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Joint Committee on the National Broadband Network
30/10/2012
Rollout of the National Broadband Network

HALL, Ms Stacie, Acting First Assistant Secretary, Government Business, Special Claims and Land Policy Division, Department of Finance and Deregulation

PAYNE, Mr Robin, Chief Financial Officer, NBN Co.

QUIGLEY, Mr Mike, Chief Executive Officer, NBN Co.

ROBINSON, Mr Ian, Acting Deputy Secretary, Department of Broadband, Communications and the Digital Economy

SMITH, Mr Philip, Assistant Secretary, NBN Policy and Shareholder Branch, Department of Finance and Deregulation

STEFFENS, Mr Ralph, Chief Operating Officer, NBN Co.

Committee met at 18:02

CHAIR ( Mr Oakeshott ): I declare open this public hearing of the Joint Committee on the National Broadband Network. Before calling the first witnesses, is it the wish of the committee that the media be allowed to film the proceedings today in accordance with the rules set down for committees, which include not taking footage or still images of members' papers or laptop screens? There being no objection, it is so ordered. I advise that I am in the middle of a debate on the House floor, so I will have to open and go, and then hopefully come back.

The NBN Co. and the departments are here to discuss the progress of the NBN rollout for the fourth six-monthly review of the NBN. At 8 pm, Telstra will appear to cover workforce retraining issues.

Since our last hearing, the committee has looked at a similar rollout in New Zealand as part of a parliamentary committee exchange program. We went to Auckland and Wellington, and met with various companies engaged in the rollout of ultrafast broadband—government ministers, members of parliament, trade union members, government and regulatory agencies. It was a valuable experience that will be put into the next report. I note that some committee members have already made useful contributions, including Mr Fletcher, whose article was published in the Australian shortly after our return, and Mr Symon in his grievance debate last night.

Before starting the hearing, I want to say something about the delays in getting material to the committee. This is not the first time I have raised this matter and the committee has criticised the government for the lack of timeliness in our reports. The report from shareholder ministers that we are looking at tonight was due at the end of September. This material was not lodged with the secretariat until 23 October, which is perplexing given that this hearing was originally scheduled for 8 October in Sydney. There is also the question of material requested by other members which has still not been received even after the secretariat extended the deadline at the department's request when the hearing was postponed. I expect that the member concerned will raise this himself tonight.

As there is considerable interest in tonight's proceedings, which are being broadcast, I would now like to start the public hearing. I welcome representatives of the NBN Co. and officers of the Department of Broadband, Communications and the Digital Economy, and the Department of Finance and Deregulation. 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. Would you like to make an opening statement to the committee?

Mr Quigley : If you agree, Chair, rather than give the committee a verbal summary of what has been achieved by the company since we last met, I thought it might be more valuable if I tabled some performance data, which will complement the six-monthly report that you have been provided by the government and which is quite up to date. In fact, we have tried to extrapolate it out to the close of October. We will be tabling that if you are in agreement. Also, if I could just mention a couple of things before we do table that information. We were sent some questions, obviously from members, and we have answered those. Some of those have been passed on to the committee; some are still with the government. Also, Senator Macdonald inquired at estimates about a letter regarding Julia Creek that he was concerned that I had not responded to. We followed up that letter and, unfortunately, Senator, it was sent to an office in Tasmania that we had not occupied for two years.

Senator Ian Macdonald: It was the only address my staff could find for you.

Mr Quigley : Right.

Senator Ian Macdonald: When I found it, we sent it again to Sydney. But you have answered it, so thank you.

Mr Quigley : Yes. We invite you to use email in the future, Senator, if you would like to. You can be sure that I will get it then.

Senator Ian Macdonald: Okay.

Mr Quigley : I reiterate a point I have made many times about fixed-line technologies and wireless technologies, and the reason is there was comment made on a Sydney radio program in the last week or two that said:

… the ecosystem of the internet is rapidly changing from fixed line devices that can be connected to cables, desktop computers, laptops and so forth to wireless devices.

We absolutely agree that there is a rapid growth in the use of wireless devices, but we do not agree that the internet is moving away from fixed-line technology. I stress again that it is fixed-line technology that is handling the bulk of this wireless data from wireless devices.

For example, in the US at the end of 2011, more than 60 per cent of the tablets were wi-fi only. Another 25 per cent of the tablets were wi-fi and cellular but the cellular connection was not activated by the owner. So roughly 87 per cent of tablets in the US at the end of 2011 were used only for wi-fi, and wi-fi uses a fixed-line connection. That sort of trend is also being seen in Australia, with the latest Australian Bureau of Statistics figures for the end of June showing fixed broadband data represented 93.9 per cent of the total data downloaded over the six months to June. That is an increase from 93.3 per cent in the previous six months. So we are seeing a very large and growing share of data downloads being carried on fixed-line networks in Australia and in other places around the world.

Having said that, with the agreement of the chair, I now table some performance data which my colleagues and I will talk to, and I think this will be of use to the committee. We are going to focus on three areas. First of all, on the brownfields fibre deployment performance—our chief operating officer, Ralph Steffens, will go through that data. Then our chief financial officer, Robin, will provide a summary of our position on cost performance for brownfields fibre, fixed wireless, satellite and our transit network build. Finally, I will address the committee on the greenfields fibre, the new estates which have had a lot of focus in the last weeks. As I mentioned before, that is our largest challenge. I pass now to Ralph, who will take us through the first chart on FTP brownfields.

Slides were then shown—

Mr Steffens : Thank you very much. What you see here on this chart is a very steep ramp-up across all stages in the brownfield development. It is important to note that we are very early in the development process, and it is important to note that the early stages of the process have improved significantly over recent months. It is true that it has taken a while to get all the systems stood up. It is true that it took a while to get all the interfaces with all the partners established and to get the information which we require to build the brownfield network—if that is Telstra information, if it is information from the utilities, or address information, which I think has been addressed in this forum many times before. These interfaces had to be established, and it took a while to get the system environment established, as well as the processes. You can see at the front-end, where we start with the network design, that it is a very important and complicated stage. You can see that since the beginning of the year we have consistently improved our performance to the point where we today release approximately 35 fibre service access modules every single month. The important element—

Mr TURNBULL: You are releasing 35 fibre access service modules per month?

Mr Steffens : We are releasing network design documents for 35 fibre service access modules per month.

Mr TURNBULL: And they cover about 3,000 premises?

Mr Steffens : They actually cover roughly 2,400 premises.

Mr TURNBULL: How many have you released cumulatively now?

Mr Steffens : Cumulatively, for the end of September, we have released approximately 575,000.

Mr TURNBULL: That is premises?

Mr Steffens : That is premises, correct.

Mr TURNBULL: How many fibre service access modules?

Mr Steffens : We call it FSAMs.

Mr TURNBULL: So you are releasing 35 per month, but how many FSAMs have you released collectively?

Mr Steffens : Collectively, we have produced network design documents towards 241 FSAMs for the end of September.

Mr TURNBULL: Thank you; sorry to interrupt you.

Mr Steffens : Not a problem. What we have seen in recent months is that this trend of 30 to 35 is consistent and we are producing documents to the right quality and releasing them into the construction industry. It is important to note that if you look at the long-term run rate—the peak run rate, as we call it, which we need to achieve to deliver this program over the stated period—we need to produce approximately 45 to 48 documents every single month, which means we are very close to the run rate which we require. Also, 12 months back, we were producing approximately two a month. It just shows the learning curve we have been through, collectively, with the entire supply chain, and we consider the front-end of the process to be working. We obviously continuously improve the process and try to find ways of doing it more efficiently, but overall we are releasing design documents at a rate we require to achieve our annual target.

If you move into the next stage, where we start the detailed design process, that is actually when construction commences—when the four construction partners we have contracted with go into the field and physically inspect the pit and pipe infrastructure, match this and document this against the network design document, because, as we have stated before, address information is not accurate and address information cannot be entirely trusted to start the connections. Therefore, we go out, we walk every single street, we match every single address, but also, importantly, we check the infrastructure from Telstra, we check every pit and pipe—if the pit is fit for use—and we check the fill ratios of the ducts and the usability of the ducts. And that is a process which takes us approximately three months. In the beginning this process took us longer than three months because we, collectively, with the supply chain, had to learn how to do this in the most efficient way, because there is a huge amount of data which needs to be exchanged between different systems, between the various companies, and these interfaces had to be established. I am also pleased to say that we are in a good state, as you can see in this graph: the black one is what we have achieved so far; the others are what we forecast for the remainder of the year. We are on track and we are matching the NDD process very, very closely. There is a gap of one to two weeks, typically, before we commence construction, from the release of the NDD.

Mr Quigley : If I could just interrupt, we are doing a very good job of correcting the national databases—the G-NAF, or geocoded national address file, produced by a government agency, PSMA. We are actually going through and feeding information back to them. This is extremely useful, as you would imagine; correcting Australia's national address database is a very useful thing to be doing.

Mr Steffens : So the output of this three-month process—and we are getting very close to the three-month time line—is a detailed design document which determines exactly the material which needs to be deployed in each pit and in each duct. It also produces a field inspection report which we hand over to Telstra where the infrastructure which is not usable needs to be rectified. You can also see that, in the next phase, we issued almost a quarter of a million commencement notices to Telstra which cover a quarter of a million homes. Telstra is well underway in remediating the infrastructure to make it usable for us so that we can deploy our equipment into the Telstra infrastructure.

Mr TURNBULL: You said 'a quarter of a million'; this document suggests you have given instructions to date in respect of about 600,000.

Mr Steffens : No.

Mr TURNBULL: Well, the black—

Mr Quigley : It is the third graph along, Mr Turnbull—the middle graph.

Mr Steffens : The Telstra commencement notice.

Mr TURNBULL: Oh, I see. Got it.

Mr Steffens : Approximately a quarter of a million homes have been released, and the time frame for Telstra is, on average, three months to remediate an FSAM. We have completed 12 FSAMS, with many more underway, so this process works really well. We have a good working relationship with Telstra and we do not foresee any major issues in going through this stage.

At the same time we issue these Telstra commencement notices, we will also, as a result of these detailed design documents, have a detailed bill of material on the basis of which we do a final construction contract with our delivery partners, who then start the construction—the hauling of the fibre, the splicing and the connectivity of the homes in each fibre-serving area. You can see that is in line with the Telstra commencement notices. So approximately a quarter of a million homes are well underway.

So what you see here from all these graphs is that there is a steep ramp which we have to work through at each stage of the process, and it is a sequential process, and therefore there is always a lag between each stage. What is very encouraging is that, after the initial ramp, we have made all of these process improvements sustainable. So what we see now is a very steady performance, month after month.

The last stage, obviously, is to pass the premises, to complete these FSAMS and hand them over into operations. If you look at the forecast we are tabling here, it is the same pattern we are following with the premises passed. There will be a steep ramp which will then level out and we will have then a sustainable run rate. It is a challenging program, it is a challenging ramp we have ahead of us, but we are confident that all the work is now handed over to the construction partners. The individual FSAM contracts are handed over and contracted. I have a high degree of confidence in the construction industry to complete these 286,000 homes according to our corporate plan.

Mr HARTSUYKER: You do not have a graph of premises activated, the last step?

Mr Steffens : Yes. This obviously follows the premises completed. I can tell you that we have more than 5,000 brownfield premises activated by now and more than 2,000 greenfield premises.

Mr Quigley : By June 2013, we have written in our corporate plan that we will achieve 43,000 premises activated on brownfields. That is what we are going for. Obviously, to do that we have to reach the 286,000 premises passed. We continue to be encouraged by the rate of activations. Kiama is now very close to 44 per cent uptake, and Willunga is not far behind it. We are seeing some quite substantial take-ups without any steps being taken yet to shut down the copper.

Perhaps we could now move on. Thank you, Ralph. I will get Mr Payne to cover the next chart briefly—our brownfields capital cost. I know there has been interest from the committee in how we are travelling against the costs.

ACTING CHAIR ( Mr Mitchell ): Mr Quigley, just before we do, Michelle has a question.

Ms ROWLAND: Thank you. I have a question on some the comments that were made there. You talk about the quality of the mapping information. After NBN Co. has walked the streets and corrected it, in your estimation, how inaccurate do you think the mapping data was that you had at your disposal?

Mr Steffens : It varies dramatically, not only between the geography but also between the types of premises. Multidwelling units are typically a lot more inaccurate than single-dwelling units. It is a significant percentage, but there is a huge variety between the geographies.

Ms ROWLAND: As a ballpark figure, could it be 10 per cent inaccurate?

Mr Quigley : It tends to be more in rural areas.

Mr Steffens : Yes, it tends to be more than that.

Mr Quigley : By far the worst, most inaccurate, most difficult in terms of addresses is new developments—greenfields. You can imagine why: sometimes they are lots, they have got different names, the names change. Address issues are pretty in greenfields.

Ms ROWLAND: Considering that you are doing what I agree is quite a significant job, updating that data, is that data that you think will be able to be used in future and that we can actually derive some sort of return on?

Mr Steffens : Our main aim at the moment is to lock in the right data to build. It is obviously important not only that we lock in the right data but also that we take great care in ensuring that data integrity is being maintained.

Mr Quigley : As a publicly funded company, we did not want to start trying to charge back the costs of correcting the database. We are just doing it as we go. Likewise, we are correcting the Dial Before You Dig database because, as you would expect, if we have to do any underground work we can locate a whole bunch of utility information about where the pipes are—water pipes, electricity, sewerage, all of that—and we provide that information back to the Dial Before You Dig database.

Ms ROWLAND: Nevertheless, it is a significant exercise—

Mr Quigley : It is a big exercise.

Ms ROWLAND: that no-one would have conducted in decades and no-one is going to conduct for quite some time.

Mr Quigley : Yes. We are doing that.

Ms ROWLAND: You also mentioned at the beginning the wireless versus fixed-line arguments. I believe that you were quoting from somewhere. Where were you quoting from or who were you quoting?

Mr Quigley : That was a radio interview.

Ms ROWLAND: Who was the speaker?

Mr Quigley : I was quoting Mr Turnbull.

Mr TURNBULL: By the way, Mr Quigley, I am very aware of the point you made. The point I was addressing was a somewhat different point. We can go through the rituals of having a go at each other! You offered to give me a private briefing sometime.

Mr Quigley : I would be happy to.

Mr TURNBULL: I would love to do that. I am just waiting for your call. You just let me know when you are available.

Mr Quigley : I think the protocol is that, Mr Turnbull, you have to call me through the minister and we can do that.

Mr TURNBULL: Yes, exactly. So it will not be a private briefing. We will have one of the minister's apparatchiks in the room.

Mr Quigley : I have to follow government's—

Mr TURNBULL: Let us move on to Mr Payne. But you do not have to give us lectures about networks. We have all moved beyond that; we just want to get to the facts tonight.

Mr Quigley : That is what we are trying to do.

Mr TURNBULL: Good. That would be great.

Mr Quigley : That is good to know, Mr Turnbull, by the way, that the debate about wireless versus fixed is over—I presume, from what you said there?

Mr TURNBULL: No. There is not a debate about the need. Just so we are very clear, the only debate in terms of the brownfields networks that we are talking about is whether you need to take the fibre into every premises. That is the debate with new generation networks, as you and Mr Steffens know very well, with every country and every telco around the world. That is a whole different issue and you are talking about—

Mr Quigley : That is a different debate.

Mr TURNBULL: That is the only debate. As to what devices people use, clearly wireless devices are becoming very dominant—

Mr Quigley : Absolutely.

Mr TURNBULL: particularly video over wireless devices, but does that signal need to get into the ground, into fibre, as quickly as possible? Obviously. Can it all be carried on licensed spectrum? No. We all agree with that, so we do not need to re-thrash that point. The real issue is the cost effectiveness of the fibre to the premise.

Mr Quigley : We would be delighted to have that discussion any time you are ready, Mr Turnbull.

Mr TURNBULL: That would be good. That would be great.

Senator CAMERON: Mr Quigley, don't be directed on how you should give the evidence. You do not have to be directed by Mr Turnbull.

Ms ROWLAND: And, quite frankly, that is not the only debate that is here—

Mr TURNBULL: You would be better off being directed by Senator Cameron over there, you see!

Ms ROWLAND: because there is another debate going on about a proposition—

Senator CAMERON: After that little performance, I will not let him be directed by you!

Ms ROWLAND: There is a proposition around that faster broadband can be more affordably and more swiftly delivered through a competitive market than by using the NBN. That is another proposition going around, and they are the words of the Leader of the Opposition. Anyway, I will not hold you up anymore.

Mr Quigley : Okay. Shall we move to the costs per premises of the NBN?

ACTING CHAIR: Yes. Thank you.

Mr Payne : We are looking at the slide titled 'FTP brownfields LNDN capital expenditure'. Just to be clear what we are talking about, this is the locum distribution network, which is the part of the network which goes from the FAN site, which is typically the Telstra exchange building, down the street past every house to the pit or the pipe outside the end user's premises. This is what you can see in the centre of the diagram that you have got on the bottom half of that page. As you can imagine, this is the part of the network that makes up the single largest component of our forecast $37.4 billion capex in the period to 2021. It covers about 150,000 kilometres of street distance, so it is a very significant part of the network.

Mr TURNBULL: Can I just a question, Mr Payne. What is the typical distance between the FAN and the beginning of the lead-in conduit, which I guess is the curb?

Mr Payne : Within an FSAM?

Mr TURNBULL: Within a FAN or FSAM, yes.

Mr Quigley : It can go from a few hundred metres to 12 kilometres.

Mr Steffens : Twelve is the limit, yes.

Mr TURNBULL: Yes, that is the limit, but what is the average we are talking about in the cities—a couple of kilometres or longer?

Mr Quigley : We are probably looking at six kilometres, I would say, on average. As the distance goes out, you are picking up more premises.

Mr TURNBULL: Okay. Thank you.

Mr Payne : If you turn to the chart at the top, this is showing the average cost per premises passed for that portion of the network—so for the LNDN portion of the network. Starting on the left-hand page and working across to the right, we have the cost per premises for the initial prerelease sites we did in Tasmania, the stage 2 Tasmania sites and the first five sites we did on the mainland. On the right-hand side, we have got what we have in the corporate plan for FY 2013, the year we are in at the moment. There are three things that I would really like to draw to the committee's attention. The first is obviously the significant reduction we have seen over the sites we have already done, from the first sites in Tasmania to now.

Mr FLETCHER: Do you have the numbers?

Mr Payne : We are not publishing those numbers. This is to scale, but I do not have the precise numbers with me.

Mr FLETCHER: Okay, so we can get out our ruler—

Mr Payne : You could get a ruler and deduce them, but I do not have the precise numbers.

ACTING CHAIR: I am sure you would be capable of doing that.

Mr TURNBULL: That is a bit silly, isn't it? So you are saying that we should get out a ruler and work out the relationship of the white column with $1,500 to these three black columns?

Ms ROWLAND: Maybe we should ask why they are not being published. There is probably a reason why.

Mr Quigley : What is very important for the committee is the number on the right. Obviously, what is important is that it has come down substantially. There were low numbers to start with. With the number on the right, we are saying that, with our corporate plan—as you can see in the yellow there—given our best estimate now and given all the data we have, we are confident that we are going to come in for FY 2013 between $1,200 and $1,500 for this component of the cost per premises passed, which is consistent with the data you would have seen in New Zealand.

Mr Payne : I think that Chorus from New Zealand have fairly recently published data showing that cost per premises is falling from around $3,300 last year to $2,700-$2,900 this year. They are targeting, I think, around $1,200 to $1,500 in the long run.

Mr FLETCHER: Is the bottom of the bar zero?

Mr Payne : The bottom of the bar is zero—yes, it is to scale.

Mr FLETCHER: Good. I just wanted to check.

Mr Payne : It is. The point I want to make out of this is that the trend we are seeing is exactly what we expected to see—what we always said we would see—which is that with the first sites we were using totally different architecture, totally different construction processes, contracting processes and so on; and, obviously, that there was very little volume in the early sites.

The big story out of here is that as we move into full-scale production or construction, as Ralph has alluded to, we get the benefits of that scale. That is what we assumed we would see in the corporate plan and that is what the reality is—that what these figures are suggesting is actually going to happen when we get these parts of the network built.

Mr FLETCHER: Just to be clear, the only reality you have here is about $3,000—it looks like a bit more than that—and then the rest of it is what you hope to be at by the end of 2013. Is that right?

Mr Payne : No, it is not a hope; it is an estimate that the company is prepared to back.

Mr FLETCHER: Has it been achieved or not?

Mr Quigley : We have achieved the similar number of FSAMs at build—

Mr FLETCHER: Is it in your plan, or is it actually delivered?

Mr Quigley : Some of it is actually delivered—as you heard from Mr Steffens, we have some FSAMs—but we are not prepared to give a precise number or to fill it in in black until we have a larger quantity done. That is why we put some confidence limits around it; but I think the committee can be assured that we are on track to hit the corporate plan number. We are prepared to back that, Mr Fletcher.

Mr TURNBULL: Can I ask a follow-up question on that. If I am right, if you say that by June 2013 you will have passed 256,000 premises in brownfields—

Mr Steffens : It is 286,000.

Mr TURNBULL: It says 256,000 here.

Mr Quigley : We have already done 30,000.

Mr Steffens : It is incremental.

Mr TURNBULL: I see. All right. You say that will have cost about $1,200 per premises?

Mr Quigley : $1,200 to $1,500 for those 256,000 premises.

Mr TURNBULL: We will call that, say, $400 million. Is that fair enough, roughly?

Mr Payne : It is probably a bit lower than that, but yes.

Mr TURNBULL: Okay. By June 2013, according to your plan, what is your cumulative capex going to be on fibre to the premises?

Mr Payne : It will be in the corporate plan. For the fibre and the transit network, it is about $1.6 billion. Remember, we are just looking at a portion of the fibre network. We are not looking at customer connect, we are not looking at the transit networks, so we are only looking at a portion of it here.

Mr Quigley : We will talk about the transit—

Mr Payne : We will talk about the transit bit and, obviously, it is a little early to talk about customer connect. But, if you are trying to reconcile it, this is only a portion of that total cost. Obviously, this is—

Mr TURNBULL: I really appreciate you pulling this number out, but what is the cost per premises passed, including a fair allocation of the transit network?

Mr Quigley : We will provide that. What we will do is progressively provide more information to the committee as we get sufficient data that says, 'This is how it looks.' The corporate plan is the best estimate that we have now of all the elements, and what we are saying is: 'Here is this LNDN element, a very important part. We are confident that we are going to be between $1,200 and $1,500.' What we would have to do is an exercise in allocating the transit network, and, as we have said from the beginning, we are building the transit network out well ahead of the access network because it is a big job and it is needed for fixed wireless and needed for satellite. So you cannot take the amount that we have spent on transit and then divide it by the number of premises we have passed. It is not a valid piece of arithmetic.

Mr SYMON: Mr Payne, you mentioned Chorus before. I was part of the delegation to New Zealand. They gave us a figure of between $2,200 and $2,400 per premises passed in year 2 but then said that it only drops slightly below that each year beyond year 2. Yet the NBN seem to be getting a much better return the more premises you are passing. Is there a particular reason you are aware of for that?

Mr Payne : I think scale obviously has something to do with it, and probably the density and the size of the construction.

Mr Quigley : There is one other thing. We need to make sure we are comparing apples with apples; that is one thing that we have found. We have sat down with folks from Chorus and we are having the experts for two days, twice. When you are doing these kinds of comparisons, you need to go through them line by line to really make sure you are comparing apples with apples. You can fool yourself very easily by talking about gross numbers if you do not know what it is you are comparing. We have been through this with Chorus in a huge amount of detail. We are confident that by the end of FY 2013 we will be where Chorus wants to be long term for the LNDN component.

Mr Payne : I think it is also just the shape of the curve we are both seeing, as much as the absolute dollars. They are going through exactly the same experience that we are. Every major network construction company around the world sees similar things. You start off up here and you work your way down to where you want to be.

Mr SYMON: Your figures would seem to bear that out. The other thing that I learned in New Zealand was that a premises passed is really only a termination box at the front gate of the premises, rather than being actually on the building. With that in mind, your figures probably look a little bit better still, because there is still more work to be done in New Zealand with Chorus after a premises is passed.

Mr Payne : This is, as the diagram shows, just up to the pit in the street or the box outside the house.

Mr Quigley : So it is a valid comparison.

Mr Payne : That part of it is reasonable.

Mr SYMON: Thanks for clearing that up.

Mr TURNBULL: In relation to how you get to the number of premises, when you are talking about premises passed, does that include premises in MDUs? If your cable is going down the street and it passes a block of apartments, does it include all the premises in that block of apartments?

Mr Payne : Yes, it does.

Mr TURNBULL: Have you worked out how you are going to connect the MDUs now?

Mr Steffens : Yes, we are working on this. We are connecting—

Mr TURNBULL: You have not worked it out yet? You are working on it?

Mr Steffens : We are working on this. There is no right answer to this. Every MDU looks different. There is not one method of connecting MDUs, and installation methodologies do evolve rapidly. Therefore, what we do today will also change over time because there will be more efficient ways of doing this. But we are connecting MDUs today.

Mr TURNBULL: Just to be clear, what you are saying is that, with MDUs, which are about a third of the brownfield target, you have not yet worked out how you are going to connect those premises?

Mr Steffens : We are connecting MDUs today.

Senator IAN MACDONALD: What figures are you using for your forward projections?

Mr Steffens : In terms of cost—

Senator IAN MACDONALD: Yes.

Mr Steffens : We are using figures which we have experienced to date. There will obviously be opportunities further in the future. But you also need to bear in mind that the average number of premises per MDU in Australia is nine. For instance, a block of town houses is often considered an MDU. If you have 10 town houses, these are basically 10 individual SDUs but are labelled an MDU, potentially. In small apartment blocks, where you have four, five or six units in a block, it is labelled an MDU, but the installation methodology would be very, very similar, if not the same, as for an SDU. And then, obviously, you have the very big blocks, where you have 50, 100 or more units in it. Every MDU is an individual design, because every premises will look different.

Mr TURNBULL: You have said publicly that you are going to run fibre into every apartment, effectively, every unit, in an MDU. What will you do if that is not possible, given perhaps the attitude of the body corporate or the lack of space in the risers? What will you do?

Mr Quigley : If the body corporate does not agree, we will obviously try and convince them to accept the installation. If ultimately the body corporate says no, we declare that building frustrated and move on.

Mr TURNBULL: Mr Steffens would be familiar with what BT is doing with MDUs there. Perhaps he could explain the approach they are taking in Britain.

Mr Steffens : There is a wide array of different methodologies being used in Britain. For the FTTP deployment in the UK, BT clearly stated that at least 25 per cent of the premises they pass are going to be fibre to the premises.

Mr TURNBULL: I think it is now 10 per cent now, actually.

Mr Steffens : The publicly stated number is still 25 per cent. They would go through a very similar process to the one we are going through.

Mr TURNBULL: My understanding is that your former colleagues have two solutions for MDUs. One is to put a cabinet in the basement and use the existing copper technology; and the other is that, with the larger, newer blocks of apartments where they have cat 5 cable or better, they put a higher-spec device in the basement. Are you going to consider that option in circumstances where it is not possible or cost effective to run the fibre into every apartment?

Mr Quigley : We execute on the objective set by the government.

Mr TURNBULL: So the answer to that question is no.

Mr Quigley : The answer is no. We have been directed to provide fibre to the premises, and that is what we are doing.

Mr FLETCHER: So, if the body corporate wrote to you and said, 'We don't want you to put fibre through to every apartment, but we'd like you to connect into the basement and run through the copper in the existing risers,' you would say, 'No, the government will not let us do that'?

Mr Quigley : We do not have a product. To actually do that would need a different set of technologies, which we would have to qualify. We would need a different product set, because we could no longer provide the tiered products of different speeds with guarantees that we can provide on fibre. It would have to be best effort, because we would not know the state of the copper. We would have to go back to the ACCC. It would have to be put into the SAU and into our WBAs. It would be a big process. It does not mean it cannot be done; it just means it would be quite a step. We would need directions from our shareholder to tell us that is what they want us to do.

Mr TURNBULL: But this is a big deal, really, because, as you know, MDUs can be very problematic.

Mr Quigley : Yes.

Mr TURNBULL: You understand that. That is an issue everywhere in the world. What you are saying is that, even if it were more cost effective to have a cabinet in the basement and hook into the copper LAN in the building—which, if it is cat 5, as Mr Steffens would know from his British experience, would enable you to get FTTP like speeds anyway—that is not available; and, if the fibre cannot for one reason or other get into every premise, then they get nothing.

Mr Quigley : We frankly anticipate that not a large number of MDUs will be declared frustrated. We think most body corporates will say, 'This is a good thing; go ahead and install it.' Now, we may have some; we expect there will be some. We cannot introduce a new technology when our shareholder has not told us to do that. It is not an option we have before us.

Senator CAMERON: I want to come back to the argument that we should use copper. After our visit to New Zealand, Chorus said they would not be running any new copper anywhere. They also said that they would actually cannibalise their old copper system and that they would eat up their own network by putting out the fibre. They raised a number of issues with copper, and I am wondering if these are the same issues we have here. They said that they used pressurised copper in many areas and that it is extremely expensive to deal with pressurised copper. When they have had natural disasters and other problems, the pressurised copper has usually been the first to go, and it causes huge communication problems. They also said fibre was much better in terms of reliability in emergencies or natural disasters. Are they the same issues here with copper? They are saying that their copper is deteriorating, and it gets to the situation where they have to either renew the copper or move to fibre—and they are going to go to fibre. Can you explain why they would run that line?

Mr Quigley : Generally—and Ralph can certainly comment on what I am saying—that is the same trend the world over. It is now well established that the costs of maintaining copper are well above the costs of maintaining fibre. Reliability is much higher on fibre. There are lots of different types of copper in the network, a whole range: paper filled, jelly filled, some aluminium, some direct buried, some in conduits, some in ducts. It is hard to generalise other than to say that, in general, copper maintenance costs are rising, particularly in those places where you have damp conditions and you are subject to wet weather. Ralph, do you want to add anything?

Mr Steffens : Yes. Pressurised ducts were rolled out widely probably in the sixties and the seventies, in order to extend the life of the copper, in order to keep the environment out of the duct, basically. It is very, very difficult to maintain, especially as the infrastructure deteriorates, because, as you can imagine, it is pressurised and the smallest leak means that you lose it. So the maintenance costs are even higher than for ducts, which are not pressurised. Unfortunately, I can talk more about Europe than Australia in terms of my experience. Copper is naturally deteriorating at a rapid rate due to the capital intensity of that type of business. Telecommunication companies around the world are capital constrained, as most companies are. If you look at the availability numbers around copper versus fibre, you typically see a ratio of seven to one in terms of availability. That is my experience in Europe. My expectation would be that, unless you invest heavily in additional copper and in maintaining that copper, that ratio will probably get worse.

Senator CAMERON: Chorus took us to a suburb called Churton Park. You are probably not aware of it. It is a suburb that has three different levels of broadband. One is the old pay TV cables that were put in. They showed us one street where they have got pay TV cables. Another is where they have upgraded the copper and gone to fibre to the node. The other is where they have built another cabinet, which has got the fibre in the cabinet. They are basically saying that, if you go for fibre to the node, the issues for the 'cabinetisation' are quite difficult at times. You have to be able to cool the cabinet: they indicated to us that the cabinets are custom designed and quite expensive and that you have to cool the cabinet and have power to the cabinet to run it, but, when there is a power cut, they will get generators in some of the cabinets.

Mr Quigley : Or batteries.

Senator CAMERON: They have got batteries as well, but after a period of time, in remote areas, they have then got to use generators to run power. It seems to me it is a very complex thing, not a simple one, just to go for fibre to the node and put it in cabinets out on the streets. It is not as simple as that, is it?

Mr Steffens : It is a significant activity. You have active components out in the field which drive maintenance issues and costs. The issue really starts with placing the cabinet in the first place. We experience this in greenfields at the moment because our network is not out there. So we have to build, if you like, a mininode on the development, ideally. We are getting a fair bit of push-back, typically from the developer, to have this cabinet outside their development because they do not necessarily want the cabinet on site due to the space it takes up and its visual impact.

Mr Quigley : It is a bit like the mobile tower issue.

Mr Steffens : Yes, it is an issue. Then obviously you need to power these cabinets, and the time it takes to get power to the cabinet can be very long. We talked about the UK a few times; that may be a good example as well. Suburbs in London like Chelsea and Kensington, which are upmarket areas in the UK, rejected every single cabinet because of the visual impact.

Senator CAMERON: The other issue that was raised after we came back from New Zealand was that New Zealand were actually having the rollout done by the private sector, and that makes it much more efficient than the NBN rollout. Have you got any comment on that position?

Mr Quigley : I think, as Ralph mentioned, we are employing the private sector to do the rollout. We have now, as Ralph said, issued the contract instructions and we have done the design. We have had that detailed design and issued contract instructions. It is with our four large private sector construction partners to do the build. We are confident, by the way, that they are going to deliver on the 286,000 premises by June of next year. It is largely in their hands now, and it is the private sector who is doing it. And that is routine, by the way. Very few telcos these days, anywhere in the world, have their own workforces that do this type of work. They do not build the networks themselves.

Senator CAMERON: The private sector people were saying that they had some issues as well with the rollout, and I am interested to get a comparison with Australia. Chorus were saying that it was very difficult to manage the rollout across some of the areas that they were dealing with and they had underestimated the scale of the rollout; there was a large civil component to the rollout; and there was competition for resources for drilling crews and jointers. They said that there were many local council issues, they said that utility strikes were frequent and they said that unforeseen circumstances were because utility records were not accurate and that the design from head office sometimes did not reflect the topography of the area that they were dealing with. Is that similar to the challenges that you guys face?

Mr Quigley : Yes. I think you could describe it as an average day! We are dealing with all of those issues—as does any other telco—and on a scale which I think is probably an order of magnitude greater here.

Senator CAMERON: I assume, then, that you have management systems in place to deal with these issues?

Mr Quigley : We have.

Ms ROWLAND: How many MDUs have you been completely frustrated in and been unable to get access to to provide a service?

Mr Steffens : We have not been frustrated in a single MDU.

Ms ROWLAND: None?

Mr Steffens : None so far.

Ms ROWLAND: This may not be relevant to the LNDN capex figures, but you will note that yesterday there were some media reports from the New South Wales government about the costs of accessing poles and wires for the rollout. Can you set the record straight, please, on what has been reported? I understand that the New South Wales government is seeking significantly more in terms of access to power poles. Is that relevant to specific geographic areas?

Mr Quigley : Yes. This is for New South Wales?

Ms ROWLAND: But all of New South Wales?

Mr Quigley : All of New South Wales. We were directed by the New South Wales government to negotiate through them, rather than directly with the energy companies themselves. So the government was representing all three energy providers in New South Wales, because there have been some changes in the industry there, as you know, with amalgamations.

We started those negotiations back in November 2010, along with the negotiations with all the other utility providers around the country. We have reached agreement with everybody else, but we could not reach commercial agreements with the New South Wales power companies. We would have liked to. We did everything possible, but the costs were multiples of what we were paying to the others. The terms and conditions were simply unacceptable, I think. It is our job on behalf of the government and the taxpayer to make sure that we are not spending more than we believe we should. We would have been happy to pay the New South Wales utilities in line with what we are paying in other parts of the country, but we could not reach agreement.

So we have fallen back on schedule 3, which is a well-established process, and we are now following that process of schedule 3. We sincerely hope that we can now form a good working relationship with the utilities on the basis of the schedule 3 process. That is the notification we have served on them now, and we have done that, by the way, through what we call land access notices, which we have done for rails and roads. It is a well-known process, the schedule 3 process. That is what we are falling back on and we hope to achieve a good outcome. Now, if there is a dispute about any particular job, it will go to the Ombudsman, who will decide what is fair compensation. We are perfectly comfortable with that process. We would have preferred to strike a commercial deal, but we could not get there.

Senator IAN MACDONALD: Is there somewhere we could find how much you are paying each utility in each state for their power poles? Is there a site you could refer us to or could you get us—

Mr Quigley : No. We have signed non-disclosure agreements at the insistence of the other utilities, so we cannot divulge those numbers. But I can tell you that what New South Wales were asking of us was a multiple—

Senator IAN MACDONALD: I was interested in what you were actually paying in Queensland; but you are saying that is not available?

Mr Quigley : We cannot publish that because we are under NDAs.

Senator IAN MACDONALD: By the power companies?

Mr Quigley : Yes, we have agreed with the power companies. They asked us to sign NDAs and we signed them.

Senator IAN MACDONALD: They asked you?

Mr Quigley : I believe so. I will have to check that.

Senator IAN MACDONALD: Could you check that? That seems unusual. I cannot think why they would be shy about that.

Mr Quigley : That is not surprising. It is a commercial arrangement between two companies.

Ms ROWLAND: That is completely normal.

Mr Quigley : You normally would not make public a commercial arrangement.

Ms ROWLAND: I have never seen that disclosed.

Mr Quigley : No.

Senator IAN MACDONALD: What, for public companies?

Mr Quigley : They are not all public companies.

Ms ROWLAND: It does not matter.

Senator IAN MACDONALD: For government companies? For government owned companies?

Ms ROWLAND: And?

Mr Quigley : And private companies.

Ms ROWLAND: It is a private company.

Senator IAN MACDONALD: So what is the great secret about what they charge for the poles?

ACTING CHAIR: Why don't you ring the private companies and ask them?

Ms ROWLAND: Why don't you ring the private companies and ask them?

Senator IAN MACDONALD: I am asking Mr Quigley to tell me, rather than me doing that. He has more staff than I do.

Ms ROWLAND: He has answered you.

Mr Quigley : I am afraid I cannot, and it is for understandable reasons. They are a mixture of public companies and private companies and they have asked us not to divulge the commercial arrangements.

Senator IAN MACDONALD: All right.

Mr TURNBULL: I want to come back to the capex, but first I just want to get the record right. I make no criticism of you, Mr Quigley, but, when you quoted that interview of mine earlier, the material given to you was rather selective and it created a very misleading impression. I will put the full quote on the record and we can move on. What I said was:

Well this—

meaning the NBN—

… is entirely a fixed line network that they are building. And it will support wireless devices in the sense that, you know if you’ve got your iPad or smartphone at home, it will run off your WiFi at home.

And then I went on to utter the words that you quoted, which were:

But you’re dead right—the ecosystem of the internet is rapidly changing from fixed line devices that can be connected to cables, desktop computers, laptops and so forth to wireless devices.

But whoever gave you only that second sentence did so presumably because they wanted to create the impression that I was not aware that the NBN supported wireless devices.

Mr Quigley : I think they were more concerned about how the person interviewin g you represented what you said, Mr Turnbull.

Mr TURNBULL: No , no . You quoted me my words.

Mr Quigley : It was your quote, but our problem is that, when you used those quite clear words in the interview, the person who was interviewing you subsequently drew conclusions from it and represent ed fixed line as being dead.

Mr TURNBULL: The words, as you would agree, are entirely accurate and very clear.

Mr Quigley : I would agree with that.

Mr TURNBULL: Good. We are ad idem , as the Romans would say. Mr Payne, you have cumulative capex to 21 June for FTTP—this is from page 75 of your corporate plan—of $28.478 billion.

Mr Payne : That is correct.

Mr TURNBULL: You have got cumulative fixed wireless and satellite capex of $3.132 billion and cumulative shared capex of $5.7 billion.

Mr Payne : Yes.

Mr TURNBULL: Now, I will just tell you what we have done and you can tell us where we have got it wrong. We have allocated the shared capex as to 90 per cent to the FTTP part of the equation, which would give the fully allocated cumulative capex to 21 June for FTTP of $33.678 billion. On the basis of that fully allocated capex, the capex per FTTP premises—that is, fibre premises passed—is $2,760. Does that sound about right to you?

Mr Payne : That is probably in the ballpark, yes.

Mr TURNBULL: That is quite a lot more than $1,200, isn't it?

Mr Quigley : Yes. We are talking about the LNDN.

Mr TURNBULL: Yes. It is just important.

Mr Payne : Yes, it is important that it is just the LNDN. As we said before, transit, customer connect—

Mr TURNBULL: I understand. This page just deals with part of the pie.

Mr Payne : Yes, correct.

Mr TURNBULL: Good. Thank you.

Senator CAMERON: I am not clear. Could you explain a bit more the difference between the two points that Mr Turnbull is raising?

Mr Payne : The bit that we were talking about earlier on in relation to the LNDN is the bit that we are saying, for this year coming in, is between $1,200 and $1,500 and, obviously, will be continuing that downward trend in future years. That is the biggest single part of the overall fibre build—in fact, the overall build of the NBN—but there are other significant bits, such as the customer connect. So the cost of connecting 8½ million customers over the life of the project is a significant chunk as well, and that is part of the capex bucket that you referred to earlier, Mr Turnbull. There is also the transit network, which is little bit unusual in the case of NBN. If you were an incumbent telco you would typically have a transit network. We obviously do not have one, so we have to build one. That also is a significant part of our cost, which is part of that transit and fibre total cost.

Senator CAMERON: Thanks.

Mr Quigley : The number that you have quoted there, Mr Turnbull, is absolutely consistent with the sorts of numbers that we have seen around the world as we have benchmarked. What we were comparing was the LNDN. We thought it was important. Since the committee had been to New Zealand, we did a detailed comparison with our colleagues in New Zealand, so we can give you that comparison with the numbers that were being quoted by them. But the overall number of between $2,500 and $3,000 per premises passed for everything, including the transit and the customer connect—the whole works—in the LNDN, is consistent with worldwide benchmarks.

Mr TURNBULL: You said that, but I have to say that the figures that I have been advised of for continental Europe, for example, are much, much lower than that—literally hundreds of euros.

Mr Payne : Hundreds of euros to pass it?

Mr TURNBULL: To pass premises, yes.

Mr Payne : To pass and connect?

Mr TURNBULL: The figures I have been given for France and Spain are in the order of 200 euros to pass, and a similar sum—perhaps a little more—to connect.

Mr Quigley : You cannot buy the equipment for that.

CHAIR: You might like to feed it in as a question.

Mr TURNBULL: I will tell you what I will do. I will pass on to those companies what you have said and we will see what they say.

Mr Quigley : Mr Steffens has been to one of them recently.

Mr TURNBULL: Yes, sure. I understand that.

CHAIR: Also, feel free to pass it in to the secretariat and we can test it by these guys.

Mr TURNBULL: Yes. It is important to get a better understanding on this.

CHAIR: I apologise; I was in a debate on the floor of the House, so I missed the first part of this. Mike, you have some questions?

Mr SYMON: Mr Quigley, I want to go back to this issue of poles in New South Wales because there are some things that I need explained in language that maybe I and more people can understand. The New South Wales finance minister was quoted in a newspaper as saying that the cost for an electricity company to have it installed is between $60 and $80 per pole. I am wondering: what is the cost? What is the real estate that you put on the pole that actually costs the electricity company?

Mr Quigley : We put fibre on the pole—and I am describing to you what we do with all the other utilities—but we pay them a monthly pole rental for the use of that pole; and, if they have to do anything to the pole to make it ready, what we call make-ready, we pay for that also. That is what we are offering to do with New South Wales. This, in fact, was a revenue stream of several hundred million dollars over a 20-year period that we would have paid New South Wales, and we would have paid for all the costs of installing the fibre and any repairs they had to do to the pole. Obviously, if the pole was starting to rot or whatever, that would be their responsibility, as they have to maintain their poles. So we are at a loss to know why this would cost them anything. This is, in fact, a revenue line for them.

Mr SYMON: Have you tried to clarify that with them?

Mr Quigley : Since December, we have spent hours and days on this, but the issue is that it is a whole-of-government decision, and it needed the consensus of the department of finance, the Department of Premier and Cabinet, New South Wales Treasury, Transport for New South Wales and the three energy companies.

CHAIR: Let us be clear: New South Wales would make money out of signing an agreement with you?

Mr Quigley : We believe so. That is what the other utilities have done. We are offering New South Wales the same deal as the others—in fact slightly more, if we were to close the deal—but we were not prepared to pay them multiples of what the others are being paid.

Mr SYMON: The point you make sounds very reasonable to me. If it is the case that the NBN is paying the state or the state power companies money to use the poles—and a substantial amount—how could that affect electricity prices?

Mr Quigley : Hopefully, electricity prices would go down, since they would be getting other revenue.

Mr SYMON: The reason I ask the question is because we have had the New South Wales government saying that power prices will go up because you are using their assets. From the evidence you have just given, it would seem to me that they are actually going to go the other way.

Ms ROWLAND: To quote the minister, if I can:

The NSW government can simply not accept such terms which would mean families subsidising the NBN through their electricity bills.

What do you say to that?

Mr Quigley : Frankly, we went over the press release today and I thought that the suggestion by the New South Wales government was simply wrong. We went on the public record to correct it. We were going to pay the New South Wales government—or the entities owned by the New South Wales government—several hundred million dollars over 20 years and we would have carried the cost. Now, there are some overheads in us putting applications in and then responding to them, and there is the work we have got to do on the specifications to make sure that we are complying with their specs. But we were prepared to do all of the work of stringing up the fibre—if a pole had to be replaced, for example, because they thought the weight loading on the pole was over their specs, we would have paid for the replacement of the pole.

CHAIR: Is it correct for this committee to conclude, from the fact that you have not reached an agreement with the New South Wales government entities, that it is NBN Co.'s view that those entities are price-gouging?

Mr Quigley : I would not use those—

Senator IAN MACDONALD: Well, that is hardly a question—

CHAIR: Hang on, I want to hear. What is the conclusion, would you say; if it is not price-gouging, what is it?

Senator IAN MACDONALD: You are asking for an opinion from the witness which, in Senate committee hearings, you are not allowed to ask.

Mr MITCHELL: This is not a Senate committee hearing, though, Senator. I am sure you know that.

Senator IAN MACDONALD: I am saying that, in Senate committee hearings, you do not allow questions asking for an opinion.

CHAIR: I am asking what conclusion we should draw.

Mr Quigley : The only conclusion I would suggest that the committee record is that we could not reach commercial agreement because NBN Co. were not prepared to pay multiples of what we are paying to other utilities.

CHAIR: How would you define that, Senator Macdonald, I ask in jest! You do not have to answer.

Senator IAN MACDONALD: Perhaps I could ask a factual question along the same lines—and this is what I was asking about before. Could you show me in your corporate plan where you have identified the figure you anticipate paying the power companies for your lines over whatever period you have?

Mr Quigley : No. We do not have that level of detail in the corporate plan.

Mr FLETCHER: How does the price you offer compare to what Telstra and Optus pay for their HFC networks?

Mr Quigley : That was in a different era, I believe. I would have to check the record on this. I believe it was substantially less than what we offer.

CHAIR: So what is your—

Mr FLETCHER: So you offer substantially more—

CHAIR: Paul! I will throw to you for questions. Can we just clarify: what is your strategy now—

Senator IAN MACDONALD: Are you throwing to me—

CHAIR: Please—I asked before. What is your strategy now with New South Wales in light of this impasse?

Mr Quigley : We have moved to what is called schedule 3, which is a well-defined process. We have used it for applications to roads authorities and rail authorities. It is well established under the telecoms act and that is the process we will go through. In the end, it relies on the Telecommunications Industry Ombudsman to make a decision if the two parties cannot reach an agreement.

CHAIR: Okay. Mike, do you have any further questions on that?

Mr SYMON: I do have one, and it is again relating to our delegation to New Zealand last month. We met with a company called Northpower in Manukau, and they are doing the rollout in a city called Whangarei, in the north of New Zealand, which is an overhead rollout in the main. They own the poles, they own the electricity wires and they own the fibre. They said to us, and I paraphrase, that really it was very little extra cost at all because most of the asset was already there. In terms of extra weight, they also said that the fibre was negligible in just about every case they had come across. I know you said before that there might be cases where your equipment would cause a pole to be overloaded. How rare would those cases be? It must be a substantial piece of equipment.

Mr Quigley : We stick by the specifications that the utilities ask us for, and they are conservative but we abide by those. If in fact we are going to overload a pole, we accept that we are going to have to make the poles ready, whatever that takes. In some cases, it may be a replacement pole or it may be some additional guy wires. We bear the cost of doing that because they are our facilities that are going on to those poles.

Mr SYMON: Finally, could you give the committee some idea of the weight or mass involved in a fibre cable being run on poles, compared to HFC?

Mr Quigley : Off the top of my head, I do not know how many grams per metre a cable is. Do you remember, Ralph?

Mr Steffens : No, I do not have the exact number for that. We would need to find out.

Mr SYMON: A percentage, possibly?

Mr Steffens : No.

CHAIR: You are happy to take it on notice?

Mr Quigley : Yes, we will take it on notice. We can find that data.

Mr SYMON: Thank you.

CHAIR: Deputy Chair, do you have questions?

Mr MITCHELL: Yes. I want to clarify just how much of the NBN build is aerial, compared to using the Telstra system of pipes and pits?

Mr Quigley : The best estimate at the moment is that 25 per cent of the build will be aerial, but that could vary. Until we have done all of the designs, we will not know. I think the designs at the moment are coming in at a little less than that.

Mr Steffens : They are coming in below 25 per cent, but again it is early days.

Mr MITCHELL: I know you have said you have signed agreements with other power utility companies. How many of those have you settled in different states and territories?

Mr Quigley : I think it is 13 or 16; I cannot remember off the top of my head.

Mr Steffens : I think it is 13.

Mr Quigley : We will get that to you. As far as I am aware, we do not have any outstanding agreements other than with the three New South Wales utilities. We have reached agreement with everybody else.

Mr MITCHELL: Thank you.

Mr FLETCHER: Mr Steffens, I want to follow up on what you were saying earlier. You spoke about the sequence of steps. I want to know at what point you place orders for the fibre itself. Does that depend on the design having been completed—for the physical fibre?

Mr Steffens : For the physical fibre, that order is actually placed by the delivery partner, by the construction company, and they order this in time to complete their schedule.

Mr FLETCHER: Does the detailed design have to have occurred first?

Mr Steffens : Yes.

Mr Quigley : It is up to the construction partners. As they know what they have got going, they may choose to hold some; but, in general, they order it to be delivered to the site. So it is generally after the design is done.

Mr FLETCHER: Does it have to be designed to meet the configuration of the particular street and the location of the premises?

Mr Steffens : It depends. For the underground build, they are very generic materials in terms of the fibre we are deploying. For an aerial build, it is fairly bespoke.

Mr FLETCHER: It is bespoke.

Mr Steffens : Only for the aerial, not for the underground.

Mr FLETCHER: So it cannot be ordered until the detailed design is completed?

Mr Steffens : You cannot order bulk, if you like, up-front.

Mr FLETCHER: So that is an additional step in the process, presumably—ordering the fibre?

Mr Steffens : As we issue the final contract instruction, the delivery partner is ordering their material accordingly, if they have not stocked material beforehand for the underground build.

Mr FLETCHER: And how is that going? Is that a choke point?

Mr Steffens : It is not a choke point today, no.

Mr FLETCHER: Has it been a choke point in the past?

Mr Steffens : It has not been a choke point in the past.

Mr FLETCHER: I would like to ask you about the IT systems, the OSS and BSS. How is that going? I will ask you, Mr Quigley, if I may.

Mr Quigley : Actually, that reports to Mr Steffens, so he is probably best placed to answer.

Mr Steffens : The important part is that we have stood up the basic functionality and that is going very well, so we have all the functionality required to build the network to connect customers. As you know, we continuously develop system capability and try to automate volume process, because some of the—

Mr FLETCHER: Okay. So are the OSS and BSS systems complete?

Mr Steffens : No, they are not complete, and I would never expect them to be complete.

Mr FLETCHER: Okay. Your former chief information officer, Claire Rawlins, left NBN Co. in August, I believe.

Mr Steffens : That is correct.

Mr FLETCHER: What was reason for her departure?

Mr Quigley : We do not comment on particular personnel, Mr Fletcher. We never talk about why people join or leave. We do not do that.

Mr FLETCHER: What was the original budget for establishing the IT platforms to support the rollout of NBN Co.?

Mr Quigley : We would have to take that on notice. I do not know off the top of my head. But the one thing I can absolutely tell you is that, when we redid the corporate plan from December 2010, the one we produced in August this year, we certainly increased the budget for IT. That was one of the opex increases that we made. As you would well know, the Achilles heel, the bane of the existence of most telcos, is their OSS and BSS. They are always difficult.

Mr FLETCHER: Was the original figure $240 million?

Mr Quigley : I do not know.

Mr FLETCHER: Can you take that on notice?

Mr Quigley : We can.

Mr FLETCHER: Have you recently conducted an internal review which has identified a figure of $1.5 billion that will be required?

Mr Steffens : No.

Mr Quigley : No.

Mr FLETCHER: Have you recently conducted an internal review of the amount that will be required for the OSS and BSS?

Mr Steffens : We continuously review our programs, as every diligent company would.

Mr FLETCHER: What is the amount you now expect to spend to stand up the OSS and BSS?

Mr Steffens : That is part of the corporate plan.

Mr Quigley : There is no one answer to that, Mr Fletcher, because we are constantly looking at functionality. For example, in the build, if we identify another piece of functionality that could save us money, we will spend money on IT to save much more in the construction process. That is what we have found. For example, we have had to do a lot more work than we thought on getting these address and database systems to align. On your question about whether it is possible that somebody thought we would agree to spend $1.5 billion on IT, they might have—but we would never have agreed to that.

Mr Steffens : An odd number, if I have ever heard one.

Mr FLETCHER: Yes. The IT systems, the OSS and BSS, are being provided by a range of contractors. Is that right?

Mr Quigley : Yes.

Mr Steffens : We are working with a number of partners together, if that is what you mean.

Mr FLETCHER: And that includes IBM, Alcatel and Accenture; is that right?

Mr Steffens : That is correct.

Mr Quigley : Prime is IBM. They have a number of subcontractors beneath them.

Mr FLETCHER: Is there a percentage split between management fees or consultancy fees being charged to those companies, overheads, as opposed to amounts that are specifically going into system design?

Mr Steffens : Sorry; can you repeat the question?

Mr FLETCHER: Yes. What effectively is the amount of money that is going to those companies as contract management fees and what is going into the specific design of the systems?

Mr Steffens : We are not contracting on that basis. We are not paying management fees, overhead fees as such, to our delivery partners.

Mr Quigley : We have a relationship with IBM as the prime contractor, and that is to be the systems integrator. They take overall responsibility for delivering the functionality that we specify. We ultimately test it in our NOC test laboratory in Melbourne, down in Docklands. But they have the requirements from our specification to do the coding, integrate various components from different companies and deliver to us a working piece of software.

Mr FLETCHER: Can I ask you about the sale of fibre backhaul. Is that a product that you offer to other telcos?

Mr Quigley : It is not.

Mr FLETCHER: Why is that?

Mr Quigley : What we have focused on is our access products. I believe—and I will check with my colleagues from DBCDE—that our statement of expectations has flagged that as a possibility in the future, but that is not something we are focused on at the moment.

Mr FLETCHER: Have you had requests from existing mobile operators to provide backhaul?

Mr Quigley : Yes, we have.

Mr FLETCHER: What has been your response?

Mr Quigley : Our response is that we are focused on the build we have to provide. By the way, we have been asked for it for two different products. One is for backhaul for mobile cell sites. The other is just generally backhaul, because we have now got 121 points of interconnect, which is more than the small operators like.

CHAIR: Mr Fletcher, are you almost finished?

Mr FLETCHER: All right. That will do for the moment.

Mr TURNBULL: I have just one more on the MDUs; it is probably for Mr Steffens. Do any of your construction contracts with Silcar and the other contractors cover MDUs at the present time?

Mr Steffens : No, we have separate contractors for that. We are talking to one of them at the moment which is about to start to build the first ones, but it is not currently doing it.

Mr TURNBULL: Okay. In May last year, NBN Co. put out a request for proposals for MDU cablers. The RFP stated that you were looking for companies to carry out 'installing fibre cabling and equipment within common areas of existing MDUs using presupplied detailed designs and builds of material'. My question is: as of today, at the end of October 2012, how many contracts have been awarded for MDU cablers; and what percentage of the MDUs that you have passed have been able to obtain active service?

Mr Steffens : We are in trials with a number of contractors. We are about to award the contracts for the MDUs.

Mr TURNBULL: Yes. Can you tell us who those contractors are?

Mr Steffens : No, because we have not concluded it. The number of MDUs passed I would need to take on notice.

Mr TURNBULL: Are there any people in MDUs that have active connections now?

Mr Steffens : Yes.

Mr TURNBULL: Do you know how many there are?

Mr Steffens : No, I will need to take it on notice.

Mr TURNBULL: Six thousand odd?

Mr Quigley : Some of the greenfield sites are also MDUs—both brownfields and greenfields.

Mr Steffens : But we have both brownfield and greenfield active connections.

Mr TURNBULL: I am trespassing on the goodwill of the genial chair, so I will stop.

CHAIR: We will go to Luke and then Senator Macdonald.

Mr HARTSUYKER: I have a couple of quick questions on the financials and then I have some questions on the satellite. In relation to the income that is in the accounts, there is a $580,000 negative cash flow for 31 December 2011. Why are receipts from customers negative in that period?

Mr Payne : Where are you looking?

Mr HARTSUYKER: That is under the unaudited half-yearly statements of cash flow. There is a $580,000 negative income from customers. It is on page 55 of my documents from the committee.

Mr Payne : I might have to take that on notice, because I cannot find it.

CHAIR: It is on page 32 of 42 in the government report of the Joint Committee on the National Broadband Network, 30 June.

Mr Payne : I do not know if that is going to help.

CHAIR: Does that help you? You might have to take it on notice.

Mr Payne : I will take that on notice.

Mr HARTSUYKER: Also, if you add the two six-month periods together, the period of 31 December 2011 plus the period of 31 June 2012, there are six items of discrepancy, where the two six-month figures do not add up to the 12-month figure. I would be interested in that. 'Receipts from customers' are out or different; 'payments to suppliers' are different; in 'GST received' there is a difference; 'other revenue' is slightly different; 'interest received' is different; and 'interest expense' is different.

Mr Payne : I might have to take those on notice. I do not think I will be able to give an answer here and now, but we will certainly provide an answer.

Mr HARTSUYKER: Righto. Moving on to the satellite, could you tell us the average total cost of labour for the installation of equipment at a customer's premises and, likewise, the average total cost of hardware at customer premises for satellite.

Mr Quigley : We do not really have that. There is some data, by the way, on one of the sheets we just handed out to the committee which gives our long-term satellite capital costs. Just in passing, you can see from that that we are right where we expect to be. We have contracted for the spacecraft, the ground stations and 50 per cent of the VSATs, and we will, before the end of the year, contract for the launch. So our long-term satellite is coming in right where we hoped it would, by the corporate plan. I am not sure if we have the costs per connection with us. You are talking about the interim satellite?

Mr HARTSUYKER: Yes, of course—and the average total cost of the interim satellite per customer. Does every customer who connects to the Interim Satellite Service receive a new dish, modem, cables and the associated hardware?

Mr Quigley : Yes.

Mr HARTSUYKER: Okay. And what is the expected life span of that installation—of the interim satellite, hardware and so forth?

Mr Quigley : That will be replaced with the long-term satellite solution in due course. We launch the satellites in 2015, and obviously we will go through and upgrade those sometime after that.

Mr HARTSUYKER: When that is upgraded and we have the 2015 solution fitted, what is the expected life span of that installation?

Mr Quigley : That would be limited by the lifetime of the satellites, and that is generally 15 years. It depends on how much fuel you can get on board with them at launch, but generally it is 15 years or longer.

Mr HARTSUYKER: So the life span of the installations at a customer's house equates roughly to the life span of the satellite.

Mr Quigley : The dish, certainly. The dish would last longer. The modem you might replace sooner if you wanted to do an upgrade. We have included estimates in our corporate plan for upgrades of that, and even over the 30-year life span of the project we have anticipated the new satellites that might be needed.

Mr HARTSUYKER: Has NBN considered any solutions that allow homeowners to upgrade their NBN satellite dish, say, for VAST—for the TV service?

Mr Quigley : No.

Mr HARTSUYKER: In relation to the presentation of data, the wireless and satellite rollout are lumped together in the corporate plan. Can we have separate data provided with regard to the satellite aspects and the wireless aspects, because they are two different customer sets and different projects, effectively.

Mr Quigley : The reason we have combined them is that we are finding that, where we are not able to put up a cell site, a tower, we obviously have to use a satellite solution—and we have made that very public. The reason we have then combined them is that we want to have that flexibility in case we cannot get a site approved.

Mr HARTSUYKER: So what you are saying is that you are not certain of the break-up between satellite and wireless.

Mr Quigley : We are not certain of the break-up, so we thought it best to say: this is the total of those two technologies.

Mr HARTSUYKER: How many NBN interim customers were previously Australian Broadband Guarantee customers? That was touched upon in estimates, I think.

Mr Quigley : I think we provided that in response to a question, as far as I am aware.

Mr Steffens : At Senate estimates.

Mr Quigley : Yes, at Senate estimates, I think.

Mr HARTSUYKER: Yes. Where are customers who are not ABG customers coming from?

Mr Quigley : We do not distinguish, frankly, between them. Whether they are ABG customers or customers who do not have a satellite solution, we do not distinguish between the two. ABG customers, we often find, are absolutely thrilled with the vastly improved performance they are getting out of the NBN satellite solution, even though it is only the interim solution.

Mr HARTSUYKER: I make the observation that there are six different entities taking a cut out of the Interim Satellite Service. You have a retail service provider, NBN Co., Optus, Gilat, Skybridge and an installation contractor—and Gilat has an exclusive contract, I believe, with Skybridge to install the satellite equipment at the end user's premises. How does this exclusive installation contract ensure good value for taxpayers; and did NBN Co. have any involvement in this contract?

Mr Quigley : We had involvement in the contracts in establishing the interim satellite solution from the beginning. We went through our usual processes. Certainly, there are a number of entities involved in the interim satellite solution, as there are in the fibre solution. If you look at the number of entities involved in the fibre solution, there are dozens and dozens of them, which is normal. There is nothing unusual about that.

Mr HARTSUYKER: And the exclusive arrangement between Gilat and Skybridge?

Mr Quigley : That is a decision that is up to them, who they use to install VSATs.

Mr HARTSUYKER: What does Optus do as the prime contractor in the interim satellite rollout?

Mr Quigley : For a start, they provide the satellite capacity on their satellites! We are using two satellites at the moment. One is partly with Optus, but the majority of the satellite spectrum we are using is on IPSTAR or KySat-4. Optus is acting as our partner and contractor to do the activations on that satellite service. That is an interim arrangement, which we have until we have launched our two large satellites.

Mr HARTSUYKER: Has NBN conducted any modelling or research about the impact on satellite RSPs of the move from the Australian Broadband Guarantee to the Interim Satellite Service; and, if so, what were the findings of that modelling?

Mr Quigley : We have not done any analysis of that.

Mr HARTSUYKER: Do you believe that there is sufficient remuneration in the arrangements to make it worthwhile for RSPs to operate on the satellite service? It has been put to me by some that it is not commercially worthwhile to sell the satellite package.

Mr Quigley : As of just recently, we got close to 19,000 active customers on the satellite, so there are a hell of a lot of people who are ordering a service from us in terms of RSPs—satellite providers—who are obviously doing it because they think there is a profitable business there. Is it possible that they are not making as much money as they made on the ABG? That is possible. But what I can tell you is that the end user is getting a much better service for a very competitive price now. I think, in terms of end users, this is a great move and I think my colleagues in DBCDE would agree. In moving from the ABG to the Interim Satellite Service, it is a very good deal for the end user.

Mr HARTSUYKER: What is the required maximum time frame for a customer to be connected to the NBN Interim Satellite Service?

Mr Quigley : We do not have a specification for that, and it has taken off faster than we had anticipated. We have many more active customers on today than we thought we would, which reflects the quality of the service.

Mr HARTSUYKER: How long is it taking between an order being placed and a customer being activated?

Mr Quigley : It is variable. I think what we need to give you is a distribution of times.

Mr HARTSUYKER: If you could do that, please.

Mr Quigley : We can do that.

Mr HARTSUYKER: Thank you. Could you just give us a bit of an update on co-location of mobile phone operators and the rollout of the NBN wireless network? Where is the possible co-location of the infrastructure? Where are you at corporately on that?

Mr Quigley : Wherever we can use an existing tower, we will do so. Wherever we can come to a commercial arrangement—and we have done so with a whole range of suppliers, including Crown Castle, Optus and Telstra—that is our first preference. That is what we try to do. Only if there is not a tower at the site we need will we build a greenfields site.

Mr HARTSUYKER: So will any of the towers you are currently constructing have Telstra and Optus operating from them?

Mr Quigley : We have an obligation, when we put up a new tower, to provide a facilities access arrangement with other potential users. So, yes, of course we would do that.

Mr HARTSUYKER: Have you had a look at the ways in which you can improve mobile data and telephony in regional areas using your own mobile towers; and, if so, what is the likely improvement?

Mr Quigley : We do not provide mobile towers; we provide fixed wireless towers.

Mr HARTSUYKER: I meant your fixed wireless towers and the propensity for them to be a base.

Mr Quigley : We do not provide a voice service; we provide a broadband service—

Mr HARTSUYKER: I realise that.

Mr Quigley : That can be used for voice over IP if people choose to do so, and we expect that other mobile operators may use the towers we are putting up for mobile cell sites.

Mr HARTSUYKER: That was my question: with regard to the towers you propose to put up, have you done any projections as to the possibility of improving mobile phone telephony through the use of those towers?

Mr Quigley : No, that is not something we have been asked by the government to look at. And I am not sure, by the way, that we are well placed to do that. Our job is to provide fixed broadband, not to enter into the mobile market.

Mr HARTSUYKER: Thanks.

Senator IAN MACDONALD: I understand that the area from China Street to Ross River Road to Nathan Street and Ross River has recently been connected—from your overhead wires to houses. This is in Townsville, sorry. On notice, could you please tell me how many homes can be connected and how many actually are being connected. I raise that because my office has been in meltdown—we still have copper wire—from people complaining about the overhead wire.

Mr Quigley : About the overhead wire?

Senator IAN MACDONALD: About the unsightliness of it, and the concern—which goes to my next question—because this is a cyclone prone area. When cyclones hit, the poles go over. I was wondering if you have allowed for the cost of reconnecting the fibre if the poles are blown over. Can you demonstrate to me what the cost is? Can you also tell me what your arrangements are for resuming service where poles are blown over in calamities—for example, in the instance I have given you, cyclones?

Mr Quigley : Do you want to comment, Ralph?

Mr Steffens : We obviously have maintenance arrangements in place, and we have made allowances in our corporate plan for the cost of maintenance services. We do not have this broken down to street level, as you just referred to, but these allowances are made, yes.

Senator IAN MACDONALD: Can you identify for me, either now or on notice, where I can find where you have allowed for those contingencies—not in this particular area but across whatever area you have done this for?

Mr Steffens : In general maintenance costs?

Senator IAN MACDONALD: Yes. Can you do that?

Mr Steffens : Yes, we should be able to do that.

Senator IAN MACDONALD: That brings me back to the other question I half got on to. I was interested in what costs you have allowed in your costing projections for paying the power companies to string these wires. Are you able to direct me to, somewhere in your figures, the Australia-wide figure you have allowed for to pay these companies to hang your wires?

Mr Steffens : The power companies do not string the fibre; it is the construction companies which string the fibre.

Senator IAN MACDONALD: Sorry—for the use of their power poles.

Mr Steffens : That is the same question you had at the beginning.

Mr Quigley : Senator, if we can, we will take that question on notice. We will look at the NDAs and see if we can give you an average for the country that does not breach the NDAs.

Senator IAN MACDONALD: I am not asking you to tell me—because you have explained why you cannot—but you must have a figure in your costings somewhere, either in the original ones or the ones from 12 August—

Mr Quigley : We have it.

Senator IAN MACDONALD: You don't?

Mr Quigley : We do have it.

Senator IAN MACDONALD: You do have it. Okay. That is the figure I am asking you to identify. It is not your actual cost; it is what you have allowed for that.

Mr Quigley : But what we have allowed is based on the agreements we have put in place.

Senator IAN MACDONALD: But you do not have agreements in place.

Mr Quigley : We have agreements in place for the majority of them.

Senator IAN MACDONALD: Thirteen or sixteen or something—

Mr Quigley : Whatever it is—we have to check those numbers exactly, but it is around that sort of number. So we have a very solid basis for that estimate.

Senator IAN MACDONALD: I do not want you to identify any particular power company—

Mr Quigley : That is what we are trying to do, so we will have a look at what number we can give you—maybe an average, which is not breaching the NDA.

Senator IAN MACDONALD: All right. Thank you.

Mr FLETCHER: The two satellites that NBN has ordered—are they a standard design from the vendor?

Mr Quigley : There is no standard design for satellites.

Mr FLETCHER: There is no standard design for satellites?

Mr Quigley : There is never a standard design of a satellite.

Mr FLETCHER: So they are customised?

Mr Quigley : Every satellite, I think, that has ever been put up is customised in one way or another, but they are based on platforms that are well established. For example, we are using 121 spot beams optimised over Australia; that has to be designed specifically for the satellite. If you look, for example, at Jabiru-1, which is the satellite that may go up—if it is funded—I think that the gentleman who is running the company was saying that we should be using that satellite and that it had eight per cent of its capacity allocated to Australia.

Mr FLETCHER: You mentioned before that you are not looking at the question of whether wireless infrastructure could be used to improve mobile coverage as well as provide fixed broadband.

Mr Quigley : Other than in general terms—if we are putting up new cell sites, we anticipate those cell sites could be used to improve mobile coverage.

Mr FLETCHER: Have you looked at the Rural Broadband Initiative in New Zealand?

Mr Quigley : We are aware of it. We have not looked in detail at it.

Mr FLETCHER: That is using the same wireless technology for both fixed and broadband, is it not?

Mr Quigley : For fixed and broadband?

Mr FLETCHER: For fixed, substitute broadband and mobile.

Mr Quigley : I believe that part of the objective is to do that. It could well be, but that is not the objective that the government have given us. They have asked us to focus on fixed broadband.

Mr FLETCHER: Okay. Senator Conroy said on Meet the Press on 22 July that the total number of services in operation at that time was 15,000. Could you provide on notice a reconciliation of that with the figures that you have provided for services in operation as at 30 June in the annual report?

Mr Quigley : I am sure we can, yes.

Mr FLETCHER: Thank you.

Mr SYMON: Mr Quigley, I would like to touch on a subject that we have discussed in previous hearings, and that is the issue of fibre network extensions. Reading through the corporate plan, there is a line in there that says:

There is considerable interest from the community and various levels of government in Network Extensions.

Have you received any applications for that so far?

Mr Quigley : We have received some applications. I do not know the number off the top of my head. Frankly, it has not been that large a number to this point.

Mr SYMON: And they would all be at total cost to the organisations applying?

Mr Quigley : Yes, we look at the incremental costs. For example, if somebody wants a fibre extension—if they are in the wireless footprint and they want us to extend the fibre footprint to cover their premises or a number of premises—we look at the incremental cost of doing that. In fact, we have done an analysis of that for Julia Creek.

Mr SYMON: And the fibre extension, I take it, would then have to wait in that circumstance till there was somewhere to extend it from?

Mr Quigley : Yes, we cannot do a fibre extension until we have the fibre network already in place.

Mr SYMON: So it is always an add-on to an area?

Mr Quigley : It is an add-on, yes.

Mr SYMON: Thank you.

CHAIR: I have a couple of questions and then we will wrap up. NBN Co. has commented in the media that the ACCC decision on the Telstra SSU delayed the NBN rollout. The NBN Co. corporate plan outlined the date for finalisation of the Telstra agreement as June 2011.

Mr Quigley : That was the original corporate plan.

CHAIR: That is right. The ACCC has given us evidence that it did not receive the Telstra SSU until July 2011. So can you explain or clarify how the ACCC contributed, if at all, to the delay in the NBN rollout with its consideration of the Telstra SSU?

Mr Quigley : We are not suggesting that the ACCC contributed to the delay. We anticipated in December 2010 that we would have reached agreement and could start using the national duct data from Telstra—which we need to do all the things that Mr Steffens has spoken about—by June 2011. That was probably optimistic. We underestimated the length of time and the complexity of reaching final agreement with Telstra and we also did not anticipate the fact that the deal could not commence until after the Telstra SSU, nor how long that would take. It did not occur until March, so we could not get the national duct data until then. So we could not do the design process that we talked about earlier.

CHAIR: Okay. In light of that question, am I still right to think, and is the committee right to think, that there is between a six- and a 12-month delay in the original NBN rollout?

Mr Quigley : From December 2010. Yes.

CHAIR: Yes. If so, can you clarify for us the delay in the NBN rollout? What is the reason behind that six- to 12-month delay?

Mr Quigley : There were a number of reasons, one of which was the ACCC decision on the points of interconnect. They moved from 14, which we had based our network on and designed it for, to 121. That required a rejig of the network—quite a substantial one. We had anticipated getting the national duct data in June. We got it the following March. Of course, the construction contracts themselves took a bit longer for us to negotiate because we terminated a process and went into a new process to make sure that we get value for money for the Australian taxpayer. I have to also say that the issues we talked about with addresses were also quite a task to undertake. We also took on board, on 1 January 2011, the greenfields requirement—and I have some information because I know the committee is interested in greenfields, but it looks like we are out of time to do that—and that was quite a substantial undertaking.

CHAIR: Feel free to table it.

Mr Quigley : In fact, it is the last line in the pack that we handed out. It is showing basically the same pattern that Mr Steffens talked about before. What you can see on the far left-hand side is the number of applications that we have had since we started this. Remember, we took responsibility from January 2011. From that time up to the end of September this year, we have had more than 2,900 applications for different stages. That is almost 150,000 lots, and in the first quarter of FY 2012-13—the last quarter that has just passed—we received 222 developer applications.

One thing that is very important to understand is that the number of lots per application we are getting is an average of 51. That is vastly different to what the smaller commercial companies are getting, because they can pick and choose which greenfield sites they want to supply service to. For example, Opticom started up in 2005, I think, and they turned on their first site in 2007 and since that time have done 35 sites. But their average is a little over 2,000 lots per site. This is great business if you can do very big sites close to cities, if you can pick and choose. We cannot do that. We are dealing with applications that are 51 lots per site.

We have obviously had a big battle in the start-up of this process—it has been quite complex—but as you can see we are now getting on top of that. With the network design documents that Mr Steffens talked about in brownfields, we have worn them down; we had quite a backlog in June but we have now cleared that backlog and in September we were running at double the rate we were running at in June for doing those design documents. We are now doing 50 NDDs a week on average. We have cleared that backlog. We produced 528 NDDs by the end of September and, as you can see, at the end of September we had 45,000 lots issued to our construction partners for getting under construction.

In terms of lots passed, in June we were at 10,054. At the end of September, we were at 19,730. In other words, we doubled the number of lots passed in the last quarter. We have done more in that last quarter than we did in the preceding quarters up to then. In terms of premises activated, at the end of June we were at 500 and at the end of September, we were at 1,824; so we tripled that. In fact, at the end of October, now, we are at 2,500. We are now really starting to ramp up.

The comparison is often made between us and Opticom. Remember, Opticom have done 35 sites completed since they started in 2005. Last week, we signed contracts for 38 sites, in a week. We completed NDDs for 36 sites and we handed in to service 13 sites. We are talking about chalk and cheese here in terms of scale. What we are doing is aiming to put up new developments anywhere across the country, no matter what the size is, provided it is going to be above 100 lots over three years. This is a huge job, it is a very difficult job, but we are getting on top of it.

Mr FLETCHER: You just referred to the rule of over 100 lots, but then you just said the average was 51 lots. Can you explain that?

Mr Quigley : That is because it is 100 lots—by the way, there is no way that we can police this. If a developer comes to us and they say they are going to do 100 lots in this area over three years, stage 1 is 10 lots, we have to do it—which is what we are doing.

CHAIR: In the new corporate plan there is a legal notice on page 2. In light of that legal notice, what legal and moral obligations does NBN Co. see that it has, to meet the NBN rollout forecasts set out on page 36?

Mr Quigley : I do not think that we have a legal requirement. I can check with our lawyers on this one, but I do not think so.

CHAIR: Feel free to take it on notice.

Mr TURNBULL: To meet their forecasts?

CHAIR: If you can take that on notice, it would be good to get it on the record.

Mr TURNBULL: They will only be flayed in the court of public opinion!

Mr Quigley : Yes, that's right! That we understand!

CHAIR: Who would be doing that! I have three questions on the financial result. Why are the financial statements provided to the committee mid-year again unaudited, when the committee received the performance report after the NBN Co. annual report was already released?

Mr Payne : That is what I would have to refer to the department. This is the government's report, so I would have to refer it to them.

CHAIR: You might have just answered it. If you could take that on notice, that would be good. From the information we have received, employee expenses have almost doubled since the end of 2011-12; what has caused that?

Mr Steffens : The reason is probably that they employed more people.

CHAIR: I just wanted to get you on the record. Is that your understanding?

Mr Quigley : That is the reason. What was the number at the end of June 2011?

Mr Payne : It was around 1,620 employees at the end of June 2011.

Mr Quigley : How many at the end of June 2012?

Mr Payne : Sorry, June 2012 is 1,620 employees.

Mr Quigley : And June 2011?

Mr Payne : It was around 800.

Mr Quigley : I think we have about doubled. We will check the exact numbers.

CHAIR: If you could take that on notice. Can you clarify how long you expect NBN Co. to be in a state of experiencing an operating loss?

Mr Quigley : That is in the corporate plan; I think it is 2019.

Mr Payne : Yes, 2019.

Mr TURNBULL: Wyatt Roy will be in his second term as Prime Minister by that time!

CHAIR: Finally, two questions on pricing. What is NBN Co. expecting to do to access-pricing for retail service providers as download usage rates increase over time?

Mr Quigley : I think you are referring to our CVC pricing. We are expecting, as usage goes up, our price per megabit per second in the CVC to go down. Those megabits per second in the CVC equate to gigabytes per month for the end user. We are expecting to drive those costs down. Remember, our modus operandi is to make a small return for the government and then get wholesale prices down as fast as we can. To do that, by the way, we are attempting to get our costs down as fast as we can, which is why we will not stop with the costs that Mr Payne put on the table. We will keep driving costs lower and lower every year.

CHAIR: Okay. Can you clarify the mechanisms in place to prevent any price rises being directly passed on to consumers?

Mr Quigley : That we cannot. We deal with wholesale prices and we have agreed in the SAU that we are holding prices fixed for the first five years of the SAU, but we cannot make any guarantees. But we are expecting the market to operate at the retail level.

CHAIR: So we take it on good faith that you are driving prices down, down?

Mr Quigley : We will drive wholesale prices down.

Mr TURNBULL: Just to—

CHAIR: Final question.

Mr TURNBULL: No, no. It is not a question.

CHAIR: Final statement, then!

Mr TURNBULL: No, I am just trying to be helpful. There are two pages that—because we dragged you off on other issues—you have not dealt with: the fixed wireless capital expenditure per site and the long-term satellite service capital cost. Do you want to just speak briefly to those? They have tendered those documents so—

Mr Payne : I will speak very quickly. I think the satellite one we have covered.

Mr TURNBULL: Can you just tell us what the dollars are there? This is one of those mysterious columns where we do not even have a point of reference.

Mr Payne : This is again one that we are providing to give you an idea of relativities; we are not going to give you the actual dollars.

Mr Quigley : I think, when we announced the contracts, we announced the dollar values with those contracts for the satellite portion.

Mr TURNBULL: Why can't you just put a figure on it—just tell us what the numbers are?

Mr Quigley : We can provide you with those numbers that we have announced. The reason why we would not put a figure on the total is that the people who are now tendering for the launch would use the numbers we have got, look at the total, subtract the difference and say that is—

Mr Payne : That is the problem we have got with the mixture—some is contracted and some is not.

Mr Quigley : But we can certainly give you the costs that we have signed in contracts.

Mr TURNBULL: Okay. I know you are driving costs down. Why do you still have an NBN Tasmania board and why are still paying a couple of hundred grand to the directors, when it is no longer a separate company? It does not have any outside shareholders anymore.

CHAIR: That is the final question. You can take that on notice if you want.

Mr Quigley : I will take it on notice.

Mr Turnbull: Oh, come on! It is a couple of hundred grand a year that you are just paying for no value.

CHAIR: We have put a lot of questions on notice. It will come back.

Mr Quigley : We will take that one on notice.

Mr TURNBULL: You've got the chairman in your corner!

CHAIR: Yeah, that's right; I'm trying to get broadband to Port Macquarie! Thank you for coming today to assist the committee. If you have been asked to provide additional information—and there have been a lot of questions taken on notice—could you please forward it to the secretariat by Friday, 9 November. If the committee has any further questions, feel free to put them in writing, through the secretariat. I would like to stress the time-critical nature of getting answers to questions on notice to the secretariat, both the ones coming in and the ones coming back. We need them by the end of next week, because the committee is attempting to report in the final sitting week before 29 November. Thank you all for coming in.

Proceedings suspended from 19:58 to 20:40