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Thursday, 12 December 2013
Page: 2574

Mr TURNBULL (WentworthMinister for Communications) (11:55): by leave—The National Broadband Network is the nation's largest and most costly infrastructure project. Regrettably, it is also the most misunderstood and misrepresented. That is because for the four years of its life under Labor, the NBN has been shrouded in a web of spin, obfuscation and exaggeration. Forecasts have been set, missed, set again, missed again, set a third time, and missed a third time. Beguiling promises have been offered but not delivered.

This is not a question of fibre versus copper. The key issue is only how far fibre optics are pushed out into the network and whether they must reach into every home and every business or whether existing copper infrastructure can be used for the last few hundred metres and in so doing save much time, inconvenience and many billions of dollars. The NBN project needs, more than anything, an end to spin.

After I became Minister for Communications, I wrote to the employees of NBN Co. telling them that this government expects to receive the unvarnished truth, not what they think we want to hear. Forecasts, business plans and practices need to be informed by sober reality. NBN Co.'s people must be free to express their views and perform their work without worrying whether they are contradicting a minister's press release.

1. Background to the strategic review

On 3 October the government asked NBN Co. to undertake a strategic review of this vitally important project. In a nutshell we posed three questions:

Where is the project now?

How much will it cost and how long will it take to complete under Labor's specifications?

And what are our options for completing it sooner and at less cost?

NBN Co. delivered a draft report on 2 December and its final report today. We are releasing the final document presented by NBN Co. in full, subject only to certain redactions sought by the company to protect its interests in current and prospective legal and commercial agreements.

The strategic review confirms what many Australians suspected, but what both of my predecessors as communications minister shamefully concealed from the public.

The rollout is two years behind after three years and will not finish until the mid-2020s.

Costs are so high that they will add $43 per month to a typical household's broadband bill.

And NBN Co. faces a daunting internal transformation under its new leadership.

Critically, this report is not reverse engineered to justify or rationalise government policy, whether set out in a speech, conjured up by press release or sketched on the back of a drink coaster.

I emphasise this point because the facts so methodically presented in the review make it plain that the NBN is in a worse state than Australians have been told.

We were told by Labor that the case for a fibre-to-the-premises NBN was so potent there was no need for a cost-benefit analysis.

We were assured this costly project could be built without any increase in broadband charges.

And we were repeatedly told that the rollout was on schedule and within budget.

Even just prior to the 7 September election, long after it was clear to most observers that the rollout was missing every goal, the member for Grayndler continued to assert that 5½ million households and businesses would get the NBN by 2016. Yet the former minister knew that that was untrue, as demonstrated by the draft 2013 NBN Co. corporate plan that he had received and, according to a leaked minute published in The Australian, presented to cabinet in July.

Turning this project around is a formidable challenge, but we are determined to complete the project as quickly as we can, at the lowest possible cost to taxpayers, and affordably for consumers. And we are equally determined that in the rollout of the NBN, the many Australians without adequate fixed line broadband today, particularly in regional areas, receive top priority.

2. Progress and prospects of the current rollout

I will start by outlining the strategic review's findings regarding the previous government's NBN policy. Because the situation at NBN Co. is far worse than parliament and the public were led to believe, worse even than the most trenchant critics of the NBN imagined.

Rollout s chedule

Construction of the network has fallen further and further behind schedule. At the end of September the NBN's fibre, satellite and wireless networks passed 384,000 homes and businesses.

That is barely three per cent of the 13 million premises NBN Co. must reach to finish the job.

It is only 45 per cent of the forecast for September in NBN Co.'s latest corporate plan.

And it is over a million premises behind Julia Gillard's rollout announcement in December 2010.

Because of construction delays, the strategic review estimates Labor's NBN will not be completed until 2024. That is 3½ years later than stated in the corporate plan, six years later than claimed in Labor's original fibre-to-the-premises plan in 2009, and 11 years later than promised by Kevin Rudd in 2007.

Service d elays

The brownfield rollout—which is connecting homes and businesses in established areas—is in even worse shape. At the end of September 227,000 premises were 'passed' with fibre, which, in the language of the telecommunications sector, normally means the occupant can order a service and receive it within a few days.

But 74,000 were 'service class zero', a term unique to the NBN Co., which indicates that they cannot foreseeably obtain any service. These are mostly businesses and multidwelling premises such as apartment blocks. A further 104,000 were 'service class one', which indicates fibre has not yet been run from the street into the household or business. This can take six months or more, based on current experience. So the bottom line is that the occupants of fewer than one in four established premises 'passed' by fibre can order a service and expect to get it in a reasonable and predictable time span.

Costs and r evenues

The cost of constructing the NBN to Labor's plans has also blown out. The strategic review estimates completing it requires peak funding of $73 billion—another $29 billion or 65 per cent beyond the cost forecast by the current corporate plan.

Unit costs for part of the network are twice as much as forecast, while NBN Co. is burdened by what the review frankly admits are excessive corporate overheads ramped up in anticipation of a level of construction and customer activity that never materialised.

The revenue assumptions made under Labor are also extremely optimistic, and entirely at odds with industry experience here or abroad. NBN Co. and its advisers found revenues between now and 2021 have been overstated by $13 billion compared to the midpoint of two more realistic revenue scenarios presented—one plausibly optimistic, and one plausibly pessimistic.

Retail prices

The exact impact of Labor's NBN on the price Australians pay for broadband depends on investment returns and retail service provider margins. But if NBN Co.'s goal is to earn the 7.1 per cent return promised by the previous government, and RSP margins remain unchanged in dollar terms, Labor's NBN will drive up retail prices by between 50 and 80 per cent. That means a $43 per month increase in the broadband bill paid by a typical Australian household. And that, of course, is perfectly obvious. If you seek to receive a particular internal rate of return and your project costs dramatically more to build, the price you have to charge your customers is going to be equally dramatically higher.

As I have noted previously, the most shocking aspect of the NBN is Labor's arrogant disregard for the devastating effect of price rises driven by their policy on the take-up of broadband among low-income households. Those opposite may not care, but the strategic review confirms the gravity of the problem.

To summarise, the cold hard facts about Labor's NBN are profoundly at odds with the fanciful tales and wishful thinking of those opposite. And it is important to note that achieving even these projections of higher costs and slower construction schedules requires a very significant improvement indeed in NBN Co.'s productivity and efficiency from the current levels. In the absence of such an improvement, outcomes would be materially worse.

3. Alternative o ptions for the NBN

The second broad set of questions the finance minister and I assigned the strategic review involved exploring alternatives to the existing NBN, which as we have seen will cost billions more and take years longer to complete than was ever admitted to the public. The strategic review's baseline scenario is its revised outlook for the NBN proposed by Labor. Beyond this it considers five additional scenarios:

The second is a radical redesign of the all-fibre-to-the-premises NBN. This cuts one year and $9 billion off the peak funding, but at $64 billion it is no bargain.

The review examines three intermediate scenarios, which make increasing use of existing network infrastructure to cut costs to more reasonable levels.

The sixth and final scenario is an NBN utilising a optimised multitechnology-mix, or MTM, model. This optimises the rollout by choosing the most economically efficient technology in each locality according to its housing stock, existing infrastructure and user demand.

The scenario recommended by the NBN Co. is the last: the MTM model. But none of the scenarios can escape the irresponsible and wasteful current and future expenses locked in on Labor's watch. The NBN Co. strategic review team estimates the burden of these inescapable costs at $15 billion or more.

The MTM rollout

Under an MTM model 26 per cent of the premises in the fixed line footprint will receive very fast broadband over fibre to the premises. Another 44 per cent are served with fibre to the node, building or distribution point, while the last 30 per cent are served via upgraded HFC—the cable rolled out for pay TV in our capital cities in the late 1990s. HFC networks are capable of delivering hundreds of megabits per second today, just like fibre, but under Labor's plan Telstra and Optus were to be paid billions of dollars to switch them off.

The MTM scenario is the least expensive modelled scenario, requiring peak funding of $41 billion. This would still be the biggest and most expensive infrastructure project in our history and the largest single national broadband project in the world. Regrettably it will be many billions of dollars more expensive than it would have been had the MTM approach been taken from the outset. Labor has wasted billions which we can never recover.

An MTM network can be substantially completed by 2019—when 91 per cent of premises in the fixed line footprint will have access to download rates of 50 megabits per second or more, and between 65 and 75 per cent will have 100 megabits per second or more—and entirely finished by 2020.

Coalition Election Commitments

This means the coalition's goal of completing the NBN in the next six years—set out in our April policy, released long before we knew the truth about the damaged project we would inherit from Labor—can be achieved.

Disappointingly that is not the case for the objective we also expressed of delivering nationwide access to 25 megabits per second by 2016. The rollout is drastically further behind schedule than we expected in April. NBN Co.'s latest estimate of the established premises it will reach with fibre by June 2014 is only 357,000—772,000 fewer than claimed by Labor at the time of the election. And NBN Co. is in a far worse condition, its contractor relationships more damaged and its capacity to change course and assimilate new technologies more debilitated and diminished than even we allowed for.

A policy based on the strategic review's MTM scenario can, however, deliver very fast broadband to twice as many premises by 2016 as were ever going to receive it under Labor. Let me make this pledge on behalf of the government: we will work assiduously with NBN Co. to do everything we can to surpass the forecasts in the strategic review. Likewise, we remain determined to ensure our NBN connects those Australians, with the worst broadband in priority, unlike the NBN managed by our predecessors.

Broadband Quality

Upgrading from download rates of five megabits per second to 25 or 50 megabits per second would be welcomed by any internet user but, for those with limited or no access to adequate fixed broadband at all, it is transformational. Shortly we will publish the first ever analysis of broadband availability in Australia. It will confirm areas encompassing about 1½ million premises have little or no broadband. Many are in regional areas. All are victims of the lack of investment in fixed line communications by private carriers over the past six years, which is yet another damaging by-product of the gap between Labor's rhetoric and execution on broadband.

The critics of the coalition's approach to broadband have claimed that the coalition has not paid attention to the need for remediation of the existing copper plant that would be used in the hybrid model proposed by the company. As honourable members will see when studying this report, that matter has been taken most carefully into account by the authors of the report and very conservative assumptions have been taken about the level of proactive remediation of the copper network, an approach which is much more conservative than that adopted by comparable carriers.

Honourable members opposite have also argued that the endgame is fibre to the premises and that, in asserting that, therefore we should build fibre to the premises now rather than upgrade later. Even accepting the assumption that fibre to the premises is the endgame—and for reasons set out in the report you will see that there is a big question mark over that—as the report demonstrates, if the upgrade was only five years after the investment in fibre to the node it would still be a considerably wiser and more prudent economic decision. So the proposition of some honourable members that we should build fibre to the premises immediately, bluntly, fails to take into account the time value of money and the importance of flexibility and optionality in terms of emerging technologies.

Return on Investment

The review's preferred scenario saves $32 billion compared to business as usual under Labor. While that is the sort of number the Rudd and Gillard governments tossed around with abandon, it is a saving that makes a difference. It allows the network to earn a return roughly equal to the Commonwealth bond rate and ensures prices do not rise in real terms. This strategic review points the way to a new corporate plan, but it is not yet the new corporate plan. More work is required to set the NBN on a responsible and affordable course.

An important step in the reform of the NBN, announced today, is the appointment of a new chief executive officer, Mr Bill Morrow, currently the chief executive of Vodafone Australia. Mr Morrow is a very experienced telecom engineer and chief executive who has managed and, indeed, constructed telecom networks in America, Asia and Europe.

4. Cost Benefit Analysis and Review of Regulation

Part of the work that follows is a cost-benefit analysis of the economic and social returns from broadband and a review of the long-term regulation of the NBN Co. which will also inform the new corporate plan. The government is today announcing an experienced and distinguished panel to carry out that inquiry, which will report by June: it will be chaired by Dr Michael Vertigan AC, who will be joined by Ms Alison Deans, Dr Henry Ergas and Mr Tony Shaw.

5. Conclusion

I congratulate and thank the team at NBN Co. and its advisers who prepared the strategic review, which is the most thorough and objective analysis of the National Broadband Network ever provided to Australians—a highly professional piece of work prepared in a very tight time frame. The internal NBN Co. team was led by its Head of Strategy and Transformation, JB Rousselot, and ably supported by Tim Ebbeck and many others. The company's outside advisers were the Boston Consulting Group, who focused on the alternative models and the revenue model, Korda Mentha, who focused on the real costs and real time frames of the existing corporate plan model under Labor, and Deloitte, who coordinated this whole exercise. Valuable insights came from international experts, including Mike Galvin from Openreach in the UK and Mark Ratcliffe from Chorus in New Zealand. Finally, I want to thank the NBN Board and most of all its Executive Chairman, Dr Ziggy Switkowski.

Despite the delays and disappointments, the concept of a national broadband network remains popular. Australians want universal access to high-quality broadband and so does the government. But because of the misguided way the previous government embarked on this project as much as $15 billion has been unnecessarily spent to achieve this goal. And those dollars cannot be recovered. To date the NBN has been the most wasteful infrastructure project in our history.

But we are where we are. Let me assure the House that, under this government, we can complete this project as we promised—sooner, at less cost to taxpayers and more affordably for consumers. Our first step in that mission is to end the spin and wishful thinking and embrace reality. This is the beginning of the era of truth on broadband, the beginning of an era when we will have facts to work with, objective analysis instead of political spin. This is the welcome-to-the-real-world moment for the NBN.

I present a copy of the NBN Co. strategic review report and a copy of my ministerial statement.

I ask leave of the House to move a motion to enable the member for Blaxland to speak for 20½ minutes.

Leave granted.

Mr TURNBULL: I move:

That so much of the standing and sessional orders be suspended as would prevent Mr Clare speaking for a period not exceeding 20½ minutes.

Question agreed to.