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ENVIRONMENT AND COMMUNICATIONS LEGISLATION COMMITTEE
09/03/2011
National Broadband Network Companies Bill 2010; Telecommunications Legislation Amendment (National Broadband Network Measures—Access Arrangements) Bill 2011

CHAIR —I welcome Mr Daryl Quinlivan, Ms Pip Spence and Mr Philip Mason of the Department of Broadband, Communications and the Digital Economy—thanks for being here today. Do you wish to make a brief opening statement before we go to questions?

Mr Quinlivan —I have got a few comments I would like to make about the main issues that appear to have been raised with the committee. I will not take too long over those, if you are happy for me to read those?

CHAIR —Yes.

Mr Quinlivan —The bills add to the general obligations on NBN Co. as a carrier under the Telecommunications Act and the Competition and Consumer Act, so it needs to be seen as part of a broader regulatory framework that applies to the company. It adds to the policy framework the government has provided through the statement of expectations and a variety of other documents which are familiar to the committee, and which are reflected in the company’s corporate plan which has been discussed here over the last hour or so. I just want to go over a few of the main things that we think have been contentious and to provide some of our perspectives on those.

The first one is that some submissions have raised concerns about possible mission creep and NBN Co.’s temptation to move upstream into retail services. The concern is that some companies may become carriers and not provide services to the public, but that they nonetheless will be able to purchase services from NBN Co. because they hold a carrier licence for their own internal consumption. It is worth noting that this outcome is dependent on decisions of would-be customers, not those of NBN Co., and are therefore likely to reflect those customers’ views of the services that are on offer from the retail market at that time. Since 1997 the Telecommunications Act has not sought to restrict any person from becoming a carrier, nor has it sought to require a carrier to supply to the public. On the contrary, it has encouraged entry to the market with the wider benefits that this can bring.

However, the costs and inconvenience to an organisation of becoming a carrier should not be underestimated. In this case, it would include purchasing equipment to transform NBN Co.’s basic connectivity services into services that it could use for its own telephony, internet and other services. They would also include regulatory obligations, such as requirements to provide the security and law enforcement agencies with plans and assistance, paying the universal service levy and annual carrier charges and providing access to facilities and services for other end users—retailers. If a company finds it more efficient to take on these costs than to purchase from existing retail service providers then the law, as it has stood since 1997, does not stand in its way, and the government has not sought to change this.

There have also been comments on the provisions in the NBN Companies Bill that would allow NBN Co. to supply services directly to specified utilities. Telstra, in its submission to the committee, says that this compromises the government’s policy that the NBN will be a wholesale only network. The exemption in the NBN Companies Bill addresses the fact that utilities are currently exempt from classification as carriers and carriage service providers under the Telecommunications Act, even though they may in fact be acting as such. The bill simply seeks to allow NBN Co. to treat them as carriers and carriage service providers when it comes to the supply of services. These provisions support arrangements that promote economically efficient outcomes.

The Energy Networks Association and Competitive Carriers Coalition have made it clear that the types of services that utilities want are not currently provided by retail providers. Access to the NBN in this context is attractive to utilities because of the ubiquitous nature of the network and the fact that it could help to reduce their own infrastructure costs. The submissions from Smart Grid Australia and the Energy Networks Association note that direct access to the NBN will deliver synergies between the rollouts of the NBN and utility infrastructure and promote the growth of smart metering and other remote information management technologies.

The proposed legislation makes it clear that the sole use of a service supplied by NBN Co. is to carry the communications necessary or desirable for the utility’s internal services. Utilities cannot use these services to provide retail services to end users and they will still need to purchase normal communications services from retail providers. Some submissions have raised concerns about NBN Co. supplying services higher than layer 2. NBN Co.’s corporate plan and the government’s statement of expectations set out that NBN Co. is to operate at layer 2 of the network stack. NBN Co. has indicated, however, that some limited layer 3 awareness of functionality—for example, for multicasting—will be necessary. I think NBN Co. took questions on that earlier this afternoon. Telstra acknowledges this in its submission. So there are technical exceptions to a general policy and company rule.

The government recognises that powers are needed to ensure that NBN Co. does not engage in mission creep. To this end, the proposed section 41 of the NBN Companies Bill makes it clear that the minister may, by disallowable instrument, impose a condition on NBN’s carrier licence restricting it from supplying a particular service or requiring it to supply a service.

Turning to the NBN access bill, the proposed level playing field requirements have attracted attention. The provisions are complex but the policy objective is simple: to allow a complete network to be created, covering urban and rural areas and profitable and unprofitable markets with no breaks of gauge. The requirements are to simplify the making of industry codes and standards in relation to fibre infrastructure and services and to ensure that once the codes and standards are made new fibre networks are consistent with the technical specifications of the NBN. They provide that where a new fixed line telecommunications network is built, altered or upgraded after 25 November 2010 so that it is capable of supplying superfast carriage services—that is, download speeds of normally more than 25 megabits a second—it must supply a layer 2 bit stream service. They apply access rules to the layer 2 bit stream service based on those applying to NBN Co., particularly the discrimination requirements relating to volume discounting in accordance with a special access undertaking and variations from a special access undertaking or access determination needing to be lodged with the ACCC for publication. Again, that was discussed with the commission recently. The minister can also exempt specified carriers or network units from these obligations.

The government announced on 20 December 2010 that it would amend the NBN access bill to require new optical fibre networks for residential and small business users to be wholesale only. These requirements do not prevent other companies from rolling out fibre networks. They do require competitors to mirror NBN Co.’s operations or match its terms and conditions. They do not require them to operate within a comparable regulatory framework so that end users have access to the same quality services regardless of the network provider.

The provisions also mean that companies cannot target lucrative markets while leaving the challenging, high-cost and low-revenue segments to NBN Co. without facing comparable regulatory requirements. This will ensure that NBN Co. can deliver its objectives, particularly uniform national wholesale pricing and a rural network. The wholesale only requirement addresses the current bottlenecks which plague last mile customer access networks where vertically integrated service providers can exploit their market position to hinder market entry and competition. For example, some providers of fibre networks in new developments have locked end users into a single retail provider and do not offer wholesale services.

More generally questions have been asked about whether the drafting of provisions is fully aligned with the policy intention set out in the bill’s explanatory memorandum, which makes clear that the focus is on mass market networks. The government has been consulting industry and is considering whether amendments are required to clarify the operation of the provision.

Finally, there are concerns that the non-discrimination provisions in the NBN access bill could advantage the largest retail providers. Some have suggested that volume discounts should be prohibited or that any form of discrimination that aids efficiency should be prohibited. Discrimination based on efficiency grounds has long been recognised to promote efficiency and innovation. Price discrimination that aids efficiency is permitted under the general access regime of the Competition and Consumer Act as well as the telecommunications specific access regime in Part XIC. However, it is also recognised that regulatory oversight is required because price discrimination can enable a firm to exercise market power. The tension between these two considerations has been a perennial issue in telecommunications, as you have noted this afternoon, and the government has sought to achieve an appropriate balance in the interests of all stakeholders in the NBN access bill and the process envisaged in that bill.

The default position in the legislation is that NBN Co. must offer the same terms and conditions for all access seekers. However, it would be permitted to discriminate on limited and generally accepted grounds such as credit worthiness or discrimination that aids efficiency. Any discrimination based on efficiency can only be offered by NBN Co. if all access seekers with like circumstances have an equal opportunity to benefit from the varied terms and conditions. The bill provides for strong ACCC scrutiny and a very high level of transparency. Under the rules, all access agreements NBN Co. signs with its customers must be lodged with the ACCC. If NBN Co. signs an agreement with different terms from the standard terms it must advise the ACCC and the ACCC must publish the agreement on its website. This transparency will help other access seekers know whether they are in like circumstances. NBN Co. cannot offer a volume discount unless it is in accordance with arrangements set out in a special access undertaking which has been approved with the ACCC. This will ensure that all of industry will have an opportunity to comment on any volume discount proposals and ensure that any volume discounts determined up front by the ACCC do not have an adverse impact on competition and aid efficiency. NBN Co. will need to decide whether to include volume discount arrangements in its SAU and I presume it is doing that at present. The ACCC has a long history of making decisions about price discrimination in other wholesale access regimes. ACCC inquiries have been conducted in the railways, energy and airport sectors.

Senator FISHER —Chair, could we asked Mr Quinlivan to table his opening statement? I think it would help with the efficiency of questions.

Mr Quinlivan —I am happy to do that.

CHAIR —Only if it is in a condition you feel comfortable with should you table it. Senator Fisher, I am sure you will be able to start without the statement in front of you.

Senator FISHER —Mr Quinlivan, in your opening statement you talked about the utilities and the basis of the exemption. I heard you refer to a number of the grounds supporting the retention of that exemption, effectively, for example by energy networks and others. Are there any reasons beyond those putting the submissions to this inquiry thus far that you would nominate in support of continuing the exemption, or is that the full gamut?

Mr Quinlivan —I am not aware that we have had full exposure to all the submissions, but they were the main points that we wanted to make and the main points that we understood that particular group of stakeholders had made.

Senator FISHER —So they are already exempt, and you talked about a utility not being able to on-provide or acquire the services from NBN and then provide them to the public. That is what I thought I heard you say.

Mr Quinlivan —The utilities, as I understand it, are prohibited from acquiring a carrier licence, which means they are in a different situation to the Woolworths example we were using earlier.

Senator FISHER —Yes, but how does that prohibit them from on-providing to the public?

Mr Mason —Basically the provisions in the legislation limit the utilities to use those services for the administration monitoring of their networks.

Senator FISHER —The services they get via the exemption provisions.

Mr Mason —The services they would acquire from NBN Co. if they did acquire services from NBN Co, yes. They are limited in the purposes for which they can use them. They can only use them in relation to the administration, operation and monitoring of their networks. It is fairly consistent with the language in the Telecommunications Act at the moment as to why utilities get exemptions from being carriers. Can I clarify that the issue with the existing legislation is that utilities for historical reasons are generally exempt from carrier licensing requirements because basically they pre-existed the current framework. So when the legislation was put in place in 1997 those kinds of exemptions were grandfathered over so they can operate those kinds of facilities without having carrier licences or having to be carriage service providers.

Senator FISHER —So you are adding a historical justification.

Mr Mason —No, I am simply explaining the way the legislation works. We have reflected that in these exemptions. An electricity operator could actually seek a licence if it had to or it wanted to, but that is a separate exercise. In terms of additional justifications—

Senator FISHER —Let me take that point. If it were to, what is your view beyond what Mr Quinlivan has said of Optus’s suggestion amendments that say that a carrier licence should stipulate that the licence can only be given effectively if the services provided are then on-sold to the public.

Mr Mason —Those Optus provisions are not consistent with the policy framework which the bill seeks to implement. We have looked at them carefully, we understand how they work, but it is not really consistent with the policy framework.

Senator FISHER —So what would be the operational implications of those amendments?

Mr Mason —The operational implications of those amendments would basically change the way the Telecommunications Act works in relation to the definition of a carrier, because at the moment a carrier is somebody who seeks that authorisation, takes on those responsibilities and can use the services it acquires to supply to the public or to itself—or to another person in the industry even, so not necessarily to the public as it would be generally understood.

Senator FISHER —So you take issue with those who make the contention that it is kind of implied that the licence is provided for on-selling to the public even though it is not expressly so provided.

Mr Mason —I think the legislation in the Telecommunications Act is fairly clear that you can get a carrier licence and not have to on-supply to the public. I am happy to be corrected but that is my understanding. Could I add that, in relation to the benefits that utilities could derive from having access to NBN Co., there were additional arguments put by Energy Networks Australia which we thought had a fair strength behind them, particularly in relation to the synergies that could be derived from making use of NBN Co. facilities and the scope for retailers to add value in the margin that that would entail for them.

Senator FISHER —What are some examples, in your view, of services that the utilities could acquire directly from NBN Co. that either are not available or would not be able to be made available by retail service providers?

Mr Mason —Those questions are probably better addressed to the utilities. Basically, for NBN Co., it is in the public domain that it will provide a basic layer 2 service. That would be the service that utilities would acquire from it and make use of as they need to. It is a basic connectivity service. People downstream can transform it and make use of it as required. I am not quite sure. It is a fairly basic service.

CHAIR —Just so you understand, Energy Networks Association have made substantive submissions on this issue. As to what you are saying about it, they have already made substantive submissions on this.

Mr Mason —I was just indicating that they seem to be valid arguments from our perspective.

Senator FISHER —Is the policy underpinning the exemption for utilities to allow them access to the services they need at a cheaper price or is it to ensure that they have access to the services they need?

Mr Mason —The rationale for it is that they have access to the services.

Senator FISHER —So it is driven by the nature of the services they say they need and not by money?

Mr Mason —Fundamentally, yes.

Senator FISHER —Right.

Mr Mason —Mr Quinlivan has pointed out that it is both, but there is the question of getting access to the service prima facie as opposed to what price is paid for it. I was going to say that there is nothing in the legislation that precludes—in fact the legislation provides for it—intermediaries acquiring the services from NBN Co. and resupplying them to utilities as well. I think that was the point that ENA was making last week.

Senator FISHER —Therefore you are suggesting that you are obviously contemplating a scenario where retail service providers might well be able to provide the services required by utilities were they given the opportunity.

Mr Mason —They would have the opportunity because NBN Co. is to operate on an open-access, non-discriminatory basis.

Senator FISHER —In theory, yes. But, in practice, once the exemptions are provided it gives the utilities, arguably, a leg-up by directly having access to NBN Co. Therefore, even whilst a retail service provider would be a competitor if they could be, in theory and in practice how could they be? In practice, how would that happen, given the leg-up to the utilities by the exemption—or the leg-up given to NBN Co., really?

Ms Spence —One observation is that NBN Co. is limited in what it is the utilities are actually purchasing from NBN Co. So you can envisage a situation where the RSP can come up with a more innovative bundle of products so that they are providing the basic connectivity service that the utility could purchase directly from NBN Co. along with something to provide the internet and telephony services the utility wants. In some ways this is creating scope for RSPs to be more innovative in the nature of the services that they are offering to the utilities, giving the utilities a choice to buy the direct basic service from NBN Co. plus another product from an RSP or going to the RSP and getting an interesting new service which meets their needs.

Senator FISHER —But, Ms Spence, didn’t your answer just concede that the RSPs would be, in principle, in competition with NBN Co. in respect of the provision of the basic service to utilities?

Ms Spence —Not in competition with the NBN Co., because NBN Co. has to provide the same price and same product to the utility.

Senator FISHER —I guess it is dancing around the semantics really, isn’t it? I think we can probably agree to disagree in that respect. Can you confirm something. I understood Mr Mason’s answer about the Telecommunications Act earlier to be saying that, for example, if a bank or a retailer could not get a licence as a provider they could then use a carrier licence to obtain the services directly from NBN Co. for internal use and so basically there is an indirect route to exemption by getting a carrier service provider licence. That is at odds with evidence we heard from other witnesses today.

Mr Mason —Any entities such as you describe, like a large bank, retailer or any other enterprise, could apply for a carrier licence. If they meet all the requirements they could obtain a carrier licence and, yes, NBN Co. could supply to them. But, as Mr Quinlivan pointed out in the statement, while that process in itself seems simple enough, there are significant obligations that follow with it.

Senator FISHER —What could they then do with the services acquired? That is my question.

Mr Mason —They could use them for internal consumption, as they can now.

Mr Quinlivan —Or on sell.

Mr Mason —Or supply to other people in the industry as a wholesaler.

Senator FISHER —Why does a smart grid require the NBN?

Ms Spence —That is probably a question better directed at utilities than broadband.

Mr Mason —I was going to say that, in the opening statement, Mr Quinlivan pointed to the ubiquity of the NBN. Obviously those premises have electricity as well, so the NBN potentially provides a platform that utilities could use for that kind of functionality. I think the important thing to say is that what the legislation is doing is providing that option for the utilities. It is not actually saying utilities need to use the NBN or will use the NBN, but it provides that option.

Senator FISHER —How big do you consider the market is for the provision of network services to utilities? How big has it been, how big is it today and how big could it be in five years time? And why shouldn’t Telstra and Optus, for example, have access to that market?

Ms Spence —I just make the observation that Telstra and Optus still can have access to that market by selling on products based on an NBN Co. one. There is nothing precluding them from entering into that market.

Senator FISHER —Except NBN Co. get the leg-up to get in their first, arguably.

Mr Quinlivan —I think we are looking at this from the wrong angle.

Senator FISHER —That is what I am saying. We might have to agree to differ because it depends—

Mr Quinlivan —We are really talking here about judgments that in this case utilities make or, in a different context, that companies make about the best way of acquiring their services and operating—

Senator FISHER —So that is why you said in your opening statement something about it not being an NBN Co.—

Mr Quinlivan —That is right. All that NBN Co. is doing is offering a basic network. We are talking here about the choices people make—whether to do things themselves or to do them via specialised intermediaries or responsibilities—to best serve their needs. The exemption for utilities is designed to leave that option open and to enable them to make judgments themselves about the best way to meet their needs. It does not provide NBN Co. with any leg-up or preferences at all.

Senator FISHER —I guess that is if you accept at face value your contention that the exemption is driven by the nature of the services required and not the price at which they are acquired, because it is the latter of which you can argue has given NBN Co. a leg-up.

CHAIR —Senator Fisher, that is not what was said.

Mr Quinlivan —Taking the point that Ms Spence made earlier, if a retail service provider is able to provide a service at a competitive price that has lots of features that are not otherwise available through an internally sourced product then obviously the utilities would be very attracted to it. It is not just price; it is the quality of service and what is the most useful product for the utility company. That is the question they will be seeking to answer.

Senator FISHER —And at what price. I do not have any more questions on this particular area. I have got other questions, though.

CHAIR —Senator Ludlam.

Senator LUDLAM —I will be brief because I think most of my questions have been asked. We took some evidence earlier in the day from the Internet Society that was quite critical about embedding Ethernet, for example, in the legislation because that is going to be a legacy technology sooner or later. I am not sure whether you were here, but have you read their submission and would you take that on board?

Mr Quinlivan —We have seen a reference to the evidence given. I do not know that we have got a view just yet.

Mr Mason —It is an issue that we are looking at more closely. There is reason to provide some specificity so that there is certainty in the sector, but there are also arguments for flexibility.

Senator FISHER —Is it programmatic? I didn’t say that!

Senator LUDLAM —You did say it; Hansard will show that you did!

Okay, so you are not necessarily wedded to the language that is there at the moment that nails us down to having to amend this thing every couple of years as the technology turns over, which I thought was a point that they made quite well.

The cherry-picking provisions are the only issue of mine that has not been addressed so far in other questions. We have heard a couple of very different views on this today. Telstra proposed to just abolish them all together. NBN Co. have said it is going to cripple their business model, according to the numbers they provided. How do you respond to somebody like TransACT? They still seem to be a bit stranded and a bit uncertain as to how this issue is going to affect them.

Mr Quinlivan —I guess the general policy principle, as I mentioned at the outset, is that the government sees NBN Co. building a complete national network, which means covering everybody in one form or other, including the unprofitable parts of the network, and therefore it needs some protection so that anybody who is wanting to build out the lucrative parts of the network first has to operate under exactly the same terms and conditions. It also is important, from a rollout point of view, that NBN Co. has confidence that those arrangements are in place from the outset, otherwise naturally its rollout will start with the most lucrative parts of the network and build out, rather than in a more—

Senator LUDLAM —I am comfortable with that.

Mr Quinlivan —That is the overall policy principle. So it is designed to achieve an outcome, not to punish anybody. That is important to acknowledge. It is not targeted at TransACT or any one party. We are aware of TransACT’s concerns and we are having a look at them.

Senator LUDLAM —This could all be upon us very quickly. I am not sure that they were feeling targeted; it was more that they were feeling like they were in the path of something that was moving very quickly.

Mr Quinlivan —Yes. We understand that.

Senator LUDLAM The —All right. I will come back later, Chair, if there is time.

CHAIR —Mr Quinlivan, the submission from the Energy Networks Association said that they saw the utilities exemption as extremely important. Just so we get the record straight, what they actually said was:

Maintenance of this exemption is very important to the ability of electricity and gas network businesses to meet 21st century expectations around affordability, reliability and quality of energy supplies.

From the department’s point of view, is that a reasonable proposition from the ENA?

Mr Quinlivan —I think the general principle we are looking to follow here is that we are allowing them choices in how they best meet their needs. The mechanism that we have in the bill is designed to achieve that, and it sounds, from that quote and the evidence they have given, as though they believe it does provide them with opportunities to achieve efficiencies in their business, and that is a good thing. That is what the NBN is all about.

CHAIR —They also argued that amendments 5 and 6 to the bill would have the effect of deterring energy network businesses from using the NBN. Are you aware of that?

Mr Quinlivan —I assume you are referring to the opposition amendments.

CHAIR —Proposed opposition amendments 5 and 6. They say:

The Federal Opposition’s proposed amendments 5 and 6 to the Bill may have the effect of:

  • deterring energy network businesses from using the national broadband network (NBN) ...

Would you have that view?

Mr Quinlivan —That is our understanding of what those amendments would achieve, yes.

CHAIR —They also argue that the opposition’s amendments would be:

  • encouraging socially inefficient duplication of communications infrastructure ...

Mr Quinlivan —I do not know about the latter part, but certainly the government has indicated that it does not support those amendments. The reason, as I said, is that it wishes to leave opportunities open for the utilities to make their own choices about how they manage their affairs and how they use the network.

CHAIR —We have had long debates here today about scope creep. What do you see as the checks and balances against scope creep by NBN into layer 3 operations?

Mr Quinlivan —I probably have not really got anything to add to the evidence that NBN Co. provided earlier about the clarity of the government’s policy and instructions to the company, the regime envisaged in the bill and the fact that the company’s own policy and operation are designed around the layer 2 product with some very limited uses of layer 3 services for essentially technical and management reasons, not for commercial reasons.

CHAIR —I am asking you about the legislative checks and balances against NBN moving to a layer 3 approach.

Mr Mason —In the bill at proposed section 41, from memory, there is provision for the minister to make licence conditions to deal with those kinds of things: what services NBN Co. could supply and not supply. So that is a mechanism that can be brought into effect if there is a demonstrated need for it. It is a method that has been used to put requirements on carriers for many years.

Senator FISHER —In the view of some, NBN Co. management has hinted at some intention to mission-creep and to pursue a broader role than that encompassed and that you have just reassured Senator Cameron is implicit in the legislation.

Mr Quinlivan —I am not sure what you are referring to.

Senator FISHER —I am just about to ask it actually. Do you think that the actions and/or strategies of NBN Co. to date in any way hint that the management are inclined to mission-creep?

Mr Quinlivan —I think the management is very focused on rolling out the network and solving the problems inherent in that. That is very much a full-time occupation.

Senator FISHER —So they are focused on the last mile.

Mr Quinlivan —They are focused on the network as a whole: the satellite services, the wireless services, the fibre rollout and all of the commercial instruments and agreements that are necessary to give effect to a business based on that network. It is a very large enterprise, as you know—

Senator FISHER —Indeed, large and ambitious in the view of some.

Mr Quinlivan —and I think mission-creep is the last thing on their minds.

Senator FISHER —I refer to the privatisation provisions. Why would a business entity like NBN Co., which has 100 per cent ownership, bother with innovation or anything to drive change in the future?

Mr Quinlivan —I think the government is confident that it has chosen a very good board and has a world-class executive team who are very focused on rolling out the business and the network successfully. They are having to solve a very large number of novel problems, ones that have not been solved in Australia or elsewhere, in doing that. Innovation and creativity are absolutely essential to that. So we are confident that for the period of the rollout at least there is a huge imperative for innovation and creativity. Once we are in a steady-state situation with the rollout essentially completed—I concede your point—a different set of incentives could begin to influence the company’s behaviour and that is why the government envisages a very close look at different ownership arrangements at that time.

Senator FISHER —Some think—and we heard from one of them today—that the privatisation provisions should, essentially, be able to be made more prescriptive—for example, by a minister having discretion. But there are plenty of others who think that the privatisation provisions are very restrictive and onerous. To that end, what is your view of the likelihood that the NBN Co. will be privatised? Could it not be argued that the provisions are so onerous as to justify NBN Co. never being privatised?

Mr Quinlivan —That would be a policy decision for the government of the day to make at that time. I draw your attention to the central role of a review by the Productivity Commission before a decision is made, which would be designed to make sure that if privatisation were to occur a contemporary and effective set of regulatory arrangements could be put in place so that we were not simply privatising a natural monopoly without making sure that the ongoing public interest was looked after. Basically, it would be a judgment for the government of the day.

Senator FISHER —In that scenario—that the Productivity Commission were to ensure greater ability for privatisation—then necessarily their recommendations would have to be towards liberation rather than further restrictions, surely.

Mr Quinlivan —A lot of things could happen in the telecommunications market between now and that time. It is interesting speculation, and I am sure it will be a hotly contested question at the time if indeed a government then decides to proceed with privatisation.

Senator FISHER —We have attempted to learn from some of the stakeholders what impact the cherry-picking provisions will have on them. What effect do you think the anti-cherry-picking provisions will have on the opportunities for non-NBN players to roll out fast broadband networks?

Mr Quinlivan —It is clear that the arrival of the NBN, and both the very large new investment that will be going into fibre networks now and the provisions in this bill, will change the commercial environment in which these companies are operating. Clearly, there will be a lot more construction work but fewer options for companies in the way in which they invest in the future. That is an explicit part of the policy arrangements to achieve a national, uniform network.

Senator FISHER —So there will be less incentive and less ability for non-NBN companies to compete, basically, in the provision of that part of the infrastructure.

Mr Quinlivan —I think the company particularly is looking for vigorous competition in rolling out networks on its behalf, under its specifications—

Senator FISHER —Neat answer!

Mr Quinlivan —and in accordance with the uniform regulatory requirements. If people can meet those, that is terrific.

Senator FISHER —Why will the requirement for technology used by non-NBN networks to be technologically similar to NBN’s not tend to stifle technological investment? Is it not essentially a policy decision to pick a winner—not pick winners but just pick the NBN as the winner?

Mr Quinlivan —I used to work in railway policy, Senator—

Senator FISHER —Was that as good as what you are doing now? Surely it was not as much fun?

Mr Quinlivan —The break-of-gauge problems—and it is the same in the road transport sector where there are different rules in different states and so on—are a huge problem. That is an overriding objective in the arrangements that have been crafted here.

Mr Mason —I think this is an area where there have been some misunderstandings. The legislation actually provides for the ability for codes and standards under part 6 of the Telecommunications Act to be expanded so we can more readily have codes and standards made in relation to matters dealing with fibre rollout—for example, the installation of pit and pipe and the configuration of customer access networks. In that framework, NBN Co. could put forward its specifications for general acceptance across the industry, that could be adopted and there could be flexibility within that framework. That is actually what the legislation provides for. I note that there have been comments that everything will have to meet NBN Co.’s specifications. I think the language we actually use is that everything would have to be consistent with NBN specifications—there is a subtle but important difference.

Senator FISHER —In respect of the requirement for non-NBN networks to provide access to retailers on the same terms as the NBN, what impact do you expect that to have on those would-be investments by non-NBN players? Why would they do it? What is it going to do to their return on investment?

Mr Mason —Can I clarify something? You said ‘on the same terms and conditions as NBN Co.’; there is nothing in this bill that requires that. As Mr Quinlivan said, the arrangements are that the people who operate those facilities would need to operate within the same kind of regulatory framework—for example, they would have to put in an SAU and not discriminate.

Senator FISHER —So it is the access that is the same terms and conditions is it?

Mr Mason —It is the regulatory requirements. They can still set their own prices, subject to ACCC oversight. I think this came up in the House debate. There were some statements to the effect that everyone would have to do the same thing as NBN Co., but that is not the case. It is not to create a totally uniform system; it is to ensure that if there are competing networks—or there are networks in those localities; I qualify ‘competing’ because, as you know, in that local access network it is fairly much a monopoly in a practical sense—there are comparable outcomes on those networks.

Senator FISHER —All right, I will think about that clarification. Do you think there is any prospect that those aspects of the bills can delay rollout?

Mr Mason —Delay rollout by other providers?

Senator FISHER ——Of the NBN—in terms of there being a contest to provide services or access. I take your point that there is not a requirement for mirror. Maybe not; maybe it is jumping at shadows?

Mr Mason —I think, as Mr Quinlivan has pointed out, those provisions have been put in place to ensure, amongst other things, that NBN Co. operates on a level playing field, so people will take that consideration into account. The bar set for NBN Co. is quite high—it is to be a wholesale only, open access, non-discriminatory company, and that is what the legislation provides for in relation to other people who may enter those markets.

Senator FISHER —So that is a no?

Mr Mason —No, that is my answer—sorry.

Senator FISHER —My final area of questioning is around freedom of information and public works. Why should NBN Co. be exempt from FOI requests that other agencies have to deal with? If it is commercial-in-confidence, how is NBN Co. in competition to justify that ground?

Mr Quinlivan —I think the first point is that NBN Co. is not another agency. It is an incorporated company and other incorporated companies are not subject to the FOI act.

Senator FISHER —Mr Quigley said it is a GBE. Are other GBEs subject too?

Mr Quinlivan —My understanding is that there is only one incorporated company which is subject to the FOI Act and that is Aboriginal Hostels but it is not a GBE. My understanding is the answer is no. That is the circumstance in which NBN Co. was not subject to the FOI Act. Obviously there have been other developments in the parliament which look as though they will change that but the origins of it were not a matter of deliberate policy by the government, just simply the historical operation of the FOI Act, but it does not apply to incorporated companies.

Senator FISHER —So commercial-in-confidence is not part of the justification?

Mr Quinlivan —The point I am making is that there was in a sense no explicit justification. It is just that the operation of the FOI Act was limited and did not extend to incorporated companies and so did not extend to NBN Co.

Senator FISHER —So you see it as not extending to NBN Co. rather than it being excluded?

Mr Quinlivan —The government did not make the decision to exclude NBN Co.; it made a decision to establish it as an incorporated company and under the law that applies now it is, therefore, not subject to the FOI Act.

Senator FISHER —Correct me if I am wrong: has the minister not justified NBN Co. keeping its activities secret in terms of FOI on the basis that they are commercial-in-confidence? How can it be, given than competing networks and technologies will be prevented from competing with NBN Co. and surely after the Telstra deal, for example, is hammered out?

Mr Quinlivan —That is a different issue. You are now asking about the policy logic behind acceptance of an amendment to the FOI Act or some other legislation which creates coverage of the FOI Act over NBN Co. and the way in which that might be limited, the logic behind it and so on. That is an issue the government and the Greens have been discussing in the context of amendments to the FOI Act. That is not the origin of NBN Co. exemption from the FOI Act; that is an argument about extending the reach of the FOI Act over NBN Co. and the form in which that extension happens.

Senator FISHER —What do you think of that argument, given that other would-be competitors will not be able to compete, particularly, I presume, once the Telstra deal is hammered out. And it is also consequent upon an agreement being reached between NBN Co. and Optus.

Mr Quinlivan —I cannot really comment on the logic of the agreement which has been discussed and the amendment which has been produced. I think the basic proposition that NBN Co. is operating in secret sits pretty oddly with the amount of scrutiny the company has and the fact that most of what it does is going to be subject to ACCC scrutiny of one kind or another which will involve public exposure of documents in the context of special access undertakings and so on.

Senator FISHER —Mr Quigley says he does not want to be subject to scrutiny from every man and his dog in the context of parliamentary scrutiny. In his view it does something like hamper business.

Mr Quinlivan —He may have expressed concerns about the amount of reserves involved in meeting the accountability requirements currently applying to the company and you can understand that in the context of the mission the company has which we were talking about earlier. The company itself is subject to historically high levels of scrutiny and public transparency.

Senator FISHER —My final question—and it may go into two questions—is about the exemption from the Public Works Committee. Why should NBN Co. be exempt from scrutiny by the Public Works Committee, given that the $15 million threshold gives the committee investigatory powers into public outlays in excess of that amount? Why should NBN Co. be exempt? And to what extent is the claim made by the minister, if I recall correctly—

CHAIR —Point of order. Mr Quinlivan has actually explained that it is not an exemption. I know it is getting late—

Senator FISHER —No, no. He was talking about freedom of information, not the Public Works Committee. I am asking now about the Public Works Committee.

CHAIR —It is the same process.

Senator FISHER —Maybe, maybe not.

CHAIR —Okay. Ask the question.

Senator FISHER —I do not have the minister’s letter in front of me and I am going from recollection, but I think I recollect that the minister’s letter to the Governor-General seeking her exemption from the Public Works Committee process relied on NBN Co. being in competition with others. That is of course a relevant question, given that the government could have chosen to debate the exemption through parliament and instead they went running to the Governor-General with this basis.

Mr Quinlivan —We also do not have the letter at the table, but the proposition that NBN Co. be exempt from the Public Works Committee Act is consistent with the treatment of Australia Post, Telstra and other publicly owned telecommunications carriers. The primary logic is that the need to have individual projects above $15 million reviewed and approved by the Public Works Committee would be a significant commercial disadvantage to them because they are doing a very large number of those projects, replicated over and over again across the nation. I think it is not so much that it is in competition as that it would be commercially disadvantaged by the need for that kind of scrutiny on an ongoing basis, as opposed to scrutiny of the overall project, which it is getting plenty of. That logic has been previously accepted with Australia Post and other telecommunications carriers which have similar networks.

Senator FISHER The —As I understand it, the logic—to use your words—which the Governor-General can accept as applicable is legislatively defined. There are two or three grounds upon which it can be requested and she, in this case, can exempt. Is that one of those grounds?

Mr Mason —I do not know the precise grounds off top of my head, but I would think that difficulties in rolling out a network and it being delayed by that consideration in a commercial context would be a legitimate consideration.

Senator FISHER —That may be so, but the government, as I said, could have chosen to debate this through the House, if not the parliament. Instead they did not; they chose the route of going to the Governor-General. As I understand it, the bases for that route are legislatively proscribed and prescribed. I want to know whether the number of projects to be rolled out nationwide is one of those legislative proscriptions and, if not, how is the exemption sought of and granted by the Governor-General valid?

Mr Quinlivan —I think that is a technical and legal question.

Senator FISHER —Can you answer it?

Mr Quinlivan —I am confident it was properly explored at the time when that mechanism was chosen as providing an urgent access to an approval facility.

Senator FISHER —On what basis are you expressing that confidence?

Mr Quinlivan —Because I am familiar with the people who would have done the research and provided the advice. But I do not have it here at the moment.

Senator FISHER —Who are they and can you get it to me?

Mr Quinlivan —Can we take the question on notice and get back to you on that?

Senator FISHER —Please. Thank you.

CHAIR —Thanks, Mr Quinlivan, Mr Mason and Ms Spence. That concludes the questioning for today and the business of the committee for today. I thank Hansard, the secretariat and the senators. Questions on notice have to be back by 10 March, so you do not have long.

Mr Quinlivan —We will do our best.

Senator FISHER —Also known as tomorrow! Thank you very much.

Committee adjourned at 4.39 pm