balanced. I do not think that drama is meant to be balanced. Certainly it does take a point of view. That is one thing that the complaints committee did say—that it takes a point of view. But when it comes to the issue you outlined of negative stereotyping, we do not believe it did, no.

Senator RYAN: Given the sensitivity of this issue and given that you are called on to make sensitive judgments in areas for community groups who due to the ebb and flow of political debate and international events may be subject to greater stereotyping at certain times or others I do not think you would challenge that the overwhelming majority of portrayals of Jews and Israelis was in a negative light.

Mr Ebeid : I think overall, yes, there was a negative view of it. But negative stereotyping is a very different thing and we do not think it did, no.

Senator RYAN: The overwhelming majority of the portrayals of Jews and Israelis are through incidents like that. And I appreciate I have taken selections out of a seven-hour production.

Mr Ebeid : Sure, yes.

Senator RYAN: The letter from SBS to Mr Wertheim does concede that people are more likely to be sympathetic to the Palestinian cause than the Israeli cause at the end. If the overwhelming majority of portrayals of events is of instances like that, which are the subject of news reports and other complaints to your news service and other news services at intermittent times, if that is not reinforcing a negative stereotype, what is?

Mr Ebeid : It was trying to give a perspective of the British soldiers who were there. I certainly do not want to defend the program from the scene-by-scene perspective. I am here to defend our processes that we go through to make sure that a program is okay, that it does not breach our codes. The scenes that you talk about are all part of the perspectives from those British soldiers.

Senator RYAN: Not the first one.

CHAIR: Senator Ryan, allow Mr Ebeid to finish. Then I will come back to you.

Mr Ebeid : I was just going to say that there are certainly very different viewpoints of this very controversial program. I have certainly had many representations from many members of the Australian Jewish community who think that it was a very fair and legitimate portrayal of events seen through British soldiers. It would be incorrect to say that it has offended the whole Jewish community as some letters have said. That is a very incorrect statement.

Senator RYAN: I am not alleging that.

Mr Ebeid : As I said at the outset, any program that involves Israel and Palestine is going to cause controversy. Over an eight-hour program there were many different scenes and many things that the Palestinian characters in the program did that also were not flattering.

Senator RYAN: But the first two examples I mentioned were from the modern-day part of the drama. They are Jewish children throwing rocks—quite large ones, so not a playful incident—at Arab children and Israeli soldiers standing by, watching; and then the quite intense scenes between the Arab and Israeli Jewish women in Hebron. They have nothing to do with the British soldiers, and they portray in a negative way very contentious images that are in the news every day now. I put to you that they do represent a negative portrayal of Jewish Israelis.

Mr Ebeid : I think in a drama like this that is part of the dramatic effect that the filmmaker was trying to make. There are lots of different movies where you could pick on all sorts of different nationalities or races where things like that would occur. That is a normal part of the dramatisation of a film.

Senator RYAN: The point I am trying to make is that here we have, overall through the six or seven hours, Jewish people being portrayed as bloodthirsty, double agents, relatively well off compared to the Arab people in both the historic and current-day section—

Mr Ebeid : I might answer that one because I would certainly disagree. There was one family in the entire program that was moderately comfortable. I have seen some of the criticism where they talk about the fact that we are portraying all Israelis as wealthy. I think that is a big leap of faith.

Senator RYAN: I did not say that. I said 'relatively well off'. I am very conscious of that fact. I am not using the one family but others as well.

Mr Ebeid : There was only one family involved.

Senator RYAN: Has SBS produced copies of The Promise for sale?

Mr Ebeid : Absolutely.

Senator RYAN: When were these produced? When was the contract entered into? I am happy for you to take this on notice.

Mr Ebeid : I do not know for a fact, but I imagine it would have been soon after we took delivery of the finished tape.

Senator RYAN: If this complaint had been upheld, would those have been withdrawn from sale?

Mr Ebeid : Yes.

Senator RYAN: What cost would SBS have incurred if that had occurred and you had to withdraw these from sale?

Mr Ebeid : We did not go into production until we had had our complaints review committee.

Senator RYAN: Which was last month.

Mr Ebeid : I think it was mid-to-late January.

Senator RYAN: Last month. So you did not go into production before then?

Mr Ebeid : No, and they were not for sale until after the complaints review committee. We did intentionally wait for the complaints review committee to have its findings. The DVDs went into production after that.

Senator RYAN: On notice, can you give us the number of phone calls, emails and complaints you did receive? It does not necessarily have to be formally, but you may keep a record of that.

Mr Ebeid : We do keep all those records. I am happy to provide that to you.

Senator RYAN: Thank you.

Senator KROGER: Did SBS finance the production of the show or any part of it in the UK?

Mr Ebeid : We did not finance it. We did a presale arrangement which allows us to purchase a program a little bit cheaper. That means we have no editorial control, influence or input at all in the program. But we did obviously finance it through our licensing deal to acquire the program for broadcast.

Senator KROGER: When you say you had a presale arrangement, what is that based on?

Mr Ebeid : It is usually X thousand dollars per hour of production, and there would be a cost on the total value of the production. We would have paid very roughly in the average figure of what we pay for a normal hour of that sort of drama.

Senator KROGER: And how much was the production?

Mr Meagher : We will have to take that on notice.

Mr Ebeid : Yes. I probably would say that that is also commercial in confidence because we would not talk about what we pay for any of our productions in an environment like this, but we might be able to give that to you.

Senator KROGER: If you can, that would be good. How would it compare to other productions—other series?

Mr Ebeid : In terms of cost?

Senator KROGER: Yes.

Mr Ebeid : I checked. It was right in the middle as an average hourly cost. We are talking thousands, not tens of thousands. We are not talking a lot of money.

Senator KROGER: Since I am not involved in the media industry, could you give me an example of another production of a series that it would equate to?

Mr Ebeid : Most dramas—say a two-hour drama—might go for anywhere between about $8,000 and $20,000 for an acquired piece of content.

Senator KROGER: Okay. You mentioned to Senator Ryan that you have produced DVDs of the series. How many DVDs have you actually produced to date?

Mr Ebeid : That I could not tell you.

Senator KROGER: Could you take that on notice?

Mr Ebeid : I can make a note of the numbers, yes.

Senator KROGER: And I presume, then, if you organise the production of DVDs you have an estimated forecast of what profits you will make from that.

Mr Ebeid : Yes, there probably would be.

Senator KROGER: Can you provide us with that?

Mr Ebeid : Sure.

Senator KROGER: So you have no idea how many DVDs you expect to sell?

Mr Ebeid : I honestly have no idea. I have not asked that question. We do sell a lot of DVDs a year.

Senator KROGER: I appreciate that; but, given the sensitivity of this particular production, I think it is pertinent.

Mr Ebeid : I am happy to get you the figures. Might I also add, while we are on the DVD, that the DVD is widely available around the world, including on Amazon, so it is available from many other sources as well.

Senator KROGER: What is the selection criteria for purchasing a series such as this?

Mr Ebeid : First and foremost is quality. Quality is very high; and, indeed, this production was acclaimed as one of the best produced and highest quality dramas. When we go through a lot of our dramas—particularly with SBS, where we try to do a lot of foreign film as well—we try to get a balance from different parts of the world, different topics and different issues, and our acquisitions team would try to keep a balance of a lot of those genres.

Senator KROGER: When you talk about quality, are you talking about quality of the production itself?

Mr Ebeid : Yes.

Senator KROGER: Quality of the content?

Mr Ebeid : Yes.

Senator KROGER: What other aspects are taken into account there?

Mr Meagher : I think one of the things would be the script and the stories, which obviously goes to what Mr Ebeid is saying. One of the things about this story is that it is a very complex and nuanced drama driven very strongly by characters, which is part of the reason why we would say it does not fall into the stereotyping area. The characters themselves, whether they are the Jewish characters, the British or the Palestinians, are actually quite complicated individuals in difficult circumstances responding in different ways. I think that level of dramatic interest and scripting is very important.

Senator KROGER: So the controversial element of the story was critical to the decision-making process and purchasing it?

Mr Ebeid : Certainly when they purchased the program, which would have been about 18 months ago, that was a key consideration. When I spoke to our acquisitions team they were quite interested in the controversial nature of the program. It was telling a different perspective on a difficult issue, and they felt that it was important to get—as we often try to do with all sorts of subjects—a different perspective on what might be mainstream.

Senator KROGER: You can see why there is the number of people who wish to ask questions on the level of concern about this production. I will follow up with just a couple more comments, then. Firstly, when you are assessing the quality of content and quality of script that you were referring to and it is a subject based on a particular take on history, do you engage historical experts to give you input into assessing that quality?

Mr Ebeid : Certainly not for a drama, but for a documentary we might consult some. I would say, on average, probably not.

Senator KROGER: Given the controversial nature of the content of this, did you consider consulting any of the community group stakeholders and getting their feedback on it before it went to air?

Mr Ebeid : No. We would not normally do that.

Senator KROGER: You never do that?

Mr Ebeid : No, we would never do that.

Senator KROGER: Final question, then, though I will put some questions on notice. Given that, to put it in your words, it was a production that went to air that was very controversial, would you make the same decision today if you had the hindsight that we have today?

Mr Ebeid : The production was purchased before I became managing director, so I was not part of that decision-making process, but would I make the same decision? I probably would, yes. There is a very good reason for that: we went through our codes and made sure that it was not racist and that it was not negatively stereotyping. We know that that was the very similar conclusion that Ofcom in the UK found as well, and that was also part of our thinking before we broadcast it.

Senator KROGER: Thanks.

Senator LUDLAM: I am going to change the subject and put some questions to you about the running of the station, in particular your financial position. Are you familiar with the SaveOurSBS group?

Mr Ebeid : Yes, I am. I have met with them a couple of times since I have been in the position.

Senator LUDLAM: Okay. They put up a budget submission which they have sent to the Minister for Finance and Deregulation dated 19 December 2011. It runs a graph of growth in your advertising revenue from financial year 2002-02 to 2010-11 which shows it effectively falling off a cliff and going into negative territory 2009-10 to 2010-11. Are you familiar with what I am talking about?

Mr Ebeid : I am sorry; I am not. I have not seen that graph or their actual submission either.

Senator LUDLAM: All right. I will point you to it. It is worth a look. It is very detailed.

Mr Ebeid : Are you saying that the advertising revenue is falling off a cliff?

Senator LUDLAM: Yes—and the growth. It is a graph of growth of advertising and sponsorship and shows that you are falling into negative territory. Is that your experience from running the station? Are you concerned about what has happened to your advertising revenue? We have touched on this briefly before. Where is it going in the next couple years?

Mr Ebeid : Yes, I am concerned about our advertising revenue. It has been declining. For the first time in our history, this year we will be doing about $5 million less than last year. If I were to look at our forecast, compared to 12 months ago, this current year we are down about $16 million from where we thought we would be on advertising revenue. We are in a greater negative growth than the average for the industry. We are down about 13 per cent, and I think the industry on average is around minus three from my understanding.

Senator LUDLAM: Last time we spoke we talked a bit about the reasoning behind that, and you expressed a couple of factors that you thought were contributing, particularly around digital multichanneling and other stations bidding up the price of content. The price of advertising is also falling because there is so much more air time to fill. I want to run over that ground again but, more, what does this do to the finances of the station? Are you running at a deficit? What do you think is the solution?

Mr Ebeid : We ran the organisation at a deficit last year, and I would expect that this year will probably be at a similar level—maybe a little bit worse. We have been trying really hard to live within our budgets and balance our budgets. We have had to make some very tough decisions. Most recently, over the Christmas period we had to put about 15 of our language groups into recess to try to save a little bit of money. Many radio stations do that over a summer period, but it was the first time in SBS's history that we have had to do that. That was one thing. Services have been decreasing on that front.

We have also been looking for efficiencies internally. One of the things that is affecting our TV schedule at the moment is an increase in our repeat levels because we are not purchasing as much fresh new content as we would like. Our repeat levels are up as well.

Senator LUDLAM: I worry about the station going into something of a death spiral in the sense that falling advertising revenues mean you have to put more repeats on, quality of new production decreases, that drives people away to watch something else and you end up in a vicious circle. So where is the station going?

Mr Ebeid : I share your concern; however, I am confident that we are working at the moment with the government and with our department on next year's budgets. All that is being discussed at the moment, and certainly the minister is well aware of the situation we are in.

Senator LUDLAM: Actually, he is studiously ignoring our conversation.

Mr Ebeid : I am sure he is sending messages to get the money for us!

CHAIR: That's optimism at work! That is good.

Senator LUDLAM: We can fix this live at estimates!

Mr Ebeid : But we are in the middle of budget discussions at the moment, which does make it a little bit difficult for me to talk about it. I think the issues that we are facing at SBS are well understood by the government and the department, and we are working through that at the moment as part of our normal budget cycle.

Senator LUDLAM: Okay. What can you tell us about a proposal—I do not know if it is overdoing it to call it a 'proposal', so perhaps 'negotiations'—for a tie-up between SBS and NITV? Can we drag that out of the domain of rumour? Is that happening or in the works?

Mr Ebeid : We talked about that at the last Senate estimates. The government had requested that SBS and NITV go into conversations together with our department. We have been doing that. We have been working diligently to understand how we might be able to launch a new free-to-air Indigenous service on the budgets that are being discussed at the moment. I am confident that we will be able to reach a good agreement on that, and we are working with the minister and the department to make that happen at the back half of this year.

Senator LUDLAM: Are you in a position to hitch another wagon to SBS? I think it would potentially be a good move; you get economies of scale—

Mr Ebeid : I think it would be very exciting for SBS if we could do it.

Senator LUDLAM: but, given the rather distressed state of your finances that we have just been discussing, how do you propose to take on another commitment like that?

Mr Ebeid : That is why it is all part of the budget discussions that we are having at the moment. Yes, I would be concerned if we were just taking on a new service like that, particularly on the same budget dollars that NITV currently have without some additional funding for SBS. We are working through that at the moment.

Senator LUDLAM: All right. I wish you well in your search for proper government funding.

Mr Ebeid : Thank you.

Senator LUDLAM: I hope the response to the minister's text messages is positive.

Senator FIFIELD: I have some questions about captioning, but before I do I have two other quick ones. Minister?

Senator Conroy: Yup?

Senator FIFIELD: I wonder if you have yet received your charter letter from the Prime Minister for your role as the Minister for Broadband, Communications and the Digital Economy.

Senator Conroy: I will double-check and get back to you.

Senator FIFIELD: I do not believe that you would not know if you had not received your charter letter.

Senator Conroy: I will follow up and get back to you.

Senator FIFIELD: That is extraordinary. We found out that the Minister for Social Inclusion had not received his. He probably needs his since he did not know what his portfolio was, but do you seriously expect this committee to believe that you do not know if you have received your charter letter?

Senator Conroy: I know what I am doing.

CHAIR: And doing a good job.

Senator Conroy: Thank you!

Senator FIFIELD: With all due respect, we will be the judge of that.

Senator Conroy: No, you will not. The Australian public will ultimately be the judge of that, not you.

Senator FIFIELD: In this forum we will be the judge of that.

Senator Conroy: Not even in this forum will you be the judge of that.

Senator FIFIELD: We do not have the final verdict. But anyway. It is extraordinary that you do not know if you have received your charter letter. And saying 'yup' when a senator at this committee is trying to get your attention I do not think is adequate.

Senator Conroy: Tough!

Senator FIFIELD: Hubris, Minister.

Senator Conroy: I do not know whether it is hubris; it is the arrogance of you thinking you are the most important person in the world. Now, do you have a question?

Senator FIFIELD: Minister, I think that committees are important and the minister at the table should show some respect.

Senator Conroy: You do not have a question. Chair?

CHAIR: Order! Senator Fifield, you have the call.

Senator FIFIELD: Sorry to disturb you from whatever you were engrossed in, Minister. Mr Ebeid, I would like to follow up on questions about The Promise. Is it part of SBS's charter to do what it can to enhance community harmony?

Mr Ebeid : Absolutely. That is a key part of our charter. It is probably not part of our charter technically but it is certainly part of our purpose that we have in our organisation.

Senator FIFIELD: Would it be part of the SBS codes of practice?

Mr Meagher : It is not formally part of the codes of practice; I suppose it is expressed in a negative way. In the code it is more about what we will not do, et cetera.

Senator FIFIELD: Sure. Maybe this comes close. Section 1.6 says that SBS will not support any particular religion over any other—I am sure you do not do that—nor intentionally provide a medium for one religion to denigrate another. As this is a drama, I guess it could be construed that it was a dramatic depiction of one religion denigrating another. Do you think that The Promise possibly—

Mr Ebeid : No, I do not think it is about two religions. I think people who have taken that away from The Promise are actually missing the point of what it is about. That is not what the filmmaker set out to do. This is about the role of Britain during the process, and many people have said that if anyone comes out looking bad it is the British, it is not the Palestinians, it is not the Israelis, it is not the Jews. It is a very complex drama that has emotions flip-flopping during the eight hours and you do change your allegiances throughout the drama. That is why it is a very complex drama.

Senator FIFIELD: I did note in your answer to questions from Senator Ryan that you said that it is always the case when there are programs that cover the Jewish community or Israel or Palestine that there is controversy. You were not using that as some sort of justification for failure to examine the nature of a particular program.

Mr Ebeid : No, I was not inferring that at all. When our acquisitions team took the final product we went through it in detail. In fact, six different people reviewed it before it got to me. That is why I said in my opening remarks that The Promise was reviewed thoroughly. And I am very confident it was reviewed thoroughly from that perspective. We did take it quite seriously.

Senator FIFIELD: I would like to touch quickly on a captioning issue. A constituent of mine and of Senator Conroy has a wife with a hearing impairment. On 15 January SBS screened a documentary called Lost Worlds at 7:30 pm. Apparently, the captioning for the program was wrong—it was for another program. What procedures does SBS have in place to ensure that the captioning for those hours that SBS guarantees captioning—

CHAIR: They obviously do not tell the chief executive.

Senator FIFIELD: What steps do you take to make sure the captioning is appropriate? What steps do you take to make sure that the program is re-run and it does not happen again?

Mr Ebeid : Often some of the programs that we acquire come with the files for the captioning; they are usually purchased with the film. When it is our own program or news bulletin we have people internally to caption those programs we commission or produce in-house. For Lost Worlds I daresay it would have been part of the acquisition deal.

Mr Meagher : We can take that on notice and examine the particular program. Clearly, something has gone wrong in the system if they have the wrong captions.

Mr Ebeid : I suggest it may have been human error—someone putting the wrong file with the program. That is very possible, but I am happy to take that on notice.

Senator FIFIELD: Thank you. Could you also take on notice the incidence of captioning error over the last 12 months?

Mr Ebeid : Yes, it is certainly well recognised that we have had a few errors in the captioning process. We have had some technical difficulties. We are running with some quite old equipment as well. We are trying to update that equipment at the moment. So that is something we are well aware of. We need to invest some more money in that.

Senator FIFIELD: Thank you.

Senator BIRMINGHAM: I would like to touch on some of the issues that Senator Ludlam raised about budget matters and the pressure SBS is feeling. Does the organisation expect to run a deficit this year, and what are the implications for SBS of running a deficit in terms of your cash balances?

Mr Ebeid : Yes, we are expecting to run a deficit this year. From a cash perspective we will be able to manage that from our retained holdings from previous years. We are certainly not insolvent and we do have the cash.

Senator BIRMINGHAM: Indeed, I assumed that would be the case. In terms of your retained holdings, though, I imagine SBS would not be an organisation that would be carrying much from year to year.

Mr Ebeid : That is correct.

Senator BIRMINGHAM: So what will that do to those retained holdings and the balance going forward?

Mr Ebeid : It will certainly be deteriorating but next year I think we would have a bigger problem if we were to continue running at a deficit. We are okay for this year.

Senator BIRMINGHAM: So it is quite clear that you need either extra funding for next year or you will have to make cuts.

Mr Ebeid : Yes. It definitely goes without saying that we will need to look at our services next year if funding does not change.

Senator BIRMINGHAM: Some have suggested that radio services, which Senator Ludlam picked on, could be amongst the first targets of any need to tighten the belt. Is any work being done on what could be priorities? Has the board considered what may need to be sacrificed over the coming years, depending on budget outcomes?

Mr Ebeid : It is probably a little early. We have not put anything to the board on our budget cuts, if you like. We are working very hard at the moment with the government and with the department on increasing our funding for next year. We are not looking at a plan B, if you like, at the moment—at least in anything that has gone to the board. Certainly from the management perspective we are looking at things but it is way too early. We are just looking at what the options are at the moment.

Senator BIRMINGHAM: Are reports that the drama series Dusty has been cancelled accurate?

Mr Ebeid : Yes, that is true.

Senator BIRMINGHAM: There are cancellations or things that have not happened this year because of the tight budgetary situation. Are there other examples or issues that have seen programs or productions cancelled?

Mr Ebeid : Dusty was certainly the biggest of the productions that we have had to cancel. It was a large, full-scale drama that we decided we just could not afford at the moment. There are certainly lots of other smaller examples, particularly on the acquisition front, where we have had to let things go because we could not afford to purchase them or we have been outbid. But in terms of cancelling commissions, I am not aware of any commission other than Dusty that we have cancelled.

Senator BIRMINGHAM: That becomes a potentially vicious cycle in terms of your advertising revenue and forecasts. If you cannot make the purchases required, it is going to have an impact on future advertising.

Mr Ebeid : That is one of the difficulties that we are having at the moment with advertising revenue. Because we are running high repeats and not the sorts of programs that we would like to acquire on some nights, we do have nights weaker than we would like, and that is affecting our advertising revenue. Senator Ludlam was talking about the spiral. We are trying to stay above water on that at the moment.

Senator BIRMINGHAM: Is the board taking an approach to government of essentially trying to hold onto current services and improve those where possible or is there a broader vision, particularly in terms of the multichanneling opportunities that still sit there for SBS?

Mr Ebeid : We are certainly wanting very much to hold on to our existing services and if possible grow our existing services. We have been trying to grow many new services, as I outlined in my opening remarks—things like mobile apps for the radio services for our radio audiences et cetera—where we can leverage off technology and provide new and interesting ways for people to get our content on demand. That is where our focus is at the moment. That is where, I think, our audience expectations are—that we go into that space and we provide things online and on demand for them. We are not looking at reducing our services at the moment. Hopefully, we will not need to. Our finances this year are okay. We are not going to be reducing any further services other than the one I have outlined today.

CHAIR: Thank you. I hope tonight has helped the DVD sales for The Promise. The committee will suspend for dinner.

Proceedings suspended from 18 : 15 to 19 : 16

CHAIR: I now call officers from the Australian Communications and Media Authority. Mr Chapman, would you like to make an opening statement?

Mr Chapman : No, thank you. But I might introduce our staff. We have the deputy chair here, Richard Bean, and Mark Loney, who is the acting general manager—infrastructure. Our general manager, Maureen Cahill, is heading the Australian delegation in Geneva at the moment for the World Radiocommunication Conference, and we are getting some outstanding outcomes in Geneva. There is also Giles Tanner, whom you well know, Jennifer McNeill, Andree Wright; and Rebecca Burdon, our head economist.

CHAIR: You might be able to tell us about these outstanding outcomes during the course of the hearing.

Senator WILLIAMS: I have some questions on regional radio. I believe that the applicable number of hours are five minutes for racing in remote areas services licences, 30 minutes for small and section 40 licences and three hours for all other licences. Is that correct as far as local content goes in regional radio?

Ms McNeill : Yes.

Senator WILLIAMS: Do you get many complaints about a lack of localism on regional radio stations?

Ms McNeill : We do not.

Senator WILLIAMS: You do not? Good-oh. Do you get any complaints ever?

Ms McNeill : We have had complaints, and we have also conducted our own investigations and audit program to test the understanding of licensees of their obligations and to verify the self-reported compliance with the obligations.

Senator WILLIAMS: How would you investigate such complaints? Would you just go to the local radio station and check out how much localism they are broadcasting et cetera?

Ms McNeill : In the context of the audits that we have conducted we selected random days and asked for the broadcasts that were made during the periods in question and tested those for compliance with the local content obligation.

Senator WILLIAMS: How do you define localism? For example, if a station is networking out of a city station they run local adverts. Is that localism—the advertising time?

Ms McNeill : The advertising time would be local content—it could count towards local content.

Senator WILLIAMS: That counts as local content?

Ms McNeill : Yes.

Senator WILLIAMS: Let us say, for example, from six in the evening until midnight there are six hours networking from Sydney station and if they ran 30 minutes of local adverts that would be regarded as 30 minutes of localism?

Ms McNeill : Yes.

Senator WILLIAMS: The legislation that is proposed will mean operators of commercial radio stations in regional areas only have to abide by the localism rule for 47 of the 52 weeks. Is that correct?

Ms McNeill : Yes.

Senator WILLIAMS: That means that for five weeks a year—and that would generally be over the Christmas break I would imagine—they can take a relay program without having any local announcements, for example, funeral announcements or community information. Is that correct?

Ms McNeill : That might be possible. However, there would be a step which preceded that, namely, the ACMA would need to vary the local content condition to reflect the changes that are expected to the Broadcasting Services Act.

Senator WILLIAMS: So, if this legislation is passed, they will be allowed to do that for five weeks of the year and for only 47 weeks they will have to have the minimum three hours of local input a day?

Ms McNeill : Yes.

Senator WILLIAMS: Can you explain to me again what you said then about the five weeks they would not have to do it.

Ms McNeill : I was simply observing that the ACMA would need to change the terms of the licence condition which it created to reflect parliament's existing intention. So when the intentions change we will need to revise that licence condition.

Senator WILLIAMS: So, if the legislation is passed, you would notify the stations?

Ms McNeill : We would change the licence condition, yes.

Senator WILLIAMS: Do you believe this is serving the local community well? I live in a country town where, thank goodness, the local radio station is magnificent when there are floods or catastrophes and it covers local sport and everything.

CHAIR: Obviously not listening to 2GB then—that's good!

Senator WILLIAMS: Where is 2GB based?

CHAIR: They relay that to you guys.

Senator WILLIAMS: I shouldn't take the interjections of the chair, should I?

CHAIR: Sorry, Senator Williams.

Senator WILLIAMS: Minister, call him into line, please.

Senator Conroy: I will call in order!

Senator WILLIAMS: One of the problems we had over the Christmas break was to do with funeral announcements. We have a local paper two days a week, so people rely heavily on the morning funeral announcements to know when a funeral is being held. I know of one case where a lady died and her husband deliberately put the funeral off a week because he insisted on waiting until it could go over the radio station so people knew it was on. I think this is a problem if we are going to allow stations to go five weeks a year without any localism between adverts. Can you find any solution to that?

Ms McNeill : In general terms, whether that is appropriate or not is a matter for government. I might observe that simply because there is not an obligation to broadcast local content does not mean that licensees may not broadcast local content.

Senator WILLIAMS: Yes, exactly.

Ms McNeill : One might expect in the situation you have described that a licensee would wish to broadcast funeral announcements of that kind.

Senator WILLIAMS: Over the Christmas-New Year break my local commercial radio station virtually shut down for 10 days. There was no local weather, no rainfall or road information, no local race previews, no funeral announcements, no community announcements. If they are going to do as you suggest, many of the staff, the radio announcers and producers are actually on holidays over that break, so how would this problem be solved? Is it simply up to the owner-managers of the radio stations to call someone in to make those announcements that the community expects or needs? Would that be the only solution to this?

Ms McNeill : That would be one solution. The licensees under the current arrangement, where the obligation persists for 52 weeks a year, make some arrangement to continue the provision of local content to their audience. One might reasonably expect they would be in a position to continue to provide some local content, even if there was no strict obligation to do so.

Senator WILLIAMS: Yes. Minister, when will the legislation to reduce local content back to 47 weeks out of the 52 a year be coming forward?

Senator Conroy: We have provided a briefing to Mr Turnbull recently and we are in discussions with him. My general understanding from those who have been involved was that this was supported across the parties.

Senator WILLIAMS: I believe that is the case.

Senator Conroy: We are always happy to keep liaising to make sure we get it right.

Senator WILLIAMS: When this legislation is passed, and with support across the parties it will be, the best we can do is perhaps talk to our local management and ask if they can give that bit extra. It is about the only solution to bring those local news items to the public, I would imagine.

Ms McNeill : That would certainly be one option.

Senator BILYK: I would like to ask about Safer Internet Day, which was held on 7 February. What role did the ACMA play in the event and how does that link with your Cybersmart program?

Mr Chapman : I might ask Ms Wright to answer your question directly about Safer Internet Day because it was by any measure an outrageous success and it is building year to year. Ms Wright can tease out a little more the breadth of what we are doing as represented by Safer Internet Day.

Ms Wright : Thank you, Senator, for your interest in this area and for the leadership role you play as chair of the Joint Select Committee on Cyber-Safety.

CHAIR: You will definitely go places!

Ms Wright : I am pleased to speak about our participation in Safer Internet Day—

Senator BILYK: It is a very important issue.

Ms Wright : the successful annual and international event, and place it in the context of our range of cyberprogram initiatives. Safer Internet Day is now celebrated in over 70 countries worldwide and on every continent except Antarctica. It promotes safer and more responsible use of online technology and mobile phones, especially among children and young people across the world. Here in Australia our cybersmart program is the contact point and coordinate for all Australian Safer Internet Day activities.

The theme this year across the world was connecting generations and educating each other. I think we created a great suite of resources for cybersecurity Safer Internet Day for all age groups. We included videos, blogs, a poster, lesson plans and positive actions that everyone can take to learn more about the online world and stay safe.

We encouraged generations to talk to each other and share their experiences so that they could learn from one another. We know from our research that Australians spend an average of more than 35 million hours online per month and that older Australians have increased their time spent using the internet by 138 per cent in the past six years. So, keeping this in mind, we provided an online themed entry point for grandparents and we were directly targeting grandparents, which we have not done previously. We found, even in the week since Safer Internet Day, we have had an increase in inquiries and requests from grandparents and seniors for resources that are specific to them.

For younger people on the day we provided a range of live interactive activities, including Cybersmart Hero and Cybersmart Networking. We played these with schools across Australia and we were proud to welcome schools in remote areas as far away as Christmas Island—that was another first for us. As I said, Hero and Networking are part of our wider suite of live interactive, shared learning activities. Hero addresses the issue of cyberbullying and the responsibilities of those who are in the best position to influence cyberbullying—and that is the bystander. So that activity is targeted at students in the final year of primary school.

Cybersmart Networking is the newest addition to our shared learning activities and it teaches safe, social networking and addresses the risks that young people face when participating in this type of activity, and we target that at 12- to 14-year-olds.

We also featured online internet safety awareness presentations to schools in New South Wales, Victoria, South Australia and Queensland so, with those three strands of our programs alone, approximately 8,000 students directly participated in those live activities.

Other schools chose to mark the day by using our lesson plans or Tagged, which is our DVD resource for teenagers dealing with cyberbullying, sexting and digital reputation.

We also made some special online videos for Safer Internet Day, and these presented the perspectives of a teacher, a librarian and a family. These were complemented by a blog post for each one. Each participant had written that blog from their own perspective. Our Cybersmart—

CHAIR: This is a very, very lengthy response. The senator has got five minutes. You have run over by one minute already, and I am going to have to move on. So you may have to put the rest of your answer on—

Ms Wright : Thank you because we did so many things, so obviously it is more than we have time for today.

CHAIR: Congratulations.

Senator BILYK: Obviously, the day was a great success overall so that is important to know. I have got some other questions, so I will put them on notice but I know that other senators have questions.

Senator Conroy: You can table the rest of the answer for incorporation.

Senator BILYK: That would be good.

CHAIR: We have really got limited time.

Senator BIRMINGHAM: I will, firstly, ask about spectrum sales over the expected year or so that we are looking at. Just remind me in terms of the procedural matters as to ACMA's role in spectrum sales versus the department's and who takes responsibility where, I guess.

Mr Chapman : I will in part defer to Mr Tanner and Mr Loney as they have respective responsibilities for different parts of the answer to that question. The expiring spectrum licences will be either reissued or reallocated as a consequence of the minister's recent determinations. That is in the 1800 and other bands. In addition to that we have the digital dividend process, the 702.5 gigahertz, which we are on track to auction later this year. Maybe Mr Loney can address the first aspect of that and then I will ask Mr Tanner to talk about the digital dividend process.

Mr Loney : As you are probably aware, the minister made a determination about class of service and a pricing direction last week. Those instruments apply to a number of bands—the 800 megahertz, 1800 megahertz and two gigahertz bands—and also to the 2.3 and 3.4 gigahertz bands, which are used for broadband wireless access, and also to the 27 gigahertz band, which is used for satellite services. Now that those instruments have been made that puts the ACMA in a position where it can commence the process of reissuing spectrum licences to incumbent licensees, who meet the requirements set out in the class of service determination in relation to use of the spectrum to provide the services specified by the minister, and are prepared to pay the price specified by the minister, which in the direction is expressed in dollars per megahertz per population for the area of the licence.

There are procedurally a few steps to go through before licences are reissued. We have undertaken preparatory work and we have considered, on the basis of information available to us, whether licensees have used spectrum for spectrum licences, particularly in the 800 and 1800 megahertz band where the licences expire next year. We will be writing to spectrum licensees in the near future, setting out our preliminary view and inviting them to apply for the reissue of the spectrum licences should they wish to do so. At this point, given that it is a process of a number of steps where decisions have to be made in relation to each licence on the basis of the merits of the case and the information provided by the licensee, I think that sets out the process.

Senator BIRMINGHAM: If it is not being used then it goes to a different process and becomes more of an open auction process?

Mr Loney : There are actually a number of stages to this. The first stage is, if the use test is met then, in accordance with the ministerial determination and the willingness of the spectrum licensee to pay the price determined, the licence can be reissued. If the use test is not met, then it is open to the licensee to seek ACMA consideration of whether they will reissue under a special circumstances provision. A licensee could also seek reissue under that provision. If a licensee was unsuccessful both in demonstrating use and/or in convincing the ACMA had special circumstances existed, then the licence would move to a reallocation process, or be available for reallocation is probably a better way of putting it.

Senator BIRMINGHAM: Whether they are reissued or reallocated, is it the intention that all of these licences matters be completed over the course of the next financial year?

Mr Loney : No. The licences in the 800 megahertz band expire in the middle of next year, as does the first tranche or first round of 1,800 megahertz licences, and they are the licences that we will be addressing as a matter of priority. There is a second tranche of 1,800 megahertz licences that expire in 2015 and the other licences expire at later dates again, out to 2017. They will be dealt with as part of an ongoing work program to make sure that the licences are re-issued in good time, where they are able to be reissued, before expiring.

Senator BIRMINGHAM: Are they subject to the same ministerial price determination?

Mr Loney : The ministerial determination of direction of our price covers all the bands that I mentioned.

Senator BIRMINGHAM: Okay. Even those that will not actually be settled for some years into the future?

Mr Loney : Where the licences expire in 2017, yes. This provides clarity and certainty to industry as well as to the ACMA in terms of its forward work program for the next three to four years.

Senator BIRMINGHAM: And I assume that the determination sets some type of price adjustment, recognising that it is some years into the future in terms of the value or costs related to those parcels of spectrum?

Mr Loney : I am not sure—

Senator Conroy: We will take the money upfront.

Mr Loney : I am not sure what you mean by that question.

Senator Conroy: You have got the EPV around the wrong way; we take the money upfront.

Senator BIRMINGHAM: You take the money upfront—

Mr Loney : The direction expresses the reissue price in terms of dollars per megahertz for population for the licence area, and those numbers are set in the direction and apply to licences reissued in the different bands up until 31 December 2017 when the direction lapses. So the prices, in terms of the issue of taking the money upfront, is that it is a well-established practice of the ACMA not to issue a spectrum licence until it has been paid for the spectrum in full.

Senator BIRMINGHAM: But for the spectrum to be dealt with in 2017, that will not be realised in a budgetary sense or payment until 2017, I am assuming, or the year or two before that.

Senator Conroy: I think that the department might be able to give you more guidance on the actual timing of receipts, Senator Birmingham.

Senator BIRMINGHAM: Perhaps on notice, Mr Tanner can provide his part of the answer, thank you. I have a quick question in relation to the review of live hosted radio programs, that was undertaken a little while ago by the ACMA. Have the commercial radio codes been adjusted subsequent to that review to reflect the findings of the ACMA and the actions requested?

Mr Chapman : This is relating to live-hosted programs?

Senator BIRMINGHAM: That is right, the Live hosted entertainment radio programs: adequacy of community safeguards for the protection of participants, the review released January 2010.

Ms McNeill : The short answer to your question is yes, the codes have been modified following that review.

Senator BIRMINGHAM: And to the satisfaction of the ACMA in that they have reflected the recommendations of the review?

Ms McNeill : Again, the short answer is yes. The ACMA will only register a code if it forms a view that it contains appropriate safeguards. The changes that were made brought the radio code protections really into line with television code protections. But that being said, obviously we keep under constant consideration the adequacy of codes. We have not received any complaints to my knowledge about noncompliance with that particular code or complaints about issues that would suggest that the code provision was inappropriate at this stage.

Senator BIRMINGHAM: Thank you for that.

Senator McKENZIE: I was wondering about the government's response to the review into cybersafety. I want to run through a couple of issues.

Mr Chapman : Just before we get into that, you indicated 'the government's response'.

Senator McKENZIE: Yes.

Senator Conroy: They are an independent statutory authority.

Mr Chapman : We are an agency, so there might be some matters that we do not respond to, because—

Senator McKENZIE: Yes, you administer the Connect.ed?

Ms Wright : Yes.

Senator Conroy: It is an independent statutory authority—it is a phrasing issue—and therefore not the government. So when you say government cybersafety—it is phrasing.

Senator McKENZIE: Thank you for the clarification, Minister! I don't mind who answers: how much funding does the government currently allocate to the Connect.ed program?

Ms Wright : I cannot comment specifically in relation to Connect.ed because it is one of a suite of programs that we have. But I can tell you that it is one of a current range of initiatives of comprehensive information resources designed to meet the needs of children, parents, carers, teachers and library staff. It would include that amongst many other programs. In the year 2009-10 we received an additional $21 million over five years as part of the government's overall safety initiative.

Senator McKENZIE: And Connect.ed encapsulates one of many—?

Ms Wright : Yes.

Senator McKENZIE: Could you take it on notice to break that down—have a look at the budget line items?

What contact has ACMA had with DBCDE and the Department of Education, Employment and Workplace Relations with respect to working together around the Connect.ed program and other training programs to non-administration staff in Australian schools, such as librarians, which you mentioned earlier?

Ms Wright : We introduced Connect.ed because while our face-to-face presentations were very important to schools, we wanted to provide an online module for people to be able to access at any time and complete at their own speed. We were aware that there were a range of people associated with schools—and perhaps non-teaching staff—who would not necessarily be able to come to an outreach program. We also had those constituents in mind when we develop the program. I know you are interested in the cost of that. It is great value for money because you can provide a really terrific online module for people to complete in their own time and at their own pace quite cost effectively.

Senator McKENZIE: Who is responsible for the construction of the cybersmart.gov.au website?

Ms Wright : ACMA.

Senator McKENZIE: When we talk about the best information available that went into the construction of that, what sort of criteria was used to select that?

Ms Wright : The great thing about the site is that it does not stay static. We are continually leveraging our research into what Australians need so that they can stay safe and secure online and we are continually developing and updating our suite of programs to meet the things that Australians tell us would help them in that regard.

Senator McKENZIE: How do you find out what Australians are telling you?

Ms Wright : We commission research. We do qualitative research, including focus groups, and then we test that in a quantitative fashion to see if what the focus groups have told us holds true. When we are developing a program we test it at every stage of the development. When we have introduced the program we then retest to see if it is driving changes in behaviour.

To come back to your question about the website. We set up a website that would provide a gateway, if you like, for young children, for teens, for parents, and teachers and librarians. Probably about 8,000 teachers to date have completed face-to-face one-day training sessions. They can book training going through the teachers gateway, which is one of the front doors to that website.

Senator McKENZIE: And you have worked with the department around constructing that?

Ms Wright : Yes, all our programs are, to my knowledge, accredited by all state and territory educational bodies in Australia.

CHAIR: That concludes the questioning for ACMA. Thank you for coming along.

[19:46]

CHAIR: We will now move to program 1.3, Broadcasting and digital television.

Senator BIRMINGHAM: I would like to start with some questions around the digital television switchover. If I could start on perhaps the general front of households who currently receive an analog signal of some sort but do not seem to be able to pick up a digital signal and are in areas, in theory, where digital coverage is meant to be available—in metropolitan areas or the like—what is the ultimate solution for those households? How is the department working through those sorts of situations or cases?

Ms O'Loughlin : There are various areas around Australia where, because of the different propagation of the analog signal to the digital signal, there may be people finding it more difficult to get a digital signal. We often find that those people also probably suffered from quite bad analog signals as well. We have a broad range of advice available to the community either through our information line; our call centre, which is open seven days a week; or through our website, where people can actually go online, type in their home address and through the mySwitch program show them what sort of reception they should expect in their household.

Running alongside that information we have also made sure that we have put additional information on to that website to say whether or not there might be particular issues in the area. Sometimes there might be two or three transmitters that people can pick up signals from. Some of the people might be pointing their aerials to the wrong transmitter and need to re-point their antenna. We have seen quite a lot of examples across Australia where people have got very old antennas that they have not really done anything with for many years. So we provide a range of advice online and through our call centre to people to help them understand what might be happening in their area and also recommendations around endorsed antenna installers in the area that they may wish to call to get professional advice.

Ultimately, if a household cannot get a digital signal they may be eligible for the new Viewer Access Satellite Television Service which provides the 16 digital free-to-air channels plus a local news service and is available for those people who may be having a real difficulty in black spot areas in particular of getting digital signals in.

Senator BIRMINGHAM: Thank you, Ms O'Loughlin . I have a copy of correspondence received by Mrs Bishop from constituents from Mackerel Beach in New South Wales Mr and Mrs Mitchell. They claim to have been in touch with the department quite a bit and t hat they have received a lot of advice from the department . It does not appear to assist them. Where they are at Mackerel Beach, the signal appears to be blocked by the headland of the coastline. They do not claim to have received a perfect analog signal either over the years, so it does correspond with what you have been saying, but equally they have received an analog signal. You are saying that, in those instances, if it is not a matter of aerials and the equipment on their own home and they are not in an area where there are issues of self-help towers—or those separate issues we will come to shortly—in the end those isolated cases will just have to go on the VAST system.

Ms O'Loughlin : We think that is the best solution for them. Over the life of the digital switchover program the government put in place same coverage requirements in law for the broadcasters, so they were required to provide equivalent coverage to their analog signals from the digital signal. Where we do find these issues are with people who are probably right outside the margin of coverage of analog anyway. As you said, they will get a very marginal analog reception and they may not get digital at all. The broadcasters have put in a range of what we call gap fillers across the country, new transmission towers to achieve that equivalent coverage requirement. But, as has been the case with analog television, there will be places that because of the local dynamics—geography, terrain—where it will be very difficult for them to get a good reliable digital signal. That is where the government has funded the VAST service to provide a solution to those people.

Senator BIRMINGHAM: Do you have an overall number of how many people you expect will ultimately have to rely on VAST?

Ms O'Loughlin : No, we do not. Generally, there is the existing Aurora satellite service which services the remote central parts of the country. I think that has about 40,000 people on it. They will certainly transition to VAST. As you mentioned, people who were previously served by self-help transmitters which are not being upgraded will also go to VAST. What is very difficult for us to predict is, once all the new broadcast infrastructure goes in and is up and running, where the people are like the ones you have mentioned who are outside that coverage and their best solution is to go to VAST. So we do not have an overarching number. To date, we have installed around 9,000 VAST decoders through the SSS program. There have been about 50,000 people take up VAST.

Senator Conroy: They have taken it up themselves. They did not want to wait for the switchover. They wanted to get all the new channels right now rather than wait for the switchover period.

Ms O'Loughlin : I see 59,000 have already gone to VAST.

Senator BIRMINGHAM: That is 59,000 in total and 9,000 through the assistance program.

Ms O'Loughlin : Yes.

Senator BIRMINGHAM: And 50,000 who have done so of their—

Ms O'Loughlin : Of their own volition.

Senator BIRMINGHAM: Essentially, it is a case of you will know where the household problems are when they know they have a problem. Is that it?

Ms O'Loughlin : No, we do a lot of work when we go into a switchover area with the broadcasters and, as I mentioned, some of these areas are places that have had analog problems. There is a lot of information we get from the broadcasters before we go into the region. There is a lot of information that we can anticipate will be required by households in that area.

Senator Conroy: The digital signals have been going for 10 years, so people have a reasonable idea, if they have already installed set-top boxes, how good their reception is.

Ms O'Loughlin : We provide that information, where we know there are particular issues, on the website through the mySwitch facility. People can go on there and find out what sort of reception they should expect. If that says, for example, they should have very strong coverage and they are not getting good coverage, then it is likely to be something in the home rather than an issue with the broadcast transmission.

Senator BIRMINGHAM: Can we move to the issue of self-help towers and the transition there. Firstly, do you have to hand the headline figures of how many self-help towers you understand there are across Australia and how many of those will not be being replaced with a digital signal?

Ms O'Loughlin : I have a couple of figures. They may not completely answer your question, but they may at least give you a good indication. For example, in Queensland and New South Wales there were 15 Queensland councils and two New South Wales councils that applied to the ACMA for retransmission of their television services. Nine of those councils intend to use the VAST input to retransmission. The other towers will just do what is called an off-air fee: they will take a terrestrial signal and rebroadcast it. That is for that area.

Senator BIRMINGHAM: Those councils who are choosing to do that choose to do that to their own cost entirely, with no government assistance in that regard?

Ms O'Loughlin : That is right.

Senator BIRMINGHAM: But they are a saving to the government in that otherwise you would potentially see users seeking the subsidy through the VAST scheme.

Ms O'Loughlin : Those are areas that would have been entitled to the satellite subsidy scheme if the council had not upgraded to digital. That said—I do not have the figure for this with me—that is a minority of the councils across Queensland and New South Wales. For example, we have just gone into New South Wales, and every council has signed up for SSS. The two councils that I mentioned here are just converting an SBS service. So the councils in New South Wales have seen real benefit in the communities moving to VAST.

Senator BIRMINGHAM: In relation to South Australia, my home state, where the regional switch-over occurred ahead of Queensland, do you have data for how many towers may have been upgraded or not upgraded and residents who are expected to transfer over to VAST?

Ms O'Loughlin : I will have to take that on notice. With regard to South Australia, though, while we have done regional South Australia, we have just opened some of our schemes in remote South Australia, so I would note have the numbers for those. It is usually in those remote areas where the self-help towers are. I am happy to take it on notice and provide a figure for the regional part of it, but it may be that we will not have the figure on the remote part for some months yet.

Senator BIRMINGHAM: Okay. You have indicated that it is usually in the remote areas. I go to somewhere that is far from remote and has been the subject of correspondence from me to the minister, from the local community to the minister and from local councils to the minister. That is the town of Truro in South Australia. It is only about an hour north of Adelaide and has a self-help tower that retransmits the metropolitan signal for Truro because it is so close to Adelaide. I think they currently have around 300 premises there. That is expected to grow over the next few years. So it is a sizable base, but they are being told that there is no assistance available. The council is willing to commit to the upkeep costs of a new tower, including potentially the higher costs of having a digital tower compared with an analog tower. Why isn't there some level of flexibility for those types of townships and communities where an obvious solution would be to assist in the transition and upgrade of the self-help tower that may come at least at no more and possibly less cost than assisting the entire township to transition to a satellite service?

Ms O'Loughlin : This is an issue that we have discussed quite often in this environment and also extensively directly with councils. The government's clear intent with the VAST service was that it provide a robust and future-proof solution for people who live in these areas that have been serviced by self-help towers quite often previously funded by this government and previous governments. That is the long-term solution for these communities rather than them having to pay through their rates to their councils the upgrade of the transmission tower. The other thing we were concerned about with the switch-over process is to provide to all communities across Australia a consistent delivery of the 16 channels at a quality which is equal to either a terrestrial signal in a main area or the satellite service, and the satellite service really provides that solution for those communities. We are also mindful of the fact that you mentioned there were 300 households. That would probably not generate sufficient amounts out of the SSS for that tower to be upgraded and maintained by the council, so they would have to take on that investment themselves. There are also future technology trains coming down the track: things like the restack process that we need to undertake post switch-over and which councils would again have to be responsible for.

So with councils we have tried to outline the complexity of what they would be taking on. They would have to retransmit the VAST signal, and that is much more difficult than retransmitting, as you mentioned, a metropolitan feed. They are the background reasons for why the government has taken the approach that SSS is for households only and is not applied to upgrading self-helps.

Senator BIRMINGHAM: Somewhere like Truro, though, is in a growth region on the fringes of the metropolitan feed.

Ms O'Loughlin : I think that is one of the areas where one of the things we find with VAST is that it has specific advantages in areas where there might be growth. It means that in a couple of years time the council does not have to look at putting up another transmission tower; the whole town is serviced from day 1 with VAST, and any population growth can immediately get access.

Senator BIRMINGHAM: Does the satellite scheme apply to new houses or dwellings?

Ms O'Loughlin : The satellite scheme is only available when we roll it out.

Senator BIRMINGHAM: So if it has just closed in regional Queensland—

Ms O'Loughlin : We will not be going back in.

Senator BIRMINGHAM: If you missed out, too bad. When it comes to somewhere like Truro, which is on a 2013 switch-over as part of the metropolitan cycle, in the end, if you get in in time, you get it; otherwise, you miss out. In particular, in terms of that growth area, it is the cost of getting satellite to new homes and developments in that area that will be a cost borne as part of that development process.

Ms O'Loughlin : That is right.

Mr Harris : Can I clarify the differences between the subsidy and the service? You still get VAST.

Ms O'Loughlin : You still get VAST free. That is just the subsidy.

Mr Harris : I think you were talking about VAST, and you were talking about SSS.

Senator BIRMINGHAM: My apologies were coming out wrong. I think both Ms O'Loughlin and I knew what we were talking about, but—

Mr Harris : We always worry about the record.

Senator BIRMINGHAM: Thank you; it is always good of you. I move on from that issue, then. Are you able to give us a quick update on the conversion rates across capital cities?

Ms O'Loughlin : Yes. The latest figures we have are at the end of December 2011. That information has just been released. Across Australia the conversion rate is currently sitting at 82 per cent and the awareness of switch-over is sitting at 95 per cent. In regional Queensland where, as you mentioned, we switched off in early December, we did a post-switch-over survey, and that indicated that around 96 per cent of people were ready on switch-over day. That is pretty consistent with what we have seen previously.

Senator BIRMINGHAM: Okay. Could we quickly roll through the conversion rate of the individual capital cities?

Ms O'Loughlin : In Brisbane it is 82; Perth, 83; Tasmania, 86; Adelaide, 83; Darwin, 87; Melbourne, 83; and Sydney, 75. We always footnote that with Sydney having consistently been lower than any other capital city, which is as a result of the high level of pay TV penetration, so people have converted through pay TV.

Senator BIRMINGHAM: That is the rationale for Sydney lagging behind?

Ms O'Loughlin : Yes.

Senator BIRMINGHAM: I think Brisbane has performed a little bit of a catch up, perhaps slightly, from where it was?

Ms O'Loughlin : Yes it has.

Senator BIRMINGHAM: On the switchover program: can you tell me about the household assistance scheme for set-top box installations? I have been through this a few times around in questions on notice and so on—and I understand that work, of course, is not carried out by the department. But with the contract arrangements that the department has with individual contractors, are contractor simply paid an average for the range of installations they do, or if they have an above average range of complex, time-consuming, expensive installations do they get paid more by the department for those installations? How do those contractual arrangements work?

Ms O'Loughlin : It is a very complex matrix that we use when we are doing contracts with these tenderers. The tender documents set out what we call a pricing schedule, and that does two things. It asks for prices in different subregions or zones. For example, in New South Wales we have nine subregions against which people can quote. That usually reflects population, distance between towns and how far they are going to have to travel to get to those particular areas.

That is one side of the matrix. The other side is cost components. They go to the set-top box, basic installation, recabling, whether or not somebody needs a new antenna and how much that would cost, how much the callout fee is to the area if they have to go back, how much the satellite dish is and how much the decoder box is. We ask tenderers to submit against all those elements and subregions, they are what we assess against and that is what we contract for.

Once an installation is made by our head contractors, they invoice us at the end of the period. That will say how many installations they have done and what type of installations against that price matrix, and we will pay on invoice once we have done the appropriate checking.

Senator BIRMINGHAM: That evidence will probably provide the context for me to be able to frame my questions on notice in that space and in a way to perhaps get some answers this time around that meet with what I am after!

I turn now to this section's involvement in the Australia Network contract. I am going to inquire whether this department was consulted in relation to the government decision to end the Australia Network tender, noting that this department had a representative—I believe it was Mr Cox—on the tender evaluation panel?

Mr Harris : I am just clarifying the question: are you asking if we were consulted on the government's decision to end the Australia Network tender?

Senator BIRMINGHAM: Correct.

Mr Harris : Yes.

Senator BIRMINGHAM: When was the department consulted?

Mr Harris : The day of the leak.

Senator BIRMINGHAM: The day of the leak? From memory that was 17 October.

Mr Harris : Seventeen October is what is etched in my brain!

Senator Conroy: It is etched in his mind!

Senator BIRMINGHAM: It is etched in my mind! No, the AFP commissioner just happened to state the date to me earlier today. On 17 October the department was consulted. Did the department provide formal advice on its views? Did it brief the minister, or DFAT as the coordinating agency? What was the nature of consultation and engagement?

Mr Harris : The consultation was effectively between the minister's office and me. The minister had earlier spoken to the secretary of the Department of Foreign Affairs and Trade about the matter. He asked us both, as I recall but certainly me, to get some legal advice on the implications of a leak of this kind for the tender process, which we arranged.

Senator BIRMINGHAM: Minister, is there a reason you asked Mr Harris to do this rather than the secretary of DFAT?

Senator Conroy: I think I was just wanting to ensure that I was following proper process. I wanted to make sure I got to the widest possible advice, is probably the best way to describe it. I wanted to make sure I was following proper procedures to ensure the government was well advised.

Senator BIRMINGHAM: Mr Harris, you sought the advice from Crown solicitors?

Mr Harris : Yes, from the Australian Government Solicitor.

CHAIR: Senator Birmingham, you have had a full 25 minutes, so that was your last question. Ms O'Loughlin, please give us an update on the VAST service, the digital changeover. How is it going?

Ms O'Loughlin : As I mentioned, generally for the switch-over process, we were pleased with the way regional Queensland switched over on 6 December. Queensland, as a very complex area geographically, presented us and broadcasters with some particular challenges. As I mentioned, our post-switch-over survey found that around 97 per cent of people had switched over to digital on the day and they could watch digital television on that day. I think that was supported by a very extensive on-the-ground campaign that we undertook, an education and information campaign across Queensland to assist local communities to make the switch. We had around 4½ thousand calls from regional Queensland residents between 1 October and 5 December; so people were accessing our call service to find out further information. We had around 1,500 endorsed antenna installers nationally and about 155 in Queensland that people could access.

We also did an enormous amount of work with the broadcasters, with what we call hot swaps which is where an analog transmitter is turned off the same day that a digital transmitter is turned on. The broadcasters invested in around nine new transmitters across Queensland which significantly improved reception for people. On top of that, as I mentioned before, the VAST service was made available across various parts of Queensland, particularly for those people in remote Queensland who have relied on a satellite service previously and also in areas where self-help conversions were not taking place. I will correct the figure that I gave to Senator Birmingham earlier: there were about 90,000 viewers of the Aurora satellite service in 2007. That was prior to VAST being introduced. Those viewers are now receiving only four channels, whereas when they switch to the VAST service they will be getting the 16 free-to-air digital channels plus a local dedicated news channel.

In general we consider that the program is travelling very well. It is our fourth switch-over area. There are now 1.2 million households across Australia watching digital-only free-to-air television. But we learn each time we do one of these switch-overs about what communities needs and how we can assist them as we move into the next switch-over area.

CHAIR: I do not know if you remember, but there was a Senate inquiry in March last year. I am sure you gave evidence to that inquiry. We had a councillor, Bruce Scott from Barcoo council, at the inquiry. He outlined all the problems with the VAST service and moving from self-help to VAST. He then indicated that he had moved to VAST himself and had gone from four channels—SBS, ABC, SCM and Imparja or Southern Cross Media—to 16 channels. When he started talking about it, he was gushing in his praise for VAST. I thought that Councillor Scott was one of our best advocates on that. Is this the sort of experience you get that, once people move to it from four terrestrial channels to 16 digital channels, it makes a big difference?

Ms O'Loughlin : Very much so, Senator. As I mentioned 59,000 people have already converted the VAST. We have converted 9,000 onto SSS, and particularly those Aurora customers see real value in moving immediately, as they can, from a four-channel service to a 16-channel service. I think my favourite quote to date is from somebody in Queensland who is a satellite subsidy recipient: 'I just want to express how prompt and professional you are. To those I have been in contact with and everyone else involved with regards to providing my wife and I with VAST and how fast the installation service was, bravo, digital satellite TV is terrific. Thank you.'

CHAIR: I think Councillor Scott was way better than that. You should actually go to the Hansard and see if Councillor Scott will let you use his quote; it was far better.

Ms O'Loughlin : It is a big change for local communities moving from a terrestrial service that they have had, perhaps for many years, to satellite and we recognise that, but we are also finding that, as more and more people convert, they see value of it and are willing to talk about it locally and in other areas and build up the momentum.

CHAIR: Thank you, Ms O'Loughlin, and thank you to the officers from Broadcasting and Digital Television. I now call officers from the department in relation to program 1.1 Broadband and Communications Infrastructure.

Mr Harris : While the changeover is occurring, Senator Birmingham earlier on mentioned a review of ACAN. I have kept an officer back from the 1.2 program. Do you have questions on ACAN or shall I let the officer go home?

Senator BIRMINGHAM: Noting that we are past 1.2, and apologies to the officer, and not being able to move the time around to do that, he can go now.

CHAIR: Welcome. Senator Birmingham.

Senator BIRMINGHAM: Firstly, I will make sure my reading of the additional estimates statements are correct. Funding for the ABG for 2011-12 states as being returned to the budget. Can you inform me of how much has been returned to the budget from the ABG line?

Mr Harris : My recollection is it that it is about $12 million.

Mr Quinlivan : We all share that recollection, so we will go with that for the moment.

Senator BIRMINGHAM: Perhaps you could go to page 25 of the statements for me.

Mr Harris : It is on page 19 of the additional estimates document. You will see under outcome 1 there is the figure of $12,107,000.

Senator BIRMINGHAM: Yes, I do see that, thank you. In that case could we flick over to page 25 and explain to me the slightly odd-seeming budget line. Sorry it is not ABG for this line, it is the international organisation's contributions.

Senator Conroy: The International Telecommunications Union?

Mr Harris : They do vary significantly—

Senator Conroy: It is a number of units and then there is a valuation of the units and sometimes they put up the valuation of the units and then there are exchange rate fluctuations.

Senator BIRMINGHAM: But they seem to vary to the department being paid in some years or being owed.

Mr Harris : That is right. This one I will have to take on notice to get you a proper explanation of, but they vary regularly when there are additional estimates. But you will see the actual and the revised. With the 2011-12 number there is not a big variation—

Senator BIRMINGHAM: Aside from the application of the brackets.

Mr Harris : That is right. The brackets show the deduction that has occurred. There has been a slight revision of the amount of money that we have got for international organisation contributions. But the actual explanation I do not have. I would have to get it written up for you, Senator.

Senator BIRMINGHAM: Okay, if you can. It is not a biggie. We do not need to spend hours dwelling on—

Mr Harris : I do not think it is a big deal. We have done nothing horrible to the international organisations or they to us in the last 12 months.

Senator BIRMINGHAM: That is nice to hear. I am pleased to hear you are all playing nicely. Minister, you put out a press release on 23 January this year in which you welcomed the Telstra fibre deployment in south Brisbane et cetera. Are you able to inform me what the long-term future for that fibre is? Will that fibre be incorporated into NBN Co. somehow?

Senator Conroy: Mr Quinlivan will probably be able to give you all the technical details, but there is a negotiation which is ongoing between Telstra and NBN Co. that would see NBN Co. take control of the fibre in south Brisbane. It would be incorporated in part of the network. The terms and conditions and that sort of stuff are still part of an ongoing discussion, but I think that was one of the points that was agreed in the Telstra-NBN negotiations. We have set up the regulatory framework so that if, for some reason, those negotiations do not proceed there is a sunset clause on the regulatory framework and it will be treated like any other piece of infrastructure. But the intention—and I think with goodwill from both sides there is not a drama about this—is to absorb it into the network. It has been built along the specifications.

Senator BIRMINGHAM: Okay, so it has been built to NBN specs in terms of meeting the expectations of speed and—

Senator Conroy: By definition, a piece of fibre is not the speed it is the boxes on the end. It is being built on a GPON basis, I think, and—

Mr Quinlivan : That is right, and there are probably two key things to know. Because the infrastructure is caught by the level playing field provisions, the minister has granted Telstra an exemption for the operation of that network through till the end of 2013, which is the point at which we are anticipating—

Senator BIRMINGHAM: The point where the rollout reaches south Brisbane, so to speak.

Mr Quinlivan : That is right. The ownership will transfer to NBN Co. through a commercial negotiation which the minister talked about and the arrangements under which the network would be operated until that time has been agreed with the ACCC.

Senator BIRMINGHAM: So the points of negotiation between Telstra and NBN Co. are matters, presumably, of what the final price is, a timeline for when it would be handed over, how customers will be migrated and those types of things that are the same issues, I guess, that had to be resolved—

Senator Conroy: On the NBN the migration issue is a vastly different issue to currently. If you were to change from Telstra to Optus today it involves engineers going down to the exchanges. It is a 90-day process. It is quite a lengthy and complex process, and one of the issues around the current structure of the network. But to change RSPs on the NBN is a relatively simple matter and can be done relatively quickly. I have heard some people say it could be 15 minutes. Mr Quigley could probably give you a better answer to that. But, on those technicalities, I am sure when Mr Quigley is here in 45 minutes, he would be able to give you reassurance about the technical aspects of the transfer and the commercial side.

Senator BIRMINGHAM: Then I will jump to NBN community hubs. Are NBN community hubs operating in all trial sites now?

Mr Rizvi : The first round of the sites, that is the three sites in Tasmania—Smithton, Scottsdale and Midway Point—and the five initial mainland sites, were the subject of a competitive process to identify the organisations that would run the hubs in those areas. Earlier this year the minister announced the organisations that had been successful in that regard, and those organisations are now in the process of establishing the hubs in those locations. The initial one of those will be launched later this month, and then progressively over the weeks following that. At the same time as announcing the winning organisations for the first seven hubs, the minister also announced a call for applications for 20 further communities, for which we have now received applications. The applications have closed and we are considering those applications at the moment and recommendations in respect of those applications will be made very shortly to the minister.

Senator BIRMINGHAM: How many applications were received?

Mr Rizvi : I would have to take that on notice. There were different numbers of applications for different communities. There were 20 specific communities announced in the second round of applications.

Senator BIRMINGHAM: There are 20 specific communities and you have sought applications in each community.

Mr Rizvi : That is right.

Senator BIRMINGHAM: That is a total of 28, with 20 still to come. There are eight underway. How many of the first and second release locations—

Mr Rizvi : That covers the first 27 communities.

Senator Conroy: You will find that very shortly, possibly a little later this evening, you will discover a lot more communities that are going to be built. In the not too distant future you will find there are millions. The community hub program is not targeted to do every single one because that is not feasible—

Senator BIRMINGHAM: What is the total cost of the community hubs program?

Senator Conroy: Very modest. Too modest, in fact.

Mr Rizvi : The total cost of the community hubs program is $23.8 million over three years.

Senator BIRMINGHAM: And by the end of those three years, how many are expected to be operational?

Mr Rizvi : The aim is to have community hubs operating In the 40 communities that will first benefit from the NBN.

Senator BIRMINGHAM: How long does a hub operate for?

Mr Rizvi : Between two and three years.

Senator BIRMINGHAM: What is the primary purpose of the hub?

Mr Rizvi : There are two primary purposes. The first purpose of the hub is to enable local residents to experience an NBN service and the kinds of applications and peripherals that might be able to operate on an NBN service, particularly tele-health applications and tele-working type applications. Secondly, the purpose of the hubs is to enable local residents to attend seminars on the benefits of getting online. It particularly targets those people who are currently not online or perhaps are only marginally online, particularly the elderly, people who may be unemployed and others who are less likely to currently be online.

Senator BIRMINGHAM: With regard to the initial three plus five hubs, what evaluation of their benefit and the uptake and the usefulness of them, and so on, has been undertaken?

Mr Rizvi : Senator, we have a three-part process for evaluating the effectiveness of the hubs. Firstly, on a monthly basis we will be receiving statistics on the numbers of residents who have either experienced an NBN service by attending a hub or have participated in a seminar. Secondly, every six months we will be receiving feedback from each of the hubs in terms of the seminars that people attended and their responses or evaluations of the benefits of attending those seminars. Then, at the end of the program we will conduct an evaluation against the objectives of the hubs.

Senator BIRMINGHAM: Thanks, Mr Rizvi. I will pursue on notice some questions about the statistics and data you have to date on the operation of the hubs. I am going to have to ‘hub off’ for a second, Chair.

CHAIR: Yes. Senator Fisher. Do you have any questions?

Senator FISHER: I have questions about the ACCC’s oversight of the NBN’s investment in its network and the extent to which they will be subject to oversight by the ACCC. Can you lay out the ACCC’s current powers? Then I would like to know what will be the ACCC’s powers if the proposed standard access agreement goes ahead.

Senator Conroy : The legislation is the legislation. It is not affected by the SAU. The legislation sets out the ACCC’s powers. I could tell you what they are, but—

Senator FISHER: Yes, please describe what they are today. I presume that therefore means that the standard access agreement makes no inroads or doesn’t take anything away from those powers. I think Mr Quinlivan—

Senator Conroy : I understand exactly what you are trying to do, but the SAU has not finished yet, so it is impossible to speculate on the final outcome.

Senator FISHER: What are the powers of the ACCC today, Mr Quinlivan, in respect of the NBN’s investment in its network?

Mr Quinlivan : If you are talking just about the investment, as opposed to pricing and so on—

Senator FISHER: I am also talking about pricing, timing, anything. NBN is essentially a monopoly provider and it has already shown, in the view of many, a propensity to invest in the most expensive options that it has before it. Then, in the view of some, it may seek to recover those costs from consumers. Given that environment, it is critical that there be oversight from an external body. At the moment it is the ACCC.

Mr Quinlivan : Yes. I think your question is mostly going to the concept of prudently incurred investment costs, which is a concept in the draft special access undertaking that NBN Co. has submitted and is the subject of public consultation. The ACCC released a second discussion paper on that just in the last couple of days. The idea there is that NBN Co. is only able to recover prudently incurred costs, not any costs. The SAU spells out a process for determining those and the ACCC will have supervision of those. Only those prudently incurred costs will feed into the pricing formula, which then provides the basis for NBN Co.’s prices and its cost recovery over the life of the special access undertaking.

I think you are asking essentially a technical question about the cost structure that will be allowed under the special access undertaking and the impact that will have on NBN Co.’s pricing flexibility over the life of the special access undertaking which, as you probably know, is 30 years.

Senator FISHER: The standard access agreement defines ‘prudently incurred costs’. It—

Ms Spence : Sorry, Senator, the special access undertaking is the one that describes the prudently incurred costs and the mechanism for the ACCC to oversight it. The other document that I think you are talking about is the Wholesale Broadband Agreement, which is what is known as a standard form of access agreement. It effectively is the contract that NBN Co. has in place with its customers, the RSPs. They have a 12-month wholesale broadband agreement out now, which quite a large number of access seekers have signed onto.

Senator Conroy : Thirty-five or 36.

Ms Spence : Yes.

Senator Conroy : Mr Quigley will be able to update you on the exact number.

Ms Spence : As I said, the contractual arrangement, the special access undertaking, is the one effectively setting the oversight role for the ACCC. That is why the ACCC actually has to approve or not approve that special access undertaking. The reason for a 12-month wholesale broadband agreement is to make sure that you can then have a final contract in place which lines up with the details that are set out in the special access undertaking which is considered and approved by the ACCC.

Senator FISHER: In terms of the standard access undertaking, it defines ‘prudently incurred costs’.

Ms Spence : Yes.

Senator FISHER: And expenditure must be so in order for the ACCC to approve?

Mr Quinlivan : The basic concept is that NBN Co., over the life of the special access undertaking or the life of the infrastructure, should be allowed to fully recover its costs over time.

Senator FISHER: That is right, and therein lies the rub, that therefore it is very important what those costs are.

Mr Quinlivan : There are two issues really. One is what costs.

Senator FISHER: That is right.

Mr Quinlivan : The second one is that the company, because it is essentially a start-up operation, will be incurring losses over the period of the rollout until it reaches a mature stage. The company and the shareholders ought to be entitled to recover those operating losses over time as well. The special access undertaking sets up a framework for those to be rolled forward so that over the life of the 30-year SAU, the company and the shareholders reasonably recover their costs. As you have been getting at, only some costs are permitted to be included in that roll forward. So that is the concept.

CHAIR: Minister, we are just about ready to wrap up in this section. What I propose is that—and we have got an agreement on this—if we can get Mr Quigley on, say, in the next five minutes if he is around, we will work through the break and finish at 10.30. We will do an hour and three-quarters but finish at 10.30 instead of 11 o’clock.

Senator Conroy : Sounds fair. I am sure Mr Quigley is not far away. We will just try and round him up. I know he is in the building; I have seen him. I just do not know if he is next door or downstairs, but I think we can round him up. If anybody is listening, I am sure they can round Mr Quigley and the team up.

CHAIR: Find Mr Quigley. Thanks, Senator Fisher.

Senator Conroy : I was just about to add to that for you, Senator Fisher:

The ability for companies to lodge a special access undertaking to obtain regulatory certainty and thereby enable investment in a longstanding mechanism in the Competition and Consumer Act. The government has always made it clear that close ACCC scrutiny of the NBN Co’s operations is a key part of the NBN model, and ultimately it is the ACCC which has to accept or reject NBN Co.’s SAU.

Importantly, in considering the document, the ACCC will have regard to whether the SAU promotes the long-term interests of end users. So those are the tests that the ACCC have to be satisfied with before they can approve an SAU.

Senator FISHER: If the standard access undertaking is approved in its broadly current form, will there be any material difference between the powers that the ACCC has today in this regard and what it has post operation of the SAU?

Ms Spence : I think the point that the minister is making is that the special access undertakings are a known concept currently in the legislative framework and so the ACCC is simply following the legislative framework that applies to anyone else who wanted to put in a special access undertaking. It is not taking powers away from them by agreeing to that SAU.

Senator FISHER: For example, are ‘prudently incurred costs’ currently a defined term or have they been created by definition for the purposes of the SAU?

Ms Spence : There is a definition in the SAU and it is a matter for the ACCC to determine whether or not they agree to that definition in that context.

Senator FISHER: Is there a definition of ‘prudently incurred costs’ operating today?

Ms Spence : In other SAUs you would expect to have a suggestion—

Mr Harris : Can I just say ‘no’.

Senator FISHER: Thank you.

Mr Harris : One of the great advantages of having an access undertaking, which is a concept that goes back to when Mr Quinlivan and I last worked on competition policy 15 years ago or more, is to provide these kinds of clarifications. Clearly, for Telstra, as the incumbent network operator, 'prudently incurred costs' is something that was not a concept that was in existence then. So the NBN is actually offering something here to the ACCC which says, ‘We are going to give you a chance to determine: did we prudently incur this?’

The way it is done with Telstra at the moment, roughly speaking, is that in every case of an examination of a particular service the ACCC of course goes through all the costs, but ‘prudently incurred’ is not a concept that actually applies. The SAU and the Wholesale Broadband Agreement together are meant to be an advance under which you get an overarching agreement for how NBN will proceed with the ACCC and its stakeholders for pricing structures, and the Wholesale Broadband Agreement can vary that at a subsequent point by agreement between the parties. It is a different form of negotiation entirely from what we have currently got today, which is the arbitrator, if you like, setting prices on a continuing basis.

Senator FISHER: Thank you, Mr Harris. That is what I was after in terms of the facts for today. Then is it fair to say that, if the SAU is approved broadly in its current terms, to the extent that there is any constraint to stop NBN Co. from overinvesting and then passing on those costs to retail carriers and/or consumers, given its monopoly, that constraint is the interpretation and operation of prudently incurred costs?

Mr Harris : That is right.

Senator FISHER: Is that fair to say?

Mr Harris : That is right. That is what they are offering. We are not going to say this has been fully documented and defined at this point, but as a concept it is in my view quite advanced.

Senator FISHER: So it is all in the lap of prudently incurred costs?

Mr Quinlivan : It is in the lap of the ACCC’s—

Mr Harris : The ACCC will define this.

Mr Quinlivan : view of the operation of that concept—

Senator FISHER: All right.

Mr Harris : The important thing is: do not imagine this is just NBN Co. saying, ‘I say this is prudently incurred and that is the end of it.’

Senator FISHER: No. I get that.

Senator Conroy : There is a robust discussion that is taking place. Of that I can assure you.

Senator FISHER: Thank you.

CHAIR: That concludes the Broadband and Communications Infrastructure program. Just before I call officers from NBN, for those senators that have just arrived, what we propose to do is try and have a reasonable finishing time tonight. We are going to keep an hour and three-quarters for NBN. They have come on a bit early. We will do an hour and three-quarters as agreed and finish at 10.30, with no break.