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Joint Committee on the National Broadband Network
(Joint-Monday, 16 May 2011)
Senator IAN MACDONALD
Senator IAN MACDONALD
ACTING CHAIR (Mrs D'Ath)
Senator IAN MACDONALD
Senator IAN MACDONALD
- Senator CAMERON
Content WindowJoint Committee on the National Broadband Network - 16/05/2011
QUIGLEY, Mr Mike, Chief Executive Officer, NBN Co.
CHAIR: I welcome the first witness, Mike Quigley from NBN Co. Ltd. Although the committee does not require you to give evidence under oath, I advise you that these hearings are formal proceedings of the parliament and warrant the same respect as proceedings of the respective houses. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. Before we proceed to questions on the rollout, I would like to remind everyone that we will deal with issues surrounding greenfields developments and the fibre deployment bill at the end of Mr Quigley's evidence, so I would ask you all to hold off on these matters until then. Mr Quigley, would you like to make an opening statement?
Mr Quigley : Yes, I will, thanks. I would first like to address the issue reported in today's press. On 27 December 2010 the US Securities and Exchange Commission, the SEC, working with the US Department of Justice, the DOJ, announced the conclusion of a five-year investigation, after which Alcatel-Lucent agreed to pay fines of a bit over $137 million to settle bribery allegations against a small number of employees. Following media inquiries on this matter, Alcatel-Lucent issued a statement on 31 December 2010 which said:
In its investigations, Alcatel-Lucent found no evidence that either Mr Quigley or Mr Beaufret had any involvement in, or knowledge of the actions of the former Alcatel or its subsidiaries ' employees that are outlined in the allegations presented by the US Department of Justice or the Securities and Exchange Commission in connection with Monday ' s announcements.
Following press queries, I queried and was advised by one of my previous colleagues in North America who is currently still with Alcatel-Lucent to check for me whether Costa Rica was within my area of operational control. On the basis of that advice I stated that it was not. This was an error, for which I unreservedly apologise. I issued a correction the same day I became aware of that error. It is not my intention to familiarise myself with the results of the five-year investigation carried out by the Securities and Exchange Commission or the Department of Justice, which I believe is subject to a settlement hearing in the US in early June. I will not be commenting further on the matters other than to repeat that at no time has the US SEC or DOJ sought to interview me or question me regarding any of those matters. I will put that issue aside now. I would like to return—
Mr TURNBULL: Do you want to deal with some brief questions relating to this issue?
CHAIR: No, we will deal with that in the questions.
Mr Quigley : I would now like to turn to the job I have been hired and paid to do, which is to run the NBN. My further opening remarks will relate, as best they can, to the terms of reference for the committee. Just to remind you again, we are designing and building a wholesale-only, open access, layer 2 ethernet network. We are trying to satisfy the government's objectives, which are to fibre 93 per cent of premises throughout Australia, with the remaining seven per cent to be covered with a combination of fixed, wireless and satellite.
We intend to use, in all three technologies, four product constructs, which are: device in the home, which is providing the user network interface and a network terminating device with four data ports and two analog terminal adapters to which people can plug in normal analog phones; we then have some speeds in megabits per second as a product construct; we also have a connectivity part of our product offering, so that retail service providers, our end customers, can differentiate the plans that they offer into the marketplace; then, of course, we have a connection point at a point of interconnect where the network-network interface takes place. As I think many of you know, there are 121 of these points of interconnect decided by the ACCC.
We are trying to make sure that those four product constructs are as similar as we can possibly get them across the three technologies. That is not possible to do completely, but we have certainly endeavoured within the constraints of technology to bring them as close as we possibly can.
Ubiquity and standardisation are also very important across the country, so that people can connect from the same point of interconnect using the same BSS processes and interfaces, using the same processes and, as I have said, at the same prices and product constructs as far as we can across the three products.
Fibre to the premise is now the technology that is being deployed widely by telcos around the world when they are looking at high-speed broadband, particularly those that are looking for a long-term investment in networks. In our rollout, there are five distinct and discrete network components. There is the box that is in the premise, the network terminating device. There is the lead-in that goes from the premise, from that box to a point normally on the street from the premise, which can either be at the top of a pole or in an underground pit. There is the local network that connects from that point back up to the splitter, which is in a fibre distribution hub. And then there is the part that connects that fibre distribution hub or splitter, because this is a GPON network, back up into the fibre access node, the fan sites from which all the fibre fans out. Then from the fibre access nodes, of which there are approximately a thousand across Australia, you go back to the 121 points of interconnect through the transit networks.
Our job is to build those five different components right throughout the country. We have speeds, as you know, starting from 12 megabits per second down and one megabit per second up all the way through to a gigabit per second down and 400 megabits per second up. And we have complementary capacities on our connectivity virtual circuit.
We are trying to make sure that we leverage third-party construction projects wherever they occur, in types of coinvestment strategies. You may have a state government, a utility, a local government or a company that is undergrounding power or doing network maintenance in which it is possible for NBN Co. and that company, utility or authority to share the cost of fibring or ducting. Wherever that is possible to do, that is what we are doing. It could be if new roads are being created or the like.
We are also trialling in Tasmania, as we do the next seven sites in Tasmania, a fibre network extension. This is to try and accommodate those people who are not in the planned 93 per cent of premises in our fibre footprint but nevertheless would like to get a fibre connection. So we are trialling a process for those people who are prepared to pay the differential cost between the last percentile up to the 93 per cent. As you know, the costs go up with each percentile you do. So the costs go from the 93 percentile to whatever the additional costs are for them to have a fibre service. They would then pay and then we can fibre those premises.
There are some misunderstandings around the wireless product. We are providing not a mobile service but only a fixed wireless service. I keep repeating that. It is also the case that, as we all know, a lot of services these days are delivered via some type of radio technology, including wifi. I would reiterate that wifi is almost always terminated on a fixed line connection. It is on ADSL today and will be on fibre in the future. On our wireless product, we are dimensioning to make sure people get a very good service—in other words, they get high throughputs on their fixed wireless service—which means we are limiting the number of premises per cell that we will dimension on the fixed wireless path. Once again on wireless, we have speeds ranging from 12 megabits down and one megabit up. Those speeds of 12 megabits per second will extend out to the very edge of the cell.
We have two satellite products that we are doing as part of the NBN. The first is an interim satellite product until we can launch the final satellite product. The interim satellite product is a transition from the current Australian broadband guarantee and we announced that just a week or so ago. We have a relationship with Optus and a number of other parties so that we can deliver that six megabit down and one megabit per second up existing satellite and we hope to significantly improve the satellite services available to Australians from the middle of this year.
In order to deliver the final satellite product, we will be launching two large Ka band satellites with 80 gigabit per second capacities on each. In Australia we have some five per cent of the world's land mass, so there is a very large area to cover—I think a bit over 7,000 kilometres between Cocos Island and Norfolk Island. That means the satellite design is not easy. We are anticipating providing services to at least 200,000 premises. Just to give you an idea, today's broadband satellites that are above Australia have capacities of around four to six gigabits per second and each of these satellites will have an 80 gigabit per second capacity.
We are obviously going to be tracking a number of metrics as we build the network and I think some of those will be of interest to the committee. Of fundamental importance, of course, is the number of premises passed or covered. What we mean when we declare a premise passed is that we have put everything in place so that the owner of the business or premise can take a service. Everything is there. All we have to do then is drop the lead in and hook up the network terminating device, which will normally be done in consultation with the retail service provider. So when we say a premise is passed it means we are ready to deliver a service. When we talk about a premise being activated, we mean that we have received a valid service order and we have turned on a service through a retail service provider. They are two definitions of things that we will be tracking that I imagine will be of great interest to the committee—premises passed or covered and premises activated. In the case of greenfields, the premises passed definition has to be modified somewhat because we are talking there about lots passed. Over time, the lots are built out, so we will pass a lot.
Those are targets we will be making the committee aware of and you will find them in the corporate plan. There were some targets for numbers of premises passed and premises activated, but I would like to draw the committee's attention to the fact that they were indicative targets in the corporate plan with a number of dependencies. The first and most important dependency is the availability of exchange facilities for the location of the semidistributed POIs. As you all know, our intention is to use Telstra facilities for a large number of those points of interconnect. Clearly, until the Telstra negotiations are completed and the Telstra deal is finally done, we cannot move ahead with making those points of interconnect available. That is an issue with which we have to deal. We also, I think, gave some indications of greenfields numbers, and we now have 1,480 applications for a total of 133,000 premises. As you mentioned, Chairman, we will deal with that one a little bit later.
Obviously we have been working very hard on tenders to make sure that we have all the materials and the services that we need to build out the network. We have a solid track record of negotiating what I believe are cost-effective deals for the goods and services that we will need. Over the past 18 months we have conducted some 90 tenders involving literally hundreds of companies, and that has been an intensive piece of work.
I have stated that we will not 'build at any cost'. We understand our obligations to taxpayers to deliver value for money for their tax dollars, so we announced on 1 April that we had suspended the existing construction process and entered into a new process, which is ongoing. As I said, my expectation is still that we will successfully conclude that and produce a good result for the Australian taxpayer.
I move now to Tasmania. We have had with stage 1 a prerelease of three towns—Midway Point, Scottsdale and Smithton—that have been fibred. Seven hundred and twenty-three services have been ordered in those three places as of 6 May, and 712 services have been activated. Some 4,000 premises have been passed and some 2,000 premises provided consent to have a lead in connected through their home. While we did not expect those numbers to be very large, we are in fact quite happy with the results that we got from the three Tasmanian sites and the learnings that we had in that place.
We have now announced, on 28 April 2011, Tasmania's stage 2, which is seven towns—Deloraine, Kingston Beach, George Town, Sorell, South Hobart, St Helens and Triabunna. That is a total of just a little over 11,000 homes and businesses in that fibre footprint. We have selected our partner down there, which is the energy utility Aurora Energy, and community engagement activities are well underway. I think we have already started some community information sessions and brief councils.
I have some information on greenfields, but I will leave that—as you suggested, Chairman—to the later part of today's proceedings.
I also want to stress that, with tens of thousands of people who will be working on the project, some of them in traffic-exposed locations using sometimes large machinery or potentially working at heights or close to pylons, safety is a priority. We have quite a number of strategies in place to make sure that we deal with health, safety and environment issues. We are working to Australian standard 4801 or ISO 14001. We have appointed an HSE general manager. We have an HSE manager assigned full time to each construction site. I personally chair the HSE reviews that we conduct in the company every two weeks, and we have a number of key performance indicators that we are reviewing with the board of NBN Co. We have put in place stringent HSE requirements in all of our construction contracts and, most importantly of all, we are establishing a no blame safety culture across NBN Co. where people are encouraged without fear or favour to report any potential near misses or anything that they think should be drawn to the management's attention.
Likewise on quality. We are putting a lot of focus on quality, establishing a quality program to ISO 9001. We have appointed a quality manager. We have some specialists in quality technology. And, once again, I chair a quality review that takes place on a fortnightly basis. We also have a subcommittee of the board that reviews both safety and quality, and that meets on a regular basis.
As we know, it is a risk in these types of large construction projects that costs can be an issue as you build. We have put in place a number of mitigation strategies to ensure that we achieve the cost targets we have set ourselves, including a very strong focus on continuous improvement. I reiterate what I said before: this is not a one-off bridge construction or tunnel construction; this is like running a large factory in which you are doing the same thing over and over and over again around the country, so the opportunity to use a modular methodology to get improvements in the supply chain and ongoing improvements in construction is a very important thing for us. It is to that end that we think the right way to start is with a primary construction partner rather than to go out with multiple partners all at the same time. We also have work going on, as you know, in five mainland sites around Australia. They are in Armidale, Willunga, Brunswick, Townsville and Kiama. I will not go through all of the statistics on that, other than to say I think you did ask about complaints in any of those areas. We did in fact obviously have some complaints as we were doing the rollout in those places, mostly related to the physical aspects of the build. The total number of construction complaints we had was 133, which represents a complaint level of one per cent of the premises covered in those first release sites. In each of those complaints, we address them and we make sure they are resolved to the satisfaction of the complainants; we have a process in place to try to do that to the best of our ability.
There were a number of other matters which were raised in the in camera session, and I have some information on that, but perhaps it would be best to finish at that point and answer those during questions.
CHAIR: Thank you, Mr Quigley, for the introduction. I am sure there will be a full range of questions over the next hour and a half. You touched on Alcatel, you touched on the Telstra deal and you touched on workforce and governance. I think they will all be covered by questions from others. On some procedural matters, we have been joined by Senator Fisher and also I am hoping to have Senator Ludlam on the phone from Perth.
Senator LUDLAM: Yes, I am here. Can you hear me?
CHAIR: You may get some questions from him, or not. As well, Senator Cameron quite rightly wants to move a couple of procedural motions for the committee in light of the fact that there is so much press interest.
Senator CAMERON: It is quite simple if we approve the press filming and taking photographs during the hearing. Normally at Senate inquiries we approve that. Secondly, we should resolve that no filming or photographing of senators' laptop screens be allowed.
Senator FISHER: Or indeed members.
Senator CAMERON: And members.
CHAIR: Or paperwork, but other than that—
Senator CAMERON: It is simply a procedural issue and I will move that way.
CHAIR: It is common courtesy as well. I know, having been a victim of that in the past. There being no objection, it is so ordered. That is passed. You are safe. I might lead with some questions really shaping around the seven per cent—the satellite wireless—and leave some other questions for some others.
Senator IAN MACDONALD: Can I just understand how you chair meetings. Do you expect senators to indicate if they want to ask questions, or will we go around the table.
CHAIR: I was just about to lead into that. We talked about this beforehand. Essentially I will go to the Deputy Chair, Mr Turnbull, and maybe Senator Ludlam if we can find him. Then it is really first in best dressed. Roughly, on the time we have, it is going to work out at around 10 minutes of questions from each person.
Senator IAN MACDONALD: Do you want us to indicate to you if we have questions?
CHAIR: Yes. Mr Quigley, I will start. This is really just an awareness exercise that I will be asking both yourself and the department. You are obviously aware of the terms of reference of this committee, as you have mentioned. You are obviously aware of the statement of expectations received.
Mr Quigley : Yes.
CHAIR: Are you also aware of the letter of agreement between Senator Xenophon and the Prime Minister? Have you sighted that?
Mr Quigley : I believe I have sighted that, yes.
CHAIR: From my perspective, they are probably the three key documents that are going to frame this exercise. The second question is probably a broad one seeking some confirmation. From my perspective, a lot of Australians now want this project to hit the 'go' button. There is a sense that there has been a policy debate and there are some pilot projects up and running, but really there is that issue of, in a scheduling sense, hitting the 'go' button and getting on with the job. Do you have that sense as well? If so, when can we really expect the 'go' button to be hit?
Mr Quigley : This is a vexed question, obviously. We are all keen to get on with the build as fast as we can but it would be unwise to build while there were open questions on policy issues such as we talked about the points of interconnect. That is just one of them. There are a number of other policy issues which did need to be resolved and it would be foolish to start really doing more than doing trials where you can learn something about construction but you are not moving into volume. So that is the first thing, that policy issues needed to be resolved. The second issue is that we have to make a decision about whether we wait for the Telstra potential deal to be finalised, in which case we have available to us an enormous number of facilities, huge facilities in terms of underground duct, the exchange facilities, backhaul facilities. If we were to ignore those, we may in fact go ahead and start building and then be building, for example, aerially where we could have used the Telstra ducts, or drilling underground and putting new duct in when there is usable duct on the same street with Telstra. So in our view it would have been a bad outcome for the Australian taxpayer and a bad outcome for the community if we had gone ahead ahead of having those facilities available.
It is a fact that the Telstra deal has taken somewhat longer to finalise than we had hoped. One of the reasons for that is that in a commercial deal itself it is a very complex deal. In addition, there is another part in parallel, that this deal is a vehicle for structural separation and that adds another set of complexities. So for good reasons the deal has taken somewhat longer than we had hoped. We have done a lot of preparatory work and continue to do that preparatory work, but we really cannot press the final go button on ramping into volume until we have that deal finalised.
CHAIR: So this is not going to be an exercise of place by place; it is not a false expectation to expect the go button and some real volume to come down the line as soon as all the deals are in place.
Mr Quigley : Yes, but remembering that even once you have signed the definitive agreements, the shareholder approvals need to be done, and there is a process for Telstra to go through that shareholder approval, so it will be some months between definitive agreements being executed and shareholder approval in which the definitive agreements then become unconditional. There are a number of conditions precedent that need to be met. So while we have obviously spoken to Telstra about being able to do a number of things, we will not get unlimited access to, for example, ducts and backhaul until those conditions precedent are finally met. It is also the case that Telstra does need to do some remediation work in certain areas. It needs to do some make-good work in exchanges and do some regrooming of traffic so that we can have access to the dark fibre and it needs to do some remediation of the ducts. That all needs to be sequenced and planned. That does to some extent constrain which places we can go to at what times, particularly in the backhaul and the establishment of points of interconnect about how difficult that regrooming of traffic around Australia is.
CHAIR: I have got a particular interest in the seven per cent of the satellite and wireless. We are getting a bit of feedback in regards to some councils that have already got some fibre cabling running through their communities but they are not part of the statement of expectations and therefore are seeing this thing and feeling it is all a bit odd. Can you clarify for the public record just what is the arrangement and the expectation for communities that may want to upgrade beyond satellite and wireless? Is that an agreement directly with NBN Co., or is it going to work with government? What is the process of trying to upgrade if they want to, and at whose cost?
Mr Quigley : You are talking about if they are in our wireless and satellite footprint, in that seven per cent, but they want to have a fibre connection.
CHAIR: Yes, and particularly for those that are on the fibre cable network that is already part of the design.
Mr Quigley : Plan.
CHAIR: The Julia Creek example.
Mr Quigley : Just to make sure there is no misunderstanding, people may see fibre being run but that is a bit like, as I might have mentioned, a railway track where you have got a high-speed train on it. You cannot stop at every station along the way or every street. You have to decide where you are going to break out of that fibre and then distribute traffic. It would be a hideous cost to keep interrupting that traffic all the way down. While the fibre itself may be physically passing, it is like an off-ramp on a highway or a high-speed train; you just cannot keep stopping things along the way.
But we have a process in place which we are beginning to develop now. I cannot give you all of the details of it because it is in development but it is going to be trialled in Tasmania. We have a plan footprint. We make that public before we roll out into an area so that people know where the fibre will stop. If they are outside that, they can apply to NBN Co. We are expecting that sometimes a number of premises may all be interested in the fibre and want us to run out to them. We will then cost that on the basis of, 'What is the incremental cost to provide fibre to those premises rather than to address them with fixed wireless or satellite?' We will give a quote back to those people and say, 'This is the incremental cost. Would you like to proceed with that?' It will be on the basis of cost.
We will try to make this public. We will have the website and have people available who can discuss this and give people quotes and go through the issues with them and tell them what would actually happen and how it would happen. That is what we are going to be trialling in Tasmania. Our intention is to give people that opportunity but still try to stay within the bounds of what the government has asked us to do, which is to do 93 per cent of premises with fibre.
CHAIR: How far away from that process being clear for this committee do you think that is?
Mr Quigley : I believe we will be trialling it over the next few months in Tasmania. So I imagine that within the next few months I could certainly be talking about that in more detail.
CHAIR: In the longer term, for that same seven per cent, even for those who are off the fibre network, with the expectation of technology change and complementary measures—I think you mentioned Wi-Fi before—is that the same process that the company expects will be in place? If something changes it might be complementary to wireless and satellite or it might not be. Therefore, the importance of tapping into the fibre network increases. Is that a consideration as well for this process or is that, in your mind, a separate process for consideration?
Mr Quigley : Sorry, I am not sure I have completely understood the question.
CHAIR: In the longer term there are going to be technology changes. They will, I hope, based on all logic, be complementary measures to what we are doing. Therefore, is it going to be the same process, particularly zoning in on the seven per cent who are satellite or wireless? Is it going to be the same process of consideration by NBN Co. if a technology change changes the cost benefit for a local council, for example, to tap into the fibre network and to then tap into a complementary measure? Is this going to be the same process at your end or has that not been considered at this stage?
Mr Quigley : I would not anticipate it. We have not given that a lot of thought, but I can certainly tell you the principle I believe we would follow, and I am fairly sure our shareholder would agree. If new technology became available that would lower the cost of the fixed wireless—
CHAIR: Or increase the benefit.
Mr Quigley : or increase the benefit and it was neutral to the overall business case we would obviously use it. Our intention is to keep up with technology as it evolves. As speeds evolve and as prices come down we will be using new technology. The technology we are deploying today we expect to be modified even in three or four years time with new generations. The number of ports on a card will come down and performance may increase. We would expect to be constantly using the newer equipment as it becomes available—within limits. When I say 'within limits', certainly for a project such as this you do not want to be the guinea pig for a new type of technology that has never been trialled anywhere before. It is just not a sensible thing to do. So as it becomes proven then we would use it. I have been asked the question, for example, 'Why aren't we using the fourth-generation LTE technology?' The answer is: we are. Our fixed wireless solution is LTE. It is just not used in a mobile application; it is used in a fixed wireless application.
CHAIR: This is my final question, so we can get into some others, and this comes full circle: does your last statement therefore indicate that the statement of expectations is not necessarily set in stone and that there should be an expectation in the future, by future ministers or the same ministers, that there will be a bit of a rolling statement of expectations depending on what happens in the marketplace?
Mr Quigley : I have not had those specific discussions with our shareholder, but I would anticipate that over the rollout period we could see some changes. You would not expect to be rolling out in an identical way in eight or nine years time to the way you are today. Technology evolves. That may allow you to do some improved things at lower costs, and we would expect to take advantage of that.
Mrs D'ATH: Mr Quigley, now that you are moving to the second release, I am interested in what lessons you have learnt in relation to the engineering, the budget and costs and the scheduling that you are now applying in this second release phase.
Mr Quigley : Certainly we have learnt a number of lessons. Some of them can be relatively straightforward things about what type of bracket you use when you are mounting fibre on a pole—what you can and cannot use; what works well and what does not. It can range from things as mundane as that to some misunderstandings—in other words, when you are interacting with communities, the information that you provide to them. We have certainly improved, I believe, the ability for people to get onto the NBN Co. website and get information, and we have also realised, obviously, the importance of having very solid community engagement that takes place as we roll out there. There are obviously a number of detailed technical things that we see as we have gone through this process as well, and there are all the usual things you would expect of a telco to confirm. So there is nothing radical that has come out, other than that these trials have allowed us to confirm some of the assumptions that we made—which is also very important, because it is one thing to test things in the laboratory and another to get them up and running in the field. We have just slightly rejigged the fibre architecture itself. I will not go into any details. It makes no fundamental difference to what is delivered; it is just the way in which the fibre architecture is optimised.
Mrs D'ATH: Can you also tell the committee where the Regional Backbone Blackspots Program is at and whether you have seen from that anything in relation to the pricing as yet.
Mr Quigley : I would suggest, if I could, that perhaps the department would be in a better position to answer that one. The regional black spot program is not something that NBN Co. is managing.
Mrs D'ATH: This is my last question before we pass over to other committee members. You talked about contractors being used, and you talked about a particular focus on health and safety. Can you just talk about what NBN Co. are doing, where contractors or subcontractors are being engaged to roll the fibre out, to ensure the health and safety compliance.
Mr Quigley : We have a set of standards for health and safety which we make absolutely known to our contracting partners. We have a process whereby we have a discussion with them about what their health and safety standards are. We do the comparison and we require them to at least be at our standards. If in some areas they are doing something even better, that is good. We also have a process of incident reporting, which we train the contractors and subcontractors on how to use, so we are getting regular incident reports. We also have safety inspections done by our orders. We have a health and safety manager that is an NBN Co. employee. The contractors themselves have safety people on site. It has been the case that a number of subcontractors have been terminated—not that there was any particular incident; nobody was injured, but they could have been because they did something that we did not consider was in line with the safety standards. It could even be as simple as driving around in a truck without seatbelts on onsite. So it is those types of things that we are paying close attention to. I cannot overstress the importance of building a culture that does not assign blame to people reporting near misses. That is very important, because if you systematically analyse near misses over a period of time then you can, perhaps, head off real safety incidents.
Mrs D'ATH: I will leave it there for the moment. Thanks.
Mr TURNBULL: Mr Quigley, at the outset you corrected a misstatement you had made about Costa Rica, where there was a very serious bribery scandal with corrupt practices by Alcatel employees, in respect of which there is litigation ongoing. You had earlier said it was not your responsibility. You now know it was and you have corrected that. We thank you for that.
I would like to give you the opportunity to correct, if you deem it appropriate, some other statements that you have made. You did not disclose to the federal government or NBN Co. the fact of the ongoing investigations into what was in fact a global pattern of corruption on the part of Alcatel at the time you joined the NBN board, and apparently the federal government was not aware of that. They had not investigated that and found that out by themselves. You were asked about this on 5 May and you said, writing in the Australian on that day:
I did not raise the investigation of Alcatel-Lucent during my recruitment to NBN Co because it was resolved to the satisfaction of the SEC and Department of Justice well before NBN Co even existed.
The NBN Co. was formed on 7 April 2009. Its board first met on 20 April 2009. On 31 March 2009, Alcatel filed a form 20-F with the SEC and this is what it said regarding the investigation. This is 31 March, a week before NBN Co. was formed:
Neither the Department of Justice, the SEC nor the French authorities have informed us what action if any they will take against us and our subsidiaries.
In regard to several alleged acts in Costa Rica—the corrupt acts as now acknowledged—Alcatel stated:
We intend to defend these actions vigorously and deny any liability or wrong doing with respect to those claims.
The next 20-F was filed by the SEC on 23 March 2010. It stated that an in-principle agreement with the SEC and the Department of Justice to a plea deal was not obtained until December 2009, more than eight months after NBN Co. was formed. They said:
As previously disclosed in its public filings, Alcatel-Lucent has engaged in settlement discussions with the DOJ and the SEC with regard to the ongoing FCPA investigations. These discussions have resulted in December 2009 in agreements in principle with the staffs of each of the agencies. There can be no assurances, however, that final agreements will be reached with the agencies or accepted in court.
What I would like to tell you the committee is this: was your statement that, at the time NBN Co. was formed, the corruption investigation by the Department of Justice and the SEC had been resolved to the satisfaction of the parties; or was that statement also mistaken, because it appears to be quite clearly and expressly contradicted by the official corporate filings of Alcatel itself.
Mr Quigley : I was not following at that time the official filings that were going on. As I have said before, the reason I did not raise this with the government was I have never been questioned by either the Department of Justice or the Securities Exchange Commission. I was aware of a process that was going on in Alcatel. From everything I had heard, it was proceeding as these things normally do. As I have also mentioned, in the period 2008 to 2010, there were 44 companies that paid a total of $3.3 billion in fines to the SEC and to the Department of Justice. This is a process which is well known. I am not excusing the illegality that took place or whether or not Alcatel's processes were tight enough. Clearly, if illegal activity took place, they were not. That is what was being investigated. I probably spoke too loosely at that point in time, not reading the 20C filings. My understanding is that it was a process that was going on and it would resolve itself in the same way as all of those other 44 companies had resolved themselves. So you are correct: on the basis of that timing, I probably spoke too early about what I anticipated—what is now an eventuality; it has happened. But I should not have anticipated; I absolutely agree.
Mr TURNBULL: So you agree then that the statement you made in the Australian on 5 May that the matter had been resolved well before NBN Co. even existed was in fact false?
Mr Quigley : Legally, yes. It sounds—
Mr TURNBULL: Well, factually yes. I would like to now go to another matter. In the same article on 5 May 2011, you said:
When the company—
that is, Alcatel—
became aware of this illegal activity it notified the relevant authorities, including the SEC.
And in an interview on the same day you said:
… the investigation was in fact initiated by Alcatel reporting to the authorities that there was a suspicion that two individuals, one in Costa Rica and one in France, had committed an illegal act.
I put to you that those statements are also contradicted by Alcatel's own public filings. Alcatel's 2009 form 20-F filed with the SEC on 23 March stated:
Beginning in early October 2004, Alcatel learned that investigations had been launched in Costa Rica—
by the Costa Rican prosecutors—
and the National Congress, regarding payments alleged to have been made by a consultant on behalf of an Alcatel subsidiary—
Alcatel CIT, a French subsidiary, now called Alcatel-Lucent France, or other Alcatel-Lucent subsidiaries—
officials in Costa Rica, two political parties in Costa Rica and representatives of ICE, the state-owned telephone company, in connection with the procurement by … Alcatel … of several contracts for network equipment and services from ICE. Upon learning of these allegations—
by the Costa Rican authorities—
Alcatel … commenced … an investigation into this matter.
Isn't it the truth, Mr Quigley, that Alcatel did not draw these matters to the attention of the authorities but in fact the Costa Rican authorities launched an investigation, and it was not until the Costa Rican law enforcement authorities started investigating your former employer's other employees' corrupt practices that Alcatel itself started to look into it?
Mr Quigley : I do not see the contradiction there. I believe that Alcatel at that time reported to the SEC and the DOJ before they were approached by the SEC or the DOJ.
Mr TURNBULL: Okay, so you are saying that what you meant to say there was that—
Mr Quigley : No, what I did say.
Mr TURNBULL: So you are saying that the term 'relevant authorities' or 'authorities' does not include Costa Rican authorities?
Mr Quigley : I was talking about the SEC, because the question I believe I was asked was—
Mr TURNBULL: All right. Okay.
Mr Quigley : I will also say that one of the reasons it is probably wise that I do not try and go into any detail is that I am simply not familiar with the filings of the SEC and DOJ, and if there is one thing I certainly have learned it is now to be very precise, so if I do not know something I am not going to try and answer it. There is a hearing that is taking place, a settlement is taking place, and I for sure I understand that, even if I am talking about the general principle of something, I have to be quite precise. So, if you ask me quite a number of questions today on details, I simply will not know the answers.
Mr TURNBULL: Well, that is fine.
CHAIR: As chair: each member has about 15 or 20 minutes to ask questions—
Mr TURNBULL: I just have one final point to raise.
CHAIR: on this topic, because it has to stay within the bounds of the government and NBN, which is why I am allowing a longer—
Mr TURNBULL: No, I understand. Can I just say this to you, Mr Quigley: nobody is making any allegations against you, least of all anybody here.
Mr Quigley : I appreciate that.
Mr TURNBULL: You have corrected one misstatement voluntarily. You have now corrected a second that I raised with you and acknowledged your previous statement to have been false. For the third one you have given an explanation. I just want to raise one more with you, because you are running one of the biggest businesses in Australia and it is funded entirely by the taxpayer—
Mr Quigley : Absolutely.
Mr TURNBULL: and so we are entitled to ask a few questions. When Mr Beaufret was appointed, it was stated that he was the chief financial officer at Alcatel between 1999 and 2007. That was in NBN Co.'s press release. But the corporate filings indicate that he did not become CFO until 2002.
Mr Quigley : Yes. I believe that it was 1 January 2002.
Mr TURNBULL: So the NBN Co. press release had a mistake?
Mr Quigley : It sounds like it was wrong. I think he was the deputy CFO for that period.
Mr TURNBULL: I just wanted to clear that up. Finally, Mr Beaufret was the CFO and you were in a senior position responsible, as you have now acknowledged, for a country in which there really was a massive corruption exercise on the part of Alcatel. You have said that you had no involvement or knowledge of it, and nobody is suggesting that you did—least of all any of us. However, what have you and Mr Beaufret learnt from such extensive globally pernicious corrupt activity happening in a company under your watch?
Mr Quigley : I can say this. I had a discussion relatively recently with a senior person in the US who was going to a discussion with lawyers. As I have said, almost every large company in the world now dealing across 130 countries, as we were with Alcatel with 60,000 employees, has a very tough time making sure their processes are tight enough so that if some illegality takes place you can catch it. It is very difficult job. We are talking about a decade ago. There has been a lot of work done with Sarbanes-Oxley and everything else in the last decade, but even today it is still very difficult. That is why, as I have said, between 2008 and 2010 44 very large companies--General Electric, Volvo and others—have had to pay fines for this type of activity. That is not excusing it, but it is a tough job.
The issue we have in Australia is clearly much simpler. We are not dealing in 130 countries with different languages and cultures but, clearly, you have to always be vigilant. That is why inside NBN Co. we have made sure we have looked very carefully at probity issues and controls. The board is also conscious of it. There is certainly a more heightened awareness on boards today than there was a decade ago. We have certainly learned from that experience.
As I have said, it was for me, frankly, a particularly difficult time. I was appointed in March 2001 as the president of Alcatel in America after arriving in the US in December 1999. We were going through the tech wreck. I had to halve the size of the company in the US. It is no excuse. I absolutely must say that it is no excuse but that clearly was where my attention was. When you are laying people off and having to deal with the existence of a company you are running, which I was in the US, it occupies a lot of your attention. That is no excuse. Costa Rica was there. Collectively the company should have discovered it. It did not, and obviously Alcatel-Lucent is now settling that with the DOJ.
Senator LUDLAM: I would like to ask some questions about the NBN. I apologise for having to teleconference in because your network does not exist yet. Can you give us an update on when the Telstra agreement will be signed, because you outlined in your opening remarks that quite a lot is hanging on that and surely it must be starting to disrupt your timeline that you still do not have a definitive agreement with Telstra?
Mr Quigley : If I can address the last question first, it certainly is a constraint on what we can do, but we are still working towards doing the things that we need to be doing—building OSS and BSS systems and getting on with satellite and wireless. But, yes, it is a limitation. I cannot—in fact it would be unwise for me to—comment on when the Telstra agreements could be signed. It is a complex process that we are going through. There are many parties involved. What I can tell you—and I apologise if I have said this before relatively recently—is that that we are coming close to the final stages of it but there are some months of process to go beyond that. Clearly the ACCC needs to be involved in the lodging of structural separation undertakings by Telstra. There is the shareholder approval that has to go through. So, yes, it is a constraint, but we are trying to make as much progress as we possibly can to be in a good position so that when things open up we can get on with them very quickly.
Senator LUDLAM: Have any numbers in your business plan, or anything that was published in that business plan, already been thrown by Telstra's decision to delay their shareholder vote?
Mr Quigley : Yes. In the business plan—the corporate plan that we submitted on 17 December last year—we made an assumption that the deal would be done by June of this year. Clearly that is not going to happen. It has not happened, and it will not happen by that date. So there will be an impact, and we expect that, once the deal is done and we have an opportunity to see the exact date of that, we will update those milestones.
Senator LUDLAM: You addressed very briefly the first and second release sites. Can you give us an update, for the mainland second release sites, on how work is progressing there?
Mr Quigley : Yes. We are doing a reasonable amount of planning. We have done what we call our top-level dies and network design on that, but the detailed design has awaited two things. It has awaited the ability to access some Telstra infrastructure. I think I can say, without giving away any confidences, that we have negotiated with Telstra a way forward on those second release sites, perhaps ahead of the shareholders' agreement. But I should say that that is negotiated; it is not final and complete. So we should be able to do something a little earlier. And of course we have yet to select a contractor, or a number of contractors, to do those second release sites. We are also in that process at the moment.
Senator LUDLAM: I am presuming that has also been held up by the tender process that fell over, which again you addressed very briefly in your opening comments. Do you want to give us a little bit of background to why that went so badly and whether you are back on track again?
Mr Quigley : In all of these large tenders, you have to make a judgment in the end about whether or not you believe you are achieving value for money. In our case, we are particularly sensitive to this because this is taxpayers' money which the company will be spending. We were not satisfied, with the construct we had put in place and the responses that we had, that we were going to get the best outcome, so we changed that process. We suspended that process and moved into another process. I cannot say too much more than that at this point in time because we are in the middle of that second process.
Senator LUDLAM: That is fair enough. I understand those negotiations are ongoing. But presumably you must have put something very different on the table, because virtually the entire industry ganged up on you and said, 'You can't get it for what you are asking.' So what have you changed to ensure that the outcome is different next time?
Mr Quigley : These are always negotiations back and forth, and it is impossible, across the large number of tenders we were tendering with, to have the sorts of detailed discussions that we are having in this second process. But they are essential in order to try and iterate down on what we think is the right set of conditions. I should also say, as I mentioned earlier, this is one tender process out of a very large number that we have concluded successfully. Some of them were hard bargains. I will not pretend to you for a moment that the Australian contracting industry are not hard bargainers. It has been tough going, but we were adamant we were going to get what we believe is the right outcome for the Australian public.
Senator LUDLAM: I want to raise one issue with you that does not seem to have had a great deal of scrutiny, which is the security of the network and its resistance to attack. We are all reasonably aware of the threats that are faced online as far as corporate espionage or actual espionage from other governments are concerned. We are building a new piece of critical infrastructure here. What new vulnerabilities does that open up in that particular domain and what are you doing to address those?
Mr Quigley : In some areas in fact it will make the network a little more secure at the physical layer, and remember that a lot of these attacks take place at layers that sit above us. We are at layer 2, the ethernet. We move bits across the network. So what we have to pay close attention to is the security of the equipment, the physical security of the plant. The fact is that it is certainly not as easy to tap into fibre as it is to tap into either copper or a wireless service. We are looking at the physical security of points of interconnect, we are looking at the physical security of the systems that we lay into the ground and of course we are looking at the physical security of buildings. It is also the case that we are working closely, and have been right from the beginning, with the various agencies within the government that you would expect us to be talking to and cooperating with. I met one of those agencies very recently and they told me that they were very pleased with the cooperation that has been ongoing and NBN Co.'s responsiveness to their requests. Obviously I cannot go into the details of those discussions.
Senator LUDLAM: I understand. Do you have a particular unit or division concerned with security or someone whose responsibility that is?
Mr Quigley : And we are also taking further steps to enhance that as we move forward, as we are in most areas. But yes, we have assigned a specific person whose responsibility is security.
Senator LUDLAM: Can you tell us who that is or which—
Mr Quigley : No.
Senator LUDLAM: Is it secret?
Mr Quigley : Yes.
Senator LUDLAM: All right. Chair, I will come back with some other questions later if there is time.
Senator IAN MACDONALD: First of all, I want to ask about the tender that Senator Ludlam just spoke about. Do you concede that the original tender put out by NBN Co. was basically flawed? If so, are you thinking of compensating those who spent a lot of money to put in for those tenders?
Mr Quigley : No, I would not say at all that the previous tender was flawed. What I would say is we went out with our requirements and, if in fact we had had responses which were satisfactory and in which we believed the prices were acceptable, we would have moved ahead on that basis. But it did not work out that way.
Senator IAN MACDONALD: But almost everybody tendered, as I understand it, around the same. Is it that everybody else is out of step and you are the only one in step?
Mr Quigley : No, that absolutely was not the case that everybody tendered much the same. There was huge diversity in the response we got.
Senator IAN MACDONALD: Does that suggest that your tender was not terribly precise?
Mr Quigley : No, it reflects what normally happens. In almost every tender we put out we have a very large diversity. That is the process. People tender for different reasons. They varied, by the way, not just in prices but in statements of compliance to requirements. That is not abnormal at all in tender processes.
Senator IAN MACDONALD: On notice, can you give us the range of difference in the tendering that came in and perhaps one or two other tenders that you say there is a wide range in—perhaps without specifying them but just so that I can understand what you mean when you say there is a wide range?
Mr Quigley : I may be able to do that in terms of percentages, but I certainly cannot do it in absolute numbers because it would be foolish to put numbers out when we are in the process—
Senator IAN MACDONALD: But you have rejected them all. Why would it be foolish? You are not dealing with any of those tenderers.
Mr Quigley : I also cannot do that, I believe, just on disclosure issues. I believe when people put tenders in they have every right to expect—
Senator IAN MACDONALD: But I am not asking you to name them. Just give me the range.
Mr Quigley : No, I cannot. I will have to take some advice, but I may be able to do that on a percentage basis. But it would be commercially foolish of me to say, 'This was the lowest and this was the highest.'
Senator IAN MACDONALD: We could argue about that, but my colleagues and time will not permit me. Perhaps at estimates we might come into that, and we have the pleasure of having you in a special meeting a little while after next week, as I understand it. Are you involved in financing, or is that entirely the department?
Mr Quigley : Financing of what?
Senator IAN MACDONALD: I see the Aussie bonds—the bond issue—have come up again. Is that something NBN is doing or is that a departmental issue?
Mr Quigley : No. If I can distinguish the two, the case of the financing of the equity injections which the government would inject into the company is completely an issue for the government. Ultimately, in the long term, we expect to raise funds for NBN Co. on its own behalf.
Senator IAN MACDONALD: Are you working towards that now? If I ask you questions at estimates—here is notice—will you be able to answer questions about the long-term funding proposals?
Mr Quigley : Yes, I believe so, in general terms. We have based our corporate plan on some long-term funding projections, and we have taken advice, as you would expect, from investment banking companies on that.
Senator IAN MACDONALD: Okay. We will talk about that at estimates. You said that when new technology came up, provided it did not cost you too much, you would go to it. Why would you bother? You have no competition in Australia. It does not matter what sort of service you provide; once the fibre is in, nobody can go anywhere else.
Mr Quigley : Because I believe the very ethos of the company is to try to provide the best possible broadband service to the Australian public at the lowest cost and as efficiently as possible. I do not think we have a person in the company who does not believe this is a very important project for Australia. They are not inclined to do a bad job of it. They will want to keep up with the latest technology. Why wouldn't they? If we can continue to provide better and better service, that would be what we would be doing.
Senator IAN MACDONALD: But it will be provided at a cost.
Mr Quigley : Yes.
Senator IAN MACDONALD: You will not be able to get better service without a cost.
Mr Quigley : As I think I have said before, this company's aim is not to generate the maximum amount of profit; it is to try to provide an acceptable return to the government and to provide the very best broadband service we can across the nation.
Senator IAN MACDONALD: The original concept was that you would provide a return on investment to the government.
Mr Quigley : Yes.
Senator IAN MACDONALD: As well as that, the government was going to sell you out to a private company, who were not going to buy you unless you were returning a market rate on your investment.
Mr Quigley : Yes. At some point in time, as we go down the track—it is all part of the funding plan—you would expect that, first of all, people would be willing to lend money to NBN Co., and that is certainly the expectation we have. The question of equity of the company and the long-term ownership is really a question of policy that I think is best referred to the government or the department.
Senator IAN MACDONALD: Sure.
Mr Quigley : But, to make sure that we are absolutely clear, we have every intention of prudently using the best technology that is available to us to provide the best service, and I believe the company should be measured on how good a job it does by its customers, which are the retail service providers.
Senator IAN MACDONALD: I am sure Telecom or the Postmaster-General had the same thing, but without competition they did not put it into effect. Anyhow, that is a comment. Were the complaints of one per cent even across Australia or were there more in one particular area?
Mr Quigley : No, if I look at the numbers, my recollection is that there were more in Kiama than in other places.
Senator IAN MACDONALD: Being parochial, can I ask you on notice what the Townsville situation was.
Mr Quigley : Yes.
Senator IAN MACDONALD: You mentioned, as I understood you, that 723—I think that was it—premises in Tasmania had been connected and 710 had signed up out of a total passing of around 3,000 to 4,000.
Mr Quigley : I think those are roughly the numbers; I could look them up again. But that is the number of service requests we have. In other words, the slightly higher number—seven hundred and whatever it was—is the number of people who have requested a service, and the slightly smaller number is the number we provided a service to through a retail service. So that is the gap, if you like, of the orders that have come in and have not yet been fulfilled.
Senator IAN MACDONALD: Didn't the implementation study indicate that you would need something like a 90 per cent take-up to make it pay? That is certainly not a 90 per cent take-up.
Mr Quigley : No, I do not believe they said it was 90 per cent; I think the number was considerably lower in the implementation study.
Senator IAN MACDONALD: What was it? Just remind me.
Mr Quigley : I cannot remember.
Senator IAN MACDONALD: America said 40 per cent.
Mr Quigley : We have made an assumption, I believe, in our corporate plan. I would have to check it, but I believe it is around 73 per cent. But that is on the basis of a Telstra deal. I would like to distinguish the difference here. If you are comparing overseas take-up rates on fibre to the premises—
Senator IAN MACDONALD: No, I am not. That was an aside. I am interested in the Tasmanian take-up, which is about 25 per cent while you want 73 per cent.
Mr Quigley : I would not draw any long-term conclusions from the Tasmania take-up rate. First, it was a prerelease trial; second, the places we went to in Tasmania are absolutely not representative of the whole of Australia; third, it is not part of a deal that we have done with Telstra for the retiring of the copper and the replacement by fibre. It is an entirely different business proposition.
Senator IAN MACDONALD: Is it true that in Tasmania you did not charge the retail service providers for your network until 1 July this year?
Mr Quigley : Yes, it is absolutely the case. One of the reasons is that we have not built the OSS and BSS systems to make that process automatic. It would have been a very manually intensive process. It was not a sensible proposition. It is also not what we were trying to prove. We were looking at construction methodologies and operations and technology issues. We were not trying to generate a profit.
Senator IAN MACDONALD: But the 710 who have signed up have obviously signed up on a deal that gets no return whatsoever for your $55 billion investment.
Mr Quigley : That was not—
Senator IAN MACDONALD: I am sorry; it is not $55 billion for Tasmania.
Mr Quigley : No. But that was not our intention. The whole exercise of conducting a trial is not aimed at making a return.
Senator IAN MACDONALD: I am not talking about your intention; I am talking about the willingness of people to sign up to your organisation when they are getting all of your work buck free.
Mr Quigley : They are not. Remember: we are providing it free to retail service providers; retail service providers then price.
Senator IAN MACDONALD: Yes, but what the retail service provider charges the customer must take into account what you are charging them, and it was nothing.
Mr Quigley : They may also view this as a temporary, short-term—
Senator IAN MACDONALD: So they were ripping their customers off because they were allowing for your payment but not paying you?
Mr Quigley : Not necessarily, because they have, as part of a trial, with small numbers in these locations, costs which they otherwise would not in an ongoing business. So it is not an unreasonable proposition.
Senator IAN MACDONALD: We might explore that at estimates when we have a bit more time. Finally, I might just talk about the Julia Creek example, if I can call it that, because we had the letter, and it is an easy way to explain. It is an example where the fibre goes through the town but they cannot connect up. You say you will work out what the incremental cost is to deliver to Julia Creek and then offer it to, I assume, the council, to say: 'If you want to pay this, we will connect you.'
Mr Quigley : No, it is generally the other way around. If a council or householders or business premises put a request to us, we will make sure it is well known that there is a process: that people can apply to NBN Co. to see if we can extend the fibre footprint. So, generally, we will cover every town throughout Australia with 1,000 or more premises with fibre, and if they are on our transit links we will cover them if there are 500 premises or more. If a town has, for example, 300 premises but the council would like us to provide a fibre solution to that town, then they can apply to us. We will tell them what the incremental cost will be and then they can make a decision as to whether they would like us to do that.
Senator IAN MACDONALD: So you are saying that, notwithstanding the government's comment that anything above 1,000 people would be connected—
Mr Quigley : No, 1,000 premises.
Senator IAN MACDONALD: you are saying that you are going to do 500 anyhow, notwithstanding what the government said, but for 300 you might have to.
Mr Quigley : That decision of 500 on the transit links—in other words, where we have backhaul fibre already going—was made in consultation with the government. They were well aware of that. We wrote it into the corporate plan.
Senator IAN MACDONALD: Then, on notice, could you tell me the difference? I accept there would be an incremental cost for a smaller number of connections, but it does not seem that there is going to be a huge difference in the incremental costs between 500, say, and 300, or even—going back to the government's original comment of 1,000—between 1,000 and 300. I am wondering if on notice you could give me some indication of—
Mr Quigley : I could attempt to give you some indication, but you have actually got to do the design to know that. I will try to give you an indication about what the orders of magnitude would be for that difference. We will do our best to estimate it. Would you like me to actually look at Julia Creek specifically?
Senator IAN MACDONALD: That would be a great example, and they will be delighted and will give you every assistance I am sure. Julia Creek is a little town. It is fairly compact. It is on flat land. When you talk about design, I assume you mean technical design?
Mr Quigley : Technical design, yes.
Senator IAN MACDONALD: But then the technical design would apply to Charters Towers, which is not all that far away.
Mr Quigley : If I can take that on notice, I will try and have a look specifically at Julia Creek. It is always good to have a concrete example we can look at. This is, by the way, one of the issues that the company faces: on the one hand, we get people saying, 'We should not have fibre; it is a complete waste of time to go above a small number,' and then we get people such as you arguing that we should really fibre much more than 93 per cent.
Senator IAN MACDONALD: Hang on; don't verbal me!
Senator CAMERON: I am wondering about that, Senator Macdonald!
Senator IAN MACDONALD: You are getting like Senator Cameron with the verballing!
CHAIR: I am conscious that we have about 45 minutes and there are seven more—
Senator IAN MACDONALD: I just want to correct that for the record. You know our policy on the whole NBN, which I abide by, but the government of the day has commissioned your company to put the fibre there. It is going there regardless of what I want or think or care, so, accepting reality as it is, I am then asking you. Do not suggest I am—
Mr Quigley : Mayor Woodhouse, from Julia Creek, would be very happy to be in touch with you, Senator Macdonald.
Senator IAN MACDONALD: Of course the public want it, but they want to be able to pay for it.
Mr FLETCHER: Mr Quigley, could you remind us what percentage of homes will be connected using overhead cable? Approximately how many thousands of kilometres of overhead cable do you expect in the access network?
Mr Quigley : That question I would have to take on notice, I think, Mr Fletcher. It really depends precisely on how much underground duct will become available. We have had those discussions with Telstra, of course. It is also the case that we will be doing some ducting if the Telstra duct is not available. We will do some ducting ourselves, but obviously there is going to be some overhead cable as well. Probably those estimates are in our previous corporate plan.
Mr FLETCHER: I think the corporate plan says 25 per cent.
Mr Quigley : Twenty-five per cent seems about right, yes.
Mr FLETCHER: Okay. I am concerned at the prospect of a duplication of overhead cable in areas that are presently covered by the HFC cable, which is overhead. Is that a likelihood?
Mr Quigley : I cannot answer precisely but my feeling would be not. The reason why I think that would be the case is that they tend to be in built-up areas. The places where the HFC cable went were generally the built-up areas, the more affluent areas, which means there is almost certainly Telstra duct. HFC is a different proposition from rolling fibre, as you know. HFC is much bigger, so we have a much greater chance of being able to put fibre in ducts and even potentially in underground lead-ins than you do with HFC.
Mr FLETCHER: I am thinking about both the Optus overhead cable and the Telstra overhead cable. Just to understand that: you are suggesting to me that it is unlikely that there would be a duplication of overhead cable?
Mr Quigley : No, I would have to take that one on notice, have a look and make that estimate, but I am saying that I think we should not assume that because the HFC cable was overhead the fibre necessarily has to be. It could be that you could use existing ducts or lead-ins.
Mr FLETCHER: I have a particular concern about the heritage areas of my electorate of Bradfield. Are you able to give me or my constituents any comfort on that point about the risk of additional overhead cable?
Mr Quigley : I can only take that on notice and perhaps, in the same way as I have with Senator Macdonald, give you some indication. I will go back to the network engineers, the planning engineers, and ask, 'How does Bradfield look?'
Mr FLETCHER: What planning permission will you need to obtain before you install either overhead cable or any other facilities?
Mr Quigley : That depends on whether they are low-impact facilities or not low-impact facilities. Those processes we are working through, mainly at the state level and local council level.
Mr FLETCHER: It is right, isn't it, that if they are so-called low-impact facilities you are not required to get local council approval?
Mr Quigley : Yes, I think that is the case.
Mr FLETCHER: Therefore there is the risk that in a number of parts of Australia people might well find facilities being built that have not been approved by the local council?
Mr Quigley : Yes, but that generally means they are falling within the local council guidelines. The reason why they do not have to give approval is that they have already kind of preapproved low-impact facilities.
Mr FLETCHER: I think low-impact facilities are under the Telecommunications Act, aren't they, as opposed to local council?
Mr Quigley : You could be right. These are already, I believe, pre-existing—already negotiated and agreed—guidelines and rules.
Mr FLETCHER: They are. I am just trying to get to the risk of additional facilities and particularly overhead cable being built which duplicates existing cable included in heritage areas.
Mr Quigley : If I can take that one on notice, I will have a look specifically at Bradfield and see what the situation is. It would probably be a good example to look at concretely.
Mr FLETCHER: Thank you. It has been stated publicly, I think, that the arrangement that is being negotiated between Telstra and NBN Co. requires Telstra to move traffic across from the copper network to the NBN. That is right, isn't it?
Mr Quigley : No, they have an obligation to disconnect. They cannot dictate to their customers whether they move on—
Mr FLETCHER: So their obligation is purely to disconnect their customer from their network. Are they also obliged, then, to decommission the copper network?
Mr Quigley : That is part of the whole structural separation undertaking. So they do in fact decommission and they move onto a wholesale network.
Mr FLETCHER: Is it the case, therefore, that the payment that NBN Co. will make, or that Telstra will receive, does not include giving NBN Co. the option, should it choose to exercise it, to use the copper, if it finds that to be a more economic or practical solution?
Mr Quigley : That is not an issue that we have discussed or negotiated.
Mr FLETCHER: So, just to understand that: if it were the case, for example, that you came back at some time in the future and said, 'Actually, we find it would be cheaper and more practical to use the copper in this location—we could still deliver 100 megabitts per second', you would have no rights under your existing agreement, and you would presumably have to go back and pay Telstra a second amount of money to be able to use the cable.
Mr Quigley : No, not necessarily. As with all of these things—and, by the way, it is not something we have investigated; our objective set by the government is to deliver fibre-to-the-premise—if there was a change, you would go back and look again at the situation.
Mr FLETCHER: Have you considered seeking that right under the agreement?
Mr Quigley : No, I have not, because it would involve a great deal of technical understanding of a different architecture in order to have a sensible discussion about it. In these sorts of negotiations, just having a general right would be very difficult. It is a completely different migration construct.
Mr FLETCHER: It does not seem to you that it would be a prudent measure, to give yourself a fallback plan which might be cheaper, for example?
Mr Quigley : This deal is already hideously complex. To introduce yet another scenario, that the government has not asked us to look at, would involve the company's time investigating a scenario which we had not been asked to look at.
Mr FLETCHER: What will happen to Telstra's direct fibre connections—for example, the fibre loops in CBDs, in business parks and other areas?
Mr Quigley : With Telstra, as with other direct-fibre suppliers in CBDs, our intention is not to overbuild those. If a premise is already adequately served with fibre then it is adequately served; the government can declare it adequately served and we do not need to fibre it.
Mr FLETCHER: So you will not overbuild direct-fibre connections in the CBDs but you will overbuild HFC in the suburbs?
Mr Quigley : It is not a question of us overbuilding; it is a question of a discussion that we have had with Telstra, where they had agreed that it makes sense for them to retire that ageing HFC network for broadband and voice and retain, for a duration, their Foxtel service.
Mr FLETCHER: When you say 'ageing', it is about 16 years old, isn't it?
Mr Quigley : The HFC?
Mr FLETCHER: Yes.
Mr Quigley : Yes, but it constantly, as with all copper plant, needs upgrading.
Mr FLETCHER: When do you intend to start charging a wholesale price to retailers?
Mr Quigley : That will happen in phases. Obviously, in Tasmania it will be at a date that is not too far off. The first release site will be—
Senator IAN MACDONALD: On 1 July, you told us before.
Mr Quigley : That is right; that is what we are aiming for. It will probably be a few months after that with the first-release sites on the mainland, such as Armidale, Townsville and others. As with the rollout, obviously part of beginning a volume rollout is that you have all of the billing systems and activation systems, so you would be billing from the time that you turn a service on.
Mr FLETCHER: In your business plan, in the corporate plan released in December last year, there is a statement that wireless-only homes have risen from four per cent, in I think 2004 or so, to 13 per cent in 2010. The corporate plan assumes that wireless-only homes will reach only 16.3 per cent by 2025 and 16.4 per cent by 2040—that is on page 49. Can you just explain to us why you assume that the growth rate in the number of wireless-only homes will taper off?
Mr Quigley : Just to be clear, we did commission a study. The study we looked at said that 11 per cent of residential premises do not have a fixed-line service today, but from that you have to subtract the four per cent that are called naked broadband. So 11 per cent do not have a voice service but four per cent have a naked DSL service. The true figure for wireless-only homes is more like seven per cent. We assumed it would continue to grow. The reason we have assumed it will plateau off is that we are seeing evidence today of a rapidly increasing amount of data being used on mobile devices—iPhones and iPads. In fact, the predictions I have seen are that even by 2015 some 90 per cent of the traffic onto those devices is going to be data and close to 90 per cent will be indoors. A huge amount of that data is being shifted off on to wi-fi and, as we know, wi-fi is a fixed-line network—a little radio cell at the very end of a fixed-line network.
In fact, Analysys Mason, a well-known analysis group, is saying that the whole term of fixed mobile substitution is now reversing itself as telcos around the world are trying to get traffic off their mobile networks and on to fixed networks. We thought it was a reasonable assumption, with traffic growing and video growing, that that trend would continue. We have even allowed for doubling of wireless-only homes. Whether that happens or not we are yet to see.
Mr FLETCHER: You have not really provided for doubling of wireless-only; you have assumed it will go from 13 per cent to, I think, 16.3 per cent.
Mr Quigley : Yes, but remember we have to factor the naked broadband into that as well.
Mr FLETCHER: I think they are consistent definitions in the two parts.
Mr Quigley : We have certainly assumed that there is going to be an increase in wireless-only homes, but we are beginning to see, obviously, a reversal of that trend for data. For voice, I do not think there is much doubt that people either will be on VoIP—voice over IP—or will be using voice on their mobile devices. But for data, particularly video, it is more likely they will be on the fixed-line network.
Mr FLETCHER: Does NBN intend to sell backhaul to the mobile operators—Telstra, Optus, VHA and anybody else who comes into the market?
Mr Quigley : That is a product construct that we are investigating. We need to talk with the government, obviously the shareholder, about making a product available. It would not be exactly the same as the normal residential or business product, but if it is to a base station that is a possibility. We have not committed to that, but it is something we are actively investigating.
Mr FLETCHER: In Telstra's network, in addition to the direct fibre connections in the CBDs, there is also a reasonable amount of fibre going out, for example, to rims. Will Telstra be free to continue to use that fibre?
Mr Quigley : Yes. We have an arrangement in place that has been negotiated that, clearly, fibre will be grandfathered. It is not our intention to not utilise existing plant. It would be silly of us to not do so. Telstra of course can continue to use fibre it has laid.
Mr SYMON: I would like to ask you about structural separation. You were just talking about it briefly in the last round of questions and you also touched on it in your opening address. What are the problems with structural separation? For the benefit of the committee, what are you trying to fix with structural separation?
Mr Quigley : It is not so much us trying to fix structural separation. This is a policy objective of the government, but it clearly impacts on the Telstra negotiations that we undertake. I think the department or the government would be best placed to answer those questions.
Mr SYMON: How does the construction of the NBN, though, facilitate structural separation?
Mr Quigley : If the NBN is the vehicle, it means that no longer will the other retail service providers in the country have to rely on the copper network. In other words, they will not be competing with the same group that is supplying them with their underlying infrastructure; they will use the NBN. We are just a wholesaler; we do not compete with any of the retail service providers. In the end, if there is no longer a copper network and people are riding on the NBN, you have achieved structural separation.
Mr SYMON: In relation to availability of service and reliability, especially at the customer's premises, I know that there has been a lot of discussion about the battery backup units for network terminating devices in premises. Do you see a role there for the NBN in providing information down to the customer level as to the benefits of that or do you see that solely as a function for retail service providers?
Mr Quigley : As we go out and engage with the community, we obviously need to explain to them what the elements are that are being put in the premise. One is the network terminating device—the ethernet device from which they get their services. But there is also a battery backup unit, which is a device that, in the event of a power failure, we will keep that network termination device running for some hours. We will certainly be explaining that to them.
Mr SYMON: In relation to exchanges, Telstra exchanges have extensive battery backup facilities. Will that be the case for an NBN exchange?
Mr Quigley : Certainly, we will have generators. There are different grades of diesel generators that you can have for air-conditioning and security—those types of facilities. We are obviously paying very close attention to that.
Mr SYMON: Is that also the case for other network structures, whether they be fibre distribution hubs or fibre access nodes? Is that then going to be out in the field, as it were? Are those parts of the network also going to have that backup capability?
Mr Quigley : One of the advantages of a GPON network is that you do not need battery backup in a fibre distribution hub because it is all completely passive—you have no electronics. This is unlike, for example, a fibre-to-the-cabinet or a fibre-to-the-kerb or fibre-to-the-node network. With them, you need local power. Those cabinets need to be powered. A fibre distribution hub in a GPON network is completely passive—there is no power required. In fact, I have seen an interesting picture from somewhere in the south of the US in which an entire fibre distribution hub was under water and full of mud. The local fire department were using a high-pressure hose cleaning it all out, and the service was still running.
Mr SYMON: Very interesting. Therefore, fibre-to-the-node would suffer in reliability in compared to fibre-to-the-premises.
Mr Quigley : Because there are active electronics in these cabinets, they are clearly at risk if there are floods or anything like that. They are more at risk because you need power to them and there are active electronics. If you look at fault rates on copper versus fibre, copper is carrying potential. There is a current flowing through it, and therefore it is more likely to cause problems when it rains.
Mr SYMON: Obviously, copper has problems with electrolysis and various other things.
Mr Quigley : Yes.
Mr SYMON: You are not going to get that with your fibre network.
Mr Quigley : You will not get that with fibre. It is inert glass.
Senator XENOPHON: I have many questions and very little time, so brevity would be good.
Senator CAMERON: From you or Mr Quigley?
Senator XENOPHON: From both of us, Senator Cameron! I refer to Mr Turnbull's line of questioning about Alcatel. Have any lessons been learnt by you in terms of your role as head of the NBN about probity issues?
Mr Quigley : I would stress that the situation with NBN Co is quite different to that of Alcatel. One is a company wholly in Australia; the other one was a multinational operating in 130 countries with 60,000 people. Nevertheless, it is clearly the case that you always have to be vigilant. You simply cannot assume that people will always do the right thing, so you have to have checks and double-checks on that. That is much easier to do in Australia than it is across the world.
Senator XENOPHON: Are you satisfied that we have the most rigorous system of checks and double-checks in terms of the NBN procurement process?
Mr Quigley : Yes. We are auditing that. It is an area that the board of this publicly funded company is paying close attention to.
Senator XENOPHON: Let us move onto the issue of the suspended tendering process. It was announced because you do not believe that taxpayers would get value for money as a result of the tender process.
Mr Quigley : That is correct, yes.
Senator XENOPHON: The Australian Contractors Association criticised NBN, saying that the criticism that you made of them is surprising, given that it was a vigorously competitive tender process involving 14 bidders. Do you agree with the Australian Contractors Association?
Mr Quigley : No, in the sense that we did not criticise them. We were reported to have criticised them.
Senator XENOPHON: Right.
Mr Quigley : But we never did criticise them.
Senator XENOPHON: But do you agree with their comment that it was a vigorously competitive tender process involving 14 bidders?
Mr Quigley : Yes. It was certainly vigorous and it was a tender process involving 14 people—absolutely.
Senator XENOPHON: So does the fact that we did not get value for money as taxpayers as a result of that vigorously competitive tender process mean that there needs to be a complete rethink of the tender process?
Mr Quigley : Clearly, suspending the process and moving into a different one says that you could do things with a much smaller number of tenderers than you can with 14 simultaneously. Remember, in these types of public processes if you open the tender process to 14 you have to treat them all absolutely identically.
Senator XENOPHON: A few days after that, on 5 April, your head of construction, Patrick Flannigan, resigned quite abruptly. Was that linked to the suspension of the tender process?
Mr Quigley : That is a private matter for Mr Flannigan, so I will not comment.
Senator XENOPHON: A few days later, Nick Sotiriou, the manager of cost and resources estimates for the NBN Co. also resigned. Can you comment on that?
Mr Quigley : No. I cannot comment on that. I should not comment on any—I cannot answer for those individuals.
Senator XENOPHON: Sure. Is there a replacement head of construction and a replacement manager of costs and resources? Have they been appointed to NBN Co.?
Mr Quigley : Yes, we have Mr Dan Fleming, who is our acting head of construction. He is a very capable individual. I have been working closely with him for the last month or two.
Senator XENOPHON: There has been a four-month delay as a result of the tender process being postponed—is that right?
Mr Quigley : No, I would not say there has been a four-month delay because in the end you always have to look at the critical path in these projects, and the critical path, as we spoke about before, really is the Telstra infrastructure availability.
Senator XENOPHON: And that relates to the structural separation undertakings as well?
Mr Quigley : That relates to doing the deal with Telstra, yes.
Senator XENOPHON: How close were you to that deal being done, in time frames?
Mr Quigley : Close, I hope!
Senator IAN MACDONALD: The emphasis on 'I hope'!
Senator XENOPHON: You have said that rolling out the NBN is like running a large factory; it is modular methodology—doing the same thing over and over again.
Mr Quigley : Yes.
Senator XENOPHON: Has any consideration being given to NBN Co. employing a workforce rather than seeking outside contractors?
Mr Quigley : I think there are very capable companies in Australia to do that type of work. I think it would be a pity if we did not use them, and I am confident that we will—notwithstanding the suspension of the original process—find an accommodation that will be good for the contractors—we expect them to make money—but also good for the Australian taxpayer.
Senator XENOPHON: Given the delays and going back to the drawing board for the tender process, are you still absolutely confident that the NBN Co. can be delivered on budget?
Mr Quigley : Yes.
Senator XENOPHON: And on time?
Mr Quigley : Yes. There are always unknowns in all of these projects. It is very difficult to tell—you have got to make estimates—but I have absolutely no indication that we cannot achieve what we set out in our corporate plan. There are things which are beyond our control; there could be policy shifts, there could be ACCC decisions that change things or all sorts of things. But I have to assume that we are where we are and the rules are as they are, and that is all I can base it on.
Senator XENOPHON: Before I go to comments made by two senior telco players, Simon Hackett and Bevan Slattery; how are the decisions made about what will be next in the actual rollout? Will it be medium- to large-sized regional communities? What is the priority for the rollout of the NBN, and how will that tie in with value-for-money considerations?
Mr Quigley : Obviously, we have an obligation to execute on the government's policies, including a focus on regional Australia. We will try to balance all of those competing interests, including what infrastructure is available at what time and, assuming we go ahead with a contractor, which are the areas that make the most sense. We will put all of those competing interests in somewhere along the line, take that back to the shareholder and say, 'This looks like the three-year plan,' and seek their endorsement of that.
Senator XENOPHON: Internode boss, Simon Hackett—a good South Australian address—
Mr Quigley : Yes, I know Simon.
Senator XENOPHON: and NEXTDC founder, Bevan Slattery—I think he made a few hundred million quid by selling his pipe networks to TPG Telecom last year—have raised some serious concerns about how this would work. You are aware of my view on volume discounts, and that some amendments were passed to that effect?
Mr Quigley : Yes.
Senator XENOPHON: But it seems that you can also levy a usage-based fee to carry aggregated traffic to groups of customers over the network, which is a connectivity virtual circuit charge?
Mr Quigley : That is correct.
Senator XENOPHON: And that has Simon Hackett pretty fired up. He says that he has done the sums and it will make it impossible for providers with fewer than 250,000 customers to supply a national service because the fees are based on a minimum transmission volume that greatly favours larger providers. The whole intent behind trying to get rid of volume discounts was to level the playing field for smaller operators. What do you say about Mr Hackett's concerns?
Mr Quigley : First of all, subsequent to those comments from Mr Hackett, we have had ongoing discussions with him and his team about their concerns. There is a balance here between having a CVC charge to a point at which you can say, 'How small do you go where it is absolutely equal?' Clearly at some point a retail service provider has to make some investment in infrastructure.
Senator XENOPHON: And what is your threshold?
Mr Quigley : We are working through that at the moment, but I have a set of cases—I do not have them with me, but I would be happy to send them to the committee—which say: 'This is how it breaks out. These are what the charges are for a given size.' Obviously, as you go to 121 points of interconnect you need to take that into account. It is also clear that we tested this rigorously with quite a number of retail service providers. Would they like our prices to be lower? Of course they would. But we have to balance between aiming for a seven percent return and getting the right prices.
Senator XENOPHON: But there is a potential for smaller operators to be disadvantaged when it was the intent of the volume discount amendments to ensure that there would be a much more level playing field.
Mr Quigley : Smaller operators tend to focus on specific areas; they do not try to cover the whole nation. If they try to cover the whole nation then they have to make investments, including in CVC capacity, across all 121 points, but if they are small and focus on regional areas the investment is much more modest. We are working through those in more detail with Mr Hackett and his team to see if our understanding is the same.
Senator XENOPHON: But do you acknowledge that if you do not get the CVC charges right we will be back to a situation where the big operators can dominate the smaller operators through competition in the marketplace?
Mr Quigley : No, I think we are certainly a long way from that point. It is also clear, which I probably need to put on record again, that the decision of 121 points of interconnect is certainly a less favourable outcome for smaller operators than our original 14 points of interconnect, but that is not our decision—it is an ACCC decision.
Senator XENOPHON: Finally, will any CVC charge be subject to ACCC scrutiny?
Mr Quigley : Yes, of course.
Senator XENOPHON: How far away are we from that so that those small operators can plan?
Mr Quigley : We have had our product construct out into the public domain for quite some time for consultation. We will have it embedded in our special access undertaking which has been prepared for submission to the ACCC. So it will get quite a hearing.
Senator XENOPHON: When Mr Bevan Slattery told an audience that they should invest in the old enemy, Telstra, because, as he said, the NBN will fail because their CVC charges will make it uneconomic for any player to make a profit. What do you say to him?
Mr Quigley : That is not what we are hearing from the customers we have done deep dives with—which is a raft of retail service providers.
Mr HARTSUYKER: Mr Quigley, I want to go back to the corporate program that is contained on page 19 of the corporate plan. You did touch on the issue of the impact of the POI and the Telstra deal on your programming, and I know that you have undertaken to provide us with regular updates on the program. What elements of this original corporate plan are still on target to hit their dates? Obviously those ones that are dependent on the POI and the Telstra deal are not, but there is a range of other issues.
Mr Quigley : It is probably best if I get back to you, if I can, because I probably should not comment off the top of my head on all of these. It is rather difficult until we know when the Telstra shareholder meeting takes place. If I was going to update this, which I am not proposing to do at this time because I have to give it back to the government, I would have to make an assumption about when the deal would become unconditional and base the plan from that date.
Mr HARTSUYKER: But there is a range of other items that which are not dependent on the deal, such as IT centres and OSS/BSS.
Mr Quigley : And they are generally running, as we would expect, to this plan.
Mr HARTSUYKER: Your head of corporate services, Kevin Brown, said in relation to the construction contract and the pricing given by the companies in the suspended contract tendering process that, 'In our view it does not reflect capacity constraints in the industry,' or that the prices received did not reflect capacity constraints in the industry. If the prices that you received did not reflect capacity constraints, what did it reflect?
Mr Quigley : It reflected a whole range of issues, some of which are unknowns. Many of these companies of course have never rolled out a fibre-to-the-premises network before. There were clearly some unknowns related to what would be the access to Telstra facilities. They knew that a deal was being negotiated but obviously they did not have all the details to that. Given that circumstance, there are clearly some unknowns.
Mr HARTSUYKER: Could I add a little supplementary: didn't your tender document specify the access to the site that you would be providing those people trying to tender for the project?
Mr Quigley : Yes, but when we say 'access to the site', in a lot of these cases it is the actual ducts. It is also clear that there are risks in any new project, and they had to be factored in by these construction companies. I would also say that I think the question of availability of sufficient resources must have played a part in the thinking of these companies. But, as I have said, I am reasonably confident we will come to a satisfactory outcome, which will be good for the Australian taxpayer when it comes to construction.
Mr HARTSUYKER: But it seems to me that a fair bit of the concern in the tender process then harks back to the fact that the offering that they were required to make was not clearly defined by you.
Mr Quigley : We defined it to the best of our ability at that time, given that it would have to go right out to the total community of tenderers, potentially. At the time we did not know exactly what that number was, but it is a large number. It is very difficult to have detailed discussions with a large number of tenderers, which we would have had to do simultaneously—unless we moved into a different process.
Mr HARTSUYKER: I would have thought that that was essential in a contract of the magnitude that was being let. The actual rationale that you put forward in this tender process, without wanting to be absolutely specific, what were you seeking: fixed time, fixed price? What risks were you expecting those contractors to take?
Mr Quigley : We were expecting a range of risks. They were also free to say which areas they would accept and which they would not accept.
Mr HARTSUYKER: Which risks were in the range? Which risks were you seeking the tenderers to take?
Mr Quigley : I would not like to try to articulate them here. There was a range of those risks. I also have to be, as you would understand, a little careful in what I respond to now simply because we are still in a tender process.
Mr HARTSUYKER: Okay, but all of those tenderers would know the risks that you were asking them to take. It is interesting from a taxpayer's point of view as to which risks you were seeking to pass to the contractor.
Mr Quigley : That is part of the tender conditions and I really should not talk about those specifics—neither pricing nor terms and conditions of a tender that is not yet completed.
Mr HARTSUYKER: In relation to the current alliance format that you are proposing, on what basis do you see the risks being shared? Or is that still something that you cannot comment on?
Mr Quigley : Of course, I cannot comment on that one.
Mr HARTSUYKER: In relation to the deal with Telstra, there is a sum being expressed as a net present value. I would like to quote your financial officer, Mr Beaufret, who said that, 'It is absolutely wrong to add $35.7 billion and $13.8 billion to achieve the true cost of the project, because the $13.8 billion Telstra deal is completely offset by the revenues you are going to get over this period of time.' Part of that relates to the migrations of customers across to the NBN. I would put it to you that in a typical commercial transaction the purchase of a customer base probably would be considered a capital item. Upon what basis would you not treat that as capital?
Mr Quigley : I should not try to get into the details of what should be treated in here as capex and opex. I have taken our discussion from the last in camera session back to our CFO and asked him to look carefully at that issue. He assures me that he has done so. He has consulted with a number of experts in the area and I think he has had discussions with the Taxation Office to make sure that we are treating that as we should treat it. He has confirmed that the process that we are using and the way in which we account for and classify expenditure is correct.
CHAIR: And once the deal is complete that will be public information?
Mr Quigley : I believe so to some extent, yes.
CHAIR: The secretary of the Department of Broadband, Communications and the Digital Economy has very kindly and some would say wisely offered us a little bit of his time. If we do run over, I think the next witnesses will be okay with that but I will leave that up to the committee as to whether you want to speed it up or keep talking to Mr Quigley.
Mr Quigley : That is very generous of Mr Harris. I owe him one!
CHAIR: The benefits of going second!
Ms LEY: I have two quick questions, Mr Quigley. I am just looking at the statement of expectations which talks about the rollout period for 93 per cent of premises. I just want to ask you about the 94 to 97 coverage percentiles which do not seem to similarly have a rollout period described. What date do you anticipate that that technology of 12 bits per second will be available to those citizens of Australia?
Mr Quigley : We have already made the purchase of some spectrum. We are going through a process also with ACMA looking at an additional 2.3 gig in the places where we could not purchase it. We are well advanced in negotiations with potential equipment suppliers of that and also system capability. We will have, obviously, that wireless network rolled out well before the completion of the fibre network. In anticipation in response to, especially, the pressures from regional Australia we will be trying to roll that out as fast as we can. I probably should take on notice to give you the end date for when that should take place but it will be underway fairly quickly.
Ms LEY: Is it the case that the government has not given you an end date for that?
Mr Quigley : No, of course not. It is because we need to advise the government of what is an achievable rollout for those premises.
Ms LEY: But you do not have in your mind even an approximate date that you can tell people?
Mr Quigley : We will be starting in 2012 with the volume rollout. We will be doing some trials of the fixed network and I expect it will be a number of years to roll out that network—not a large number of years but a number of years. I can bring back to the committee a projected date. The reason I hesitate just slightly is that the points of interconnect for the fixed wireless network are the same points of interconnect as we are using for fibre. So there is a dependency on Telstra infrastructure again— not in this case on ducts but on exchange space in point of interconnect and dark fibre.
Ms LEY: I do look forward to you bringing that back to the committee so that I can certainly advise my constituents—and there are many in related electorates who live in small towns of maybe 500 to 1,000 people—as to the approximate date they can expect to get the better technology. My second question concerns cybersecurity. It is not so much about the security of the wholesale network but from the fibre access node to the premises which of course is managed by the internet service provider. As you tell us you are a wholesale provider and this is in the province of the retail provider. I know there are discussions and that this has been talked about in Senate committees but I want a statement from you as to what degree you feel that the NBN is responsible for, if you like, educating, informing or assisting what may be an unsophisticated consumer who is going to be at the end of this very high-speed network of the quite serious cybersecurity implications of being in that position. It is just something that you believe the ISPs need to deal with 100 per cent or will there be something that NBN Co. is doing?
Mr Quigley : We will discuss that with our shareholder to see if there is something as we are rolling out. There is an opportunity here, obviously, as you are rolling out the network right across Australia, and we are providing information on broadband to homeowners and also small businesses. There is an opportunity to raise again the issue of security. While we do not directly control many elements of assuring that security—we do control some, but not a huge number—there is an opportunity, if we are communicating, to use that to communicate on the issue of security. That is an issue we will be discussing with the government.
Ms LEY: But you believe that your responsibility is just to communicate about security?
Mr Quigley : No, the issue is also to make sure that the part of the network for which we are responsible is secure.
Ms LEY: What about that part of the network from the fibre access node to the premises?
Mr Quigley : We are not responsible.
Ms LEY: You are not responsible, so—
Mr Quigley : Sorry, I would not say we are not responsible from the fibre access node to the premises. We are, but it is more where we sit in the stack. In other words, many of these attacks do not take place on the physical infrastructure. If they take place on the physical infrastructure then clearly we are responsible. If they take place at a layer that is above us, we do not even know that that attack is taking place, because we do not have access to that information. It is taking place using the bits that are sitting above us.
Ms LEY: I was talking not so much about what you might know but about the circumstances of somebody who is connecting to the fibre network who may have very limited information about the exposure that they will then be under and who is going to provide them with that information or put measures in place to make sure that they are not subject to cyberattack given that that section is the retail part of the network.
Mr Quigley : Yes. So we are certainly doing all we can, working with the government, to try to use our resources, if we can, to deliver that message. That would be good. But, if I can draw that analogy, we are building the highway. We cannot really make too many statements about what each kind of vehicle that goes on that looks like and what you have to watch out for. That is the closest analogy I can draw.
Ms LEY: Thank you.
Senator CAMERON: Thanks, Mr Quigley. Obviously we will continue to have the scare campaigns being run against NBN and attacks on you personally, but I just want to come back to a report I have just seen in Communications Day, which refers to Gibson Quai AAS—are you aware of that company?
Mr Quigley : Yes, I am aware of that company.
Senator CAMERON: The report quotes Gibson as saying that the NBN will cost between $60 billion and $80 billion, and the government has set aside $35 billion. Can you just deal with that issue for us.
Mr Quigley : I would be interested to see his analysis and what numbers he is using. I do not know on what basis he would draw those assertions. They are obviously not the estimates that we have made, and I would be interested to see why he would assume it would be the case. As we have said, we have gone through a large number of tenders now. Our estimates have come in just about where we wanted—some are a little lower—for a whole range of services and equipment. We are obviously in the process of looking at the contracting for the building and, as I have mentioned, we will proceed with that only when we are confident that we have the right outcome. So I honestly do not know where he gets those sorts of numbers from. But I would be happy to engage them, have a discussion and have a look at what they think.
Senator CAMERON: You are confident about your numbers?
Mr Quigley : Yes.
Senator CAMERON: In terms of the overhead cables that have been raised in Bradfield, how does NBN deal with the issue that pay TV cables are already in heritage areas? Does that diminish the heritage position of a community, and how do you deal with that?
Mr Quigley : We tend to deal with it area by area. For example, in one of our first release sites—in Brunswick, a Melbourne suburb—the council was very stringent about heritage issues. In fact, when you walk down the streets of Brunswick, there are overhead cables all over the place, so it is quite visually polluted, but nevertheless in that case we put the cables underground, and we paid Telstra to remediate their ducts and pits in that process in one of the first release sites. But that does not mean we will necessarily do that everywhere; we will treat it on a case-by-case basis.
Senator CAMERON: A lot of these cables went under the Howard government in their competition argument for pay TV; isn't that correct?
Mr Quigley : I believe so. I should stress again that fibre aerial cable is not the same as HFC. In fact, some of the ugliest parts of HFC are the in-line amplifiers that get strung up on the cable. You just do not have in-line amplifiers in fibre. There are no amplifiers at all, except at the two ends.
Senator CAMERON: In response to that question from Senator Macdonald when he compared the NBN to Telecom and the old PMG, you said that the service providers would judge the service. Would you expand on that? I have seen lots of quite glowing commentary from some of these service providers about the NBN.
Mr Quigley : We are conscious that we are basically a public utility and that there is no large competition. That does not mean that there is not competition in small areas but there is no large competition. There is an obligation on us to make sure that the company stays lean, focused and efficient, and I think the best people to judge that are the telcos. In the end, we are providing a service to them and they should be able to judge how well we are doing. So I think that certainly it would be a wise move for the committee to listen to our customers and potential customers. In the long term, I hope to put in place—and I have tasked somebody to look at this but I have yet to get shareholder approval for it—a kind of report card from our retail service provider customers asking: 'Are we providing good service? Are we being efficient?' These are commercial entities so they should be saying to us: 'Are you guys keeping up with technology? Are you guys doing it efficiently? Are you doing it well?' We would listen very carefully to that. For a publicly funded company such as ours, having customers' report card on the public record is probably not a bad thing. Will it be enjoyable scrutiny? I suspect not but I think it is probably not a bad thing for us to do.
Senator CAMERON: At the private hearing and in previous Senate hearings you have commented on the cost of fibre to the node versus fibre to the home. Do you have any further information that you could give us this morning?
Mr Quigley : Nothing other than that there is clearly a trade-off. Some countries are choosing to do fibre to the node or, increasingly, not just fibre to the node but fibre to the kerb or fibre to the cabinet, pushing the fibre even further out. In the end, it is a long-term, short-term trade-off, you would have to say. There are some pluses to a fibre-to-the-node rollout. You could do a fibre-to-the-node rollout to a part of Australia—certainly not 93per cent. You could not use fibre to the node to get to 93per cent of premises with a high-speed service. You could go only so far and then you would start to run into the problems you have with ADSL and ADSL2, unless you just keep pushing that fibre further and further, which will make the copper loops shorter and shorter, so there is a cost-benefit trade-off there. But, remember, as you push the fibre further and deeper and make the copper loops shorter and deeper with a fibre to the node or fibre to the cabinet, you need to put in more and more and more cabinets. Each one of those cabinets needs to be powered and active, and then they will have the same issues that we have talked about, such as of water ingress. So there comes a point at which you say this still is not the end architecture. Almost everybody in the world says that the right end architecture is fibre to the premise. So you would maybe make some savings in the short term but it may in fact cost you more in the long term.
Senator CAMERON: The other issue that continually comes up is the debate that there is some new technology in wireless waiting to suddenly appear and that the National Broadband Network will become redundant. Would you explain where you see that debate at?
Mr Quigley : Yes. Rather than me, I think the committee should look at some of the experts around the world, including right here at our very own Hugh Bradlow, who was the chief technology officer for Telstra and is now looking at future technologies. He has stated quite clearly on the record that anybody who thinks that wireless is a substitute for long-term fibre is making a big mistake. They are just not comparable. We find even with our fixed wireless technology, which is using LTE—we are obviously using one of the world's leading suppliers for that—that it is just no comparison to fibre. There is no technology that we can see in the labs that will replace fibre. You hear some extravagant claims that wireless, even with LTE, can do 100 megabits per second but, as we keep saying, it can potentially—if you turn the error correcting off, if you are right at the centre of the cell and if you are the only person in the cell. That is the reality of it. That is the physics of it. There simply is no technology that we know of that is a substitute for fibre, and no technologist I have heard of is saying there is. There is a legitimate short-term versus long-term question about fibre to the node and fibre to the premises, and that is a policy decision about whether you want to invest for the short term and get a return or whether you want to invest for the long term. That is a legitimate question, but there is no technology we know of that is a substitute for fibre. You can ask: how can you guarantee that there never will be? Well, I cannot, in the same way as I think aeroplane manufacturers cannot guarantee there will never be some new technology and some new flying machines. You just never know. But there is nothing in the labs that any of us are aware of that could substitute for fibre.
Senator BIRMINGHAM: Thanks, Mr Quigley, as always for your cooperation with these parliamentary inquiries. Can I return very briefly to the Alcatel-Lucent matter. You voluntarily provided a column to the Australian that was published on 5 May, didn't you?
Mr Quigley : Yes.
Senator BIRMINGHAM: And you voluntarily entered into an interview with Chris Uhlmann on 7.30, also broadcast on 5 May?
Mr Quigley : Yes. I absolutely was not forced to do that.
Senator BIRMINGHAM: It was your statements through those mediums that ultimately led to you issuing a corrective statement last Friday and responding to questions from my colleague Mr Turnbull today and offering an apology in regard to some of that information, was it not?
Mr Quigley : Yes.
Senator BIRMINGHAM: A statement issued on Friday, and you have reiterated the point here today, is that now you do not intend to comment further on this matter as it is the subject of ongoing legal proceedings in the US to which you are not a party. Why did you decide to enter the debate in the first place and was it an error of judgment to enter the debate which has led you to have to make these corrective statements?
Mr Quigley : In hindsight, it probably would have been better to say nothing at all, saying it is subject to an ongoing investigation. But I am not sure that even you would have allowed me to make no comment on that. I made a query of somebody who I thought should know the situation, and on the basis of that information as an existing Alcatel-Lucent employee I made a statement which turned out to be in error. I corrected it as soon as I found out it was in error. But, if I can repeat again, all this is a question of: is there anything that I am being investigated for? The answer is categorically no. I was in the company in which there were illegalities that happened. This company is not alone. A very large number of international companies have the same issue they have to deal with. I was never under any investigation, never questioned by any of those authorities. So there really was not, in my view, anything to answer for in terms of any wrongdoing on my part. It was on that basis and on the information that I had before me that I tried to defend myself.
Senator Cameron interjecting—
Senator BIRMINGHAM: You can pursue that in your other inquiries, I am sure, Senator Cameron—as you do.
Senator CAMERON: I don't hear you say much about John Dickson.
CHAIR: We are on the clock.
Senator BIRMINGHAM: I think that is a matter of fact that Alcatel are a contractor, but I think equally, Mr Quigley, you have made clear you were not a party to that contracting decision.
Mr Quigley : No, and if you do a survey of the number of people you can buy Dupont equipment from on a worldwide basis the list is not long.
Senator BIRMINGHAM: Let's move on to the issues around Telstra and the construction tender. The construction tender has been delayed because through the initial tender process you say you were not confident of getting value for money for taxpayers. Is that correct?
Mr Quigley : I was not satisfied that the position we got to was good value for money for the Australian taxpayer.
Senator LUDLAM: Were the delays in the agreement with Telstra being caused by an equal concern?
Mr Quigley : No. They have been caused by the fact that the deal is very complex. It has a lot of moving parts, including a relationship with the policy that is going on and structural separation. It is just a very complex deal.
Senator LUDLAM: Is value for money for taxpayers a concern at all in the Telstra deal? Have you cleared that hurdle, in a sense?
Mr Quigley : If I had not taken it as a serious issue, we would probably have had the deal done a year ago. It is something we have taken very seriously. The negotiations have been tough. They have been hard. I know I have seemed to have been unreasonable in the positions I have taken in those negotiations at times, but I was trying to protect the public's interest by making sure we were paying no more than we should pay for facilities. In that issue with Telstra, by the way, as I have said on the public record, the issue was not about finding a small area in which both companies would be willing to sit. It is often the case that you try to find an area where you have mutual ground. The fact is that this deal is very good for Telstra and it is also very good for NBN Co. The interval of overlap there is quite large, which means it makes the negotiations tougher as you try and establish fair value. There simply is not a precedent that you can easily use in this, so you have to negotiate point by point.
Senator LUDLAM: The construction tender will give you—I think in your opening statement you use this phrase—a primary construction partner. Is that correct?
Mr Quigley : Yes.
Senator LUDLAM: So out of the 90 successful tenders you have completed so far, this would be the most important?
Mr Quigley : They are all important. You would think that choosing the satellite partner is also very important. If you make the wrong decision on a construction partner, you can correct it. If you make the wrong decision about a satellite, it is up there and you are in trouble.
Senator LUDLAM: Sure. This is to build, potentially—you will not be locking into all 93 per cent, I assume—
Mr Quigley : Obviously not.
Senator LUDLAM: the primary construction partner for what is the 93 per cent aspect of your business.
Mr Quigley : I would not even conclude that. This is a primary—'primary' being the first—construction partner.
Senator LUDLAM: If I look back on your opening statement, when you spoke about a primary construction partner, that came across as a principal construction partner, not the first of many construction partners.
Mr Quigley : I would not try and put any nuances on that. Also, I would say to you that we are in a tender process, so I really do not want to comment on which of those interpretations you would choose to put on it. It is a primary. Obviously we are negotiating with a contractor.
Senator LUDLAM: I cannot recall whether it was in response to Senator Macdonald or Senator Xenophon, but in response to one of them you gave a very categorical assurance that you believed the project could still be done on time, on budget and within what was outlined. If you had, in relation to your primary construction partner, concerns about value for money, and if in relation to the Telstra deal—and you had a wonderful turn of phrase that I now cannot find in my notes—
Senator FISHER: Hideously complex.
Senator LUDLAM: Hideously complex—that was the phrase.
Senator FISHER: It stuck in my mind, too.
Senator LUDLAM: The hideously complex Telstra deal. How can you have such absolute confidence with regard to the budget when you are encountering these difficulties so early?
Mr Quigley : These are not difficulties with the outcome; these are difficulties in the process of getting there. They are very complex deals, particularly the Telstra deal. It is a very, very complex deal. The documents are now a large set of documents to batten down. There is a lot of detail to go through, so it is very complex. If I say 'hideous', I mean that in the sense that it has taken a long time—many hours, lots of weekends and lots of working through the night. They have been very tough negotiations. I am confident that the board of NBN Co. will not enter into an agreement unless they are assured that this is in the best interests of NBN Co. And when I say 'in the best interests of NBN Co.' I mean in executing the government's objectives.
Senator LUDLAM: Of course, without crossing into the deal with Telstra—I understand the sensitivities—will the payments that will be made to Telstra under that deal be made exclusively by NBN Co. or will they be made by the department, or is it a combination of both?
Mr Quigley : There are two parts of the deal, I think, which is on the public record. There is the part we have announced, which is approximately $9 billion, and there is the part that government has announced, which I think is approximately $2 billion. They are separate issues, and we will be responsible for the bit we are responsible for.
Senator BIRMINGHAM: Are both issues still under negotiation for finalisation?
Mr Quigley : Yes.
Senator BIRMINGHAM: Do you have absolute confidence that the appropriations to NBN Co. of taxpayer equity that were outlined in last week's budget will be sufficient to meet your obligations in delivering the build and the payments to Telstra under whatever deal is finally struck?
Mr Quigley : Yes. I believe that the arrangements that were put in place between the company and the government for funding the company will be satisfactory. It will clearly be the responsibility of the board to ensure that is the case.
CHAIR: I am conscious of the time. I am sure NBN Co. will take questions on notice from the committee as well.
Mr Quigley : Certainly.
CHAIR: So perhaps we could start to wrap up. I am conscious that there is a department that we also want to get before us.
Senator BIRMINGHAM: I have a couple of very quick questions, then. Who will be eligible to connect to the satellite service that will be available from 1 July?
Mr Quigley : A document is going to be put out saying who can access that. I am speaking here in general terms, but we will give you the exact words. For people who cannot get a satisfactory broadband service today—they are on wireless or on copper and there are limitations in terms of how long they have had the existing ABG service—there will be certain conditions around that, but it is obviously aimed at providing a service to those people who cannot access a satisfactory service any other way.
Senator BIRMINGHAM: Somebody who lives in an area of an ABG footprint but has lived in that area of footprint for only a very limited period of time—
Mr Quigley : It is not necessarily that they have only lived there for that time. I am saying that it depends on whether they have had an ABG service or not—how long ago.
Senator BIRMINGHAM: So, even though there was a good speed service available through that ABG provider, because it did not meet a price definition—
Mr Quigley : I do not think they would have got the ABG service unless it met the price definition. I suggest what we do is give you the precise rules around that service. When somebody applies for an ABG service they go through a process to do that.
Senator BIRMINGHAM: That would be great if you could give us those rules. Lastly, going back to Alcatel and Mr Turnbull's questioning, you said that Alcatel drew the Costa Rica investigation to the attention of the SEC. You may need to take this on notice, but are you able to point us to an Alcatel filing that states this and makes this clear or to some other evidence that makes this clear? I am at least advised that the 2009 20-F filing makes no such claim and simply states that following the Costa Rican investigation the SEC and the Department of Justice were made aware of those issues.
Senator CAMERON: I have a point of order.
Mr Quigley : I am happy to answer that.
CHAIR: We will take the point of order first.
Senator CAMERON: Mr Quigley may be happy to answer, but all these questions are trying to smear Mr Quigley—
Mr TURNBULL: Mr Quigley has admitted—
Senator CAMERON: You know what this is about. This is you carrying out Tony's commands to destroy the NBN.
Mr TURNBULL: This is about you trying to smear us. You are a disgrace.
Senator CAMERON: This is you carrying out Tony's command. Anyway, the point of order is this: I am interested to know how much of this falls within our terms of reference.
CHAIR: I am allowed a broad scope on the government's questions, because of the obvious news relevance of this issue in the last 48 hours. Mr Quigley has been very kind in answering the questions this morning, and I think it is fair for all that he has allowed that to happen. He is willing to answer this question as well. I hope we allow him to answer it, and then we can have a short break and get the department in front of us.
Mr Quigley : In answer to Senator Birmingham's question, it is clearly unwise for me now to say anything more because I have not read these filings in detail. I know that certain people in the press are poring over them looking for every possible inconsistency. So I will not be saying anymore in detail about this, particularly since I understand that there is a hearing—and, by the way, I am giving you my understanding based on the verbal advice that I have had from people who I believe do know—taking place in early June in the US at which there will be a settlement between Alcatel-Lucent and the SEC and DOJ. I do not know the details of all of that. I do not know the details of the five years of investigation that took place. I do not pretend to know the detail of that. But, what I can repeat, for the 20th time, is that I have never been questioned and never been asked anything by the Department of Justice or the SEC. So I do not believe that it is my job to start defending Alcatel-Lucent over this five-year investigation. It is all on public record; it is all there. I am not going to be involved in a situation where, if I say something in response to a question on the basis of what I believe I know, I might get it wrong and then it is pointed out to me. The best thing I can do is stop trying to answer these detailed questions.
Senator FISHER: I have three areas in which I want to ask some quick questions. Hopefully, you have left some of your most informative answers until last.
Mr Quigley : It depends on what subject, Senator Fisher.
Senator FISHER: It is a subject close to your heart. You have in the past expressed concerns about finding workers to build the NBN and concerns about wages. You have also told the committee that you are concerned about value for money in the first round of tenders, and you are continuing to seek value for money and for the taxpayer in now seeking the primary contract for the build of the NBN. What fat is there in the budget for building the NBN to accommodate what may need to be the wages to find workers? Do these workers exist at the moment or do they need to be trained? What reassurance can you offer the committee that, despite the claims for some unions of annual wage increases of some five per cent increase and the NBN implementation study forecasting 2.5 per cent increases a year, wages costs will not cause a blowout in the budget of the NBN? On what do you base that reassurance?
Mr Quigley : I will start, if I can, by clarifying one thing. The numbers that you have are in the implementation study. That is not necessarily our business case.
Senator FISHER: Understood.
Mr Quigley : The implementation study was different. Clearly, it would be illogical of me to say that there is not going to be an issue about finding sufficient people. It some places in Australia, it will be relatively easy; in some places, it will be much more difficult—in Western Australia and the northwest of Australia it will not be easy. But we are addressing that. We are already undertaking discussions with various departments within various levels of government about training requirements. We have been speaking to training companies. We are going to have to do some level of training or make sure that it is done—we understand that. We are having discussions, as you know, with the contracting community.
Can I guarantee that we will not run into issues of labour availability? No, I cannot guarantee that. I suspect that we will at some point, and we will need to juggle that and handle that as best we can. On the issue of what we have in our budget for construction costs and what are the facts, I would be really seriously remiss if I not only made a statement about the budget but even acknowledged that there was any fat in the budget. That is the sort of information that people who are tendering would love to know. They would love to know your budget; they would love to know where you can move to. I will simply make no statement about that.
Senator FISHER: So you cannot reassure the committee that wages costs will not cause a blowout in the budget to build the NBN?
Mr Quigley : We are taking the whole question of labour rates very seriously. It needs to be something that we think about. I have in Mr Kevin Brown a very experienced individual in labour rate issues and I turn to his expertise on that.
Senator FISHER: So that is no—you cannot reassure the committee.
Mr Quigley : I can only reassure you that in thinking about all of those issues we believe that we can build this network in the budget that we have laid out in our corporate plan.
Senator FISHER: You have previously stated that, given the size of the project, it is likely that the NBN plan may have to be modified over time. In what ways could be NBN plan be modified and could that involve a build of fibre to the node in lieu of fibre to the home?
Mr Quigley : That was not what I was alluding to; I was thinking of labour availability. If we had planned to go to this particular region, call it region X, and we find that labour shortages are a problem, we may have to divert for some time to region Y and come back to region X when we have solved the labour issues in region X. And we have that ability. For example, if costs were going to be very high in this region over here until we had made sure people were available, then obviously we are not going to build at inflated costs; we will go and build somewhere else until we get there. That is what I meant by that.
Senator FISHER: Thank you for that clarification. You have reassured the committee that it will be sorted, if I can put it that way, with your good people, including Kevin Brown. You spoke to my colleagues, and in particular Mr Turnbull, that you spoke too early, for example in respect of the Alcatel-Lucent deal, regarding what you anticipated—wrongly, as it transpires. You spoke too loosely. In attempting to reassure the committee that you will work through the processes to find the skilled workers and contain labour costs, how can you reassure us that you will not find yourself again, if I can put it this way, having spoken too loosely or too early, given the hideously complex, in your own words, nature of not only the deal with Telstra but the NBN in totality?
Mr Quigley : When I said hideously complex, I was talking about the deal itself, which is quite complex.
Senator FISHER: I know.
Mr Quigley : There is a big difference in those two, with respect, Senator. I am running the NBN company; it is my life just about every hour of the day these days, so I am focused a great deal on it. When I make statements to you about what we are doing with the NBN, I generally either take them on notice or give you an impression. As I said, you can never be 100 per cent sure about this, because there are still things that may in fact be beyond our control. There could be regulatory changes or other changes—they are beyond my control. In talking about the Alcatel-Lucent issue, I have been out of Alcatel-Lucent for quite some time now. I have not read all of those cases, but I was trying my best to respond to questions that were being asked of me. I agree that, as turned out to be the case, I got one of the facts wrong based on information that I had obtained in good faith.
They are two entirely different situations. One is, frankly, not only a peripheral issue but an issue that is diverting me from the main job that I am being paid by the government to do, which is why I really need to stop debating it and leave it to the hearings and the public record.
Senator FISHER: Thanks, Mr Quigley. My final area of questioning is on every hour of your day: the NBN—and no doubt you need some time away from that. In respect of Senate estimates, we have set aside a special hearing just for you, if you like, because you will not be fronting for Senate estimates during the scheduled fortnight commencing next week.
Senator CAMERON: I have a point of order, Chair.
CHAIR: Hang on.
Senator FISHER: In that respect, you have told the Senate that you will not be attending next week because you have an overseas family trip that has been planned for a very long time and falls in the same period as the hearings. I do appreciate the need for all of us to have some time off, but, as to having an overseas trip that has been planned for a very long time, the Senate estimates timetables were released in November.
CHAIR: You are stretching it, Senator.
Senator CAMERON: You have to take the point of order, Chair.
Senator FISHER: Was your trip planned at that time or still in the planning stages? This is a matter arising from the rollout of the NBN.
CHAIR: That is a very long link. You can answer that at your will, Mr Quigley. You do not have to answer it.
Mr Quigley : This has been a trip which I am—
Senator CAMERON: Before Mr Quigley answers, I would take a point of order on this. The point of order is that the committee that deals with the communications and environment area—
Senator FISHER: On which you have the numbers, Senator Cameron.
Senator CAMERON: has made decisions about this. The issue of how estimates run is way outside the terms of reference of this committee. Mr Quigley does more than any other private company executive I know in terms of coming and answering questions at every committee I have been involved in and estimates. I think it is outrageous that this is being used—
Senator IAN MACDONALD: It is the biggest infrastructure deal that the government—
Senator CAMERON: to again try to smear Mr Quigley. That is what this is about.
Senator FISHER: Mr Quigley has the opportunity to explain.
Senator BIRMINGHAM: Senator Cameron, you know that Mr Quigley did not even have to attend.
Senator CAMERON: You are all being totally—
Senator FISHER: In fact, we were happy to have others than Mr Quigley. Did you tell Mr Quigley that, Senator? No.
CHAIR: Order! I am trying to wrap this up.
Mr TURNBULL: Senator Cameron has defamed every other member of this committee.
CHAIR: Order! We are going nowhere fast here.
Mr TURNBULL: Mr Chairman, I suggest you—
CHAIR: Mr Quigley, do you want to answer that question? It is your call.
Mr Quigley : All I would say is that I do my very best under every circumstance to turn up at all of the committees that I am asked to attend.
Senator FISHER: Understood.
Mr Quigley : I did have a longstanding arrangement with not only my wife but also my grandchildren and families and, frankly, I really do not want to get into a discussion on my personal life in a public hearing.
CHAIR: Thank you. There is one other issue that we need to deal with to wrap this up. We are not going into people's personal holidays.
Mr TURNBULL: I am not interested in Mr Quigley's personal life, but there are a couple of technical issues about the answers to fibre to the node that I want to ask him about if I may. It will take just a few minutes.
CHAIR: I will allow that. But there is this fibre deployment bill that we also need to talk about. Rather than talk about it now and run the clock down, are you happy as NBN Co. if we as a committee meet with the greenfield fibre operators in Australia and Telstra and potentially come back to NBN Co. with some questions if need be?
Mr Quigley : Of course.
Mr TURNBULL: Alcatel-Lucent published a technology white paper recently which said:
But the economics of FTTN are hard to resist, given cost points that can be 50% or less than those of PON.
Mr Quigley : Yes.
Mr TURNBULL: You agree with that?
Mr Quigley : I would say yes. I do not know the exact numbers, but certainly you expect fibre to the node to be cheaper if you want to cover a given area and you can actually cover it in fibre to the node. If they are talking about a larger area that you cannot cover with fibre to the node, it is a different situation.
Mr TURNBULL: The same paper from Alcatel-Lucent states that fibre to the node can offer for distances of 1.1 kilometre of less—that is to say a copper length of 1.1 kilometre or less—download— speeds of 25 megabits per second and upload speeds of three megabits per second. Does that fit with your experience of this technology?
Mr Quigley : There are a lot of other factors there. One thing I have learnt from broadband planning and DSL technologies is that you have to be careful with broad generalisations. Loop lengths is not the only issue; there are issues around what is called—since we are getting into the details here—near-end cross talk and far-end cross talk, whether you are using vectoring or dynamic processing, and how many cables are in the binder. There are no simple answers.
You cannot draw simple conclusions. So there is no easy answer to that. You have to plan a network. In Australia we have long loop lengths and some of these newer techniques to squeeze the, best using VDSL technologies, out of copper requires pair bonding. And with pair bonding you can use phantoming. There is a whole range of things but they all have their constraints and they are all squeezing the last bit out of copper. What I think is indisputable is that if you are looking at a long-term decade long investment, you want to be sure you are backing a technology that you are not going to have to upgrade in five years or even 10 years.
Mr TURNBULL: But you do not disagree with the statement that I just read to you from the Alcatel-Lucent paper?
Mr Quigley : I neither agree nor disagree until I know the details of the plant it is referring to.
Mr TURNBULL: Do you agree that very high speeds of about 25 down and three meg up can be achieved over fibre to the node?
Mr Quigley : Yes, of course they can under some circumstances.
Mr TURNBULL: Are they—
Mr Quigley : It is not a yes or no answer; it is under some circumstances and depending on the physical plant and the condition of the physical plant and the techniques that you use, some of which, by the way, are increasingly expensive.
Mr TURNBULL: Given that what on any view is very high-speed broadband for residential purposes can be achieved over fibre to the node and given that you are paying Telstra $9 billion to decommission their copper network, why are you failing to acquire the right, if you so choose, to use part of that copper network, if you or your shareholder in the future want to have, for at least part of the NBN network, a fibre-to-the-node design? Why are you depriving yourself and the taxpayer of that flexibility?
Mr Quigley : I am executing the objectives that were set by our shareholder. They asked the company to build a fibre-to-the-premise network. They did not ask us to build a hybrid of fibre to the node or a fibre to the cabinet or some other technology.
Mr TURNBULL: Mr Quigley, but you agree that situations change and companies and businesses need to be flexible because the resources that are available change and technologies change. Why are you depriving your company of that technical operational flexibility?
Mr Quigley : If it were relatively simple and straightforward and it did not require a lot of work, I may think about it, but to look at a completely different construct, where we would build a hybrid network where we keep some of the copper open and you retire other parts of it, I know how complex that would become. One of the benefits for Telstra is that, when they fibred an area, they can close down the copper and rationalise their exchange base. If they do not know which parts are closing and which parts will stay open, because we do not know what the performance of the copper is, that is a very, very complex negotiation.
Mr TURNBULL: But we are talking about potential savings of many billions of dollars. Isn't that worth a little bit of complexity?
CHAIR: This might be the last question.
Mr Quigley : Perhaps I could suggest, Mr Turnbull, that—this is perhaps to the department or the government—if they would like us to, at this point in time, go and look at that issue, we could certainly investigate it, but it is their policy issue; it is not an issue for—
Mr TURNBULL: It is a shareholder issue.
Mr Quigley : Yes, of course.
CHAIR: There is plenty of room for questions from any committee members to be put on notice via the secretariat. NBN Co. has been very kind in saying they will respond to those. Mr Quigley, thank you for attending to assist the committee.
Mr Quigley : It has been a pleasure. Thank you.
CHAIR: You have been asked to provide additional information on some issues. Could you please forward that to the secretariat by 30 May because the committee has to report by August. We all have some time schedules. Thank you very much. I appreciate you allowing a long lead on many of the questions today. I am sure we will be talking again.
Mr Quigley : I look forward to it.
Pr oceedings suspended from 12: 13 to 12: 18