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Joint Committee on the National Broadband Network - 13/10/2011 - Rollout of the National Broadband Network

HALL, Ms Stacie, First Assistant Secretary, Department of Finance and Deregulation

MASON, Ms Jan, Deputy Secretary, Asset Management and Parliamentary Services, Department of Finance and Deregulation

MCCARTHY, Mr Daniel, Assistant Secretary, National Broadband Network Implementation Division, Department of Broadband, Communications and the Digital Economy

QUIGLEY, Mr Michael, Chief Executive Officer, NBN Co. Ltd

QUINLIVAN, Mr Daryl, Deputy Secretary, Infrastructure Group, Department of Broadband, Communications and the Digital Economy

SMITH, Mr Philip, Assistant Secretary, National Broadband Network Policy and Shareholder Branch, Department of Finance and Deregulation

SPENCE, Ms Pip, First Assistant Secretary, National Broadband Network Implementation Division, Department of Broadband, Communications and the Digital Economy

Committee met at 09 :03

CHAIR ( Mr Oakeshott ): I declare open this public hearing of the Joint Committee on the National Broadband Network. Before calling the first witnesses I ask a committee member to move 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.

Senator CAMERON: So moved.

CHAIR: Thank you, Senator Cameron. The hearing today intends to examine the performance information on the rollout from the government, which was received on 23 September. This information is now available on the committee's website. In future it is the intention of the committee to release this information once it is circulated to committee members. I would like to thank NBN Co. and the relevant departments for this information on behalf of the committee. At our first meeting in May, and we discussed this, we agreed that the committee would work off the material and let NBN Co. and the departments know if the information was adequate or presented in a usable fashion. This will be an ongoing discussion which we will have with you and which we can test for the first time this morning. Please bear with committee members who may be called away due to the proceedings in the Senate or the House—there is a fair bit going on, on a fair few topics, in both chambers. We hope not to have too much disruption this morning, but in some sense that is beyond the control of committee members.

I now welcome the witnesses before us. 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. Mr Quigley and Mr Quinlivan, would you or anyone else like to make an opening statement to the committee? Mr Quinlivan.

A slide presentation was then given—

Mr Quigley : Thank you, Chair. When I was here three weeks ago, I gave an update on our progress and, in fact, just in that three weeks quite a lot has happened, which I guess is an indication that things are moving relatively rapidly at the moment. Perhaps just to help with the opening statement this morning, I have circulated five slides to you, which you should have in front of you. The first slide relates to progress and is labelled: 'Update on progress'. This slide gives you an idea of the things that NBN Co. is undertaking at the moment. On the top left hand side, you can see all of the second release sites that we have now announced preliminary construction dates for. Just below that are the new developments. We are now working on some 90 new developments around Australia. You may recall that the government set a policy for NBN Co. at the beginning of this year that, with any new development site that has above 100 premises over a three year period, our job is to make sure that they are provided with fibre at a wholesale level, and we are doing that around the country. In fact, we have roughly 60 active services as of today on those new developments. As you would expect, it is growing reasonably quickly.

On the mainland first release sites and in Tasmania together, we have now got about 1,400 active services. That is growing day by day. Up on the top right-hand side of the slide, you can see the five fixed wireless satellite first release sites that we have announced: Tamworth, Ballarat, Toowoomba, Darwin and Geraldton. The orange piece in the centre of each of those little maps is the fibre footprint and the dark blue that surrounds it is the wireless footprint. You can what we call largely a 'donut effect'—in other words, in the centre of towns and where there is a reasonable population density, you put fibre; and then around that, you put fixed wireless.

At the bottom of the slide is the indication of the interim satellite service that we launched on 1 July this year. That is a replacement for the Australian Broadband Guarantee. We have now a bit over 800 services on that and the reports we are getting back from the folks who are on that service are very positive. They are using things over satellite that had been very difficult for them to do up until now.

As you also know, I think, as of the end of last month, September, we passed over 41,000 residents and businesses with fibre on the mainland. They are all now able to order a commercial service, because from 1 October we started offering commercial services. We have seen retail service providers releasing their broadband and telephone pricing plans. There are now quite a number of different plans in the marketplace. Six RSPs have released their plans—and I will talk a bit more about that a little later. The reason we are back here today is of course that the committee did not receive the information that it required. And I think it was clear to me that the committee was not too happy with that, with the exception of Senator Cameron. As I said at the last hearing, this was not a consequence of something that NBN Co. did. NBN Co. provided all the information that was required of it well in advance of the previous hearing. I want to make sure that the record is clear on that. I would also like to make clear that we are more than happy to provide whatever information we can and, frankly, we welcome the scrutiny of this and other committees. In fact, I will be making myself available to committee hearings four times in five weeks. That is a good opportunity to go into some depth on a number of the issues that have been raised and, hopefully, provide some clarity on them.

If I could now just take up a couple of points from the last hearing. On 20 September, there was some discussion around our special access undertaking discussion paper. Specifically, we talked about the fact that the CPI plus five per cent was not NBN Co.'s long-term pricing intention. In fact, in that discussion paper, NBN Co. commits to keeping price increases on the basic and most popular access products to half of the increase in CPI each year. The CPI plus five per cent is simply not uncommon. You have in some documents a price shock mechanism. It is an upper limit or a cap on any individual price variation. I want to be absolutely clear that our intention at NBN Co. is to keep driving the wholesale prices down. I think anybody who says that we want to increase prices by five per cent is simply misleading both the committee and the public.

As I said at that time, it is the clearly stated intention in our corporate plan to reduce prices over time. Mr Fletcher also asked a question—in fact it was a very good question that he asked—which I followed up on, and I am able to provide a bit more detail on that today. The question was in relation to voice-only services and entry level pricing. Mr Fletcher made the point that Telstra currently offers a basic service at $22.95 per month. I want to state that anyone in Australia who currently accesses a fixed voice-line service will continue to be able to do so. Customers in areas that we serve with the NBN fibre network will continue to have access to voice-only services over a Telstra copper line, up until the NBN fibre service is rolled out in their area. After the NBN fibre is rolled out, the agreement with Telstra means that customers will be able to access a voice-only service over this new infrastructure.

Perhaps for your benefit, Mr Fletcher, I will just mention that I was addressing the question that you asked at the last meeting, which was a good question about basic telephone service. Customers in areas that will able to receive high-speed broadband services over the NBN wireless and satellite network will continue to have access to fixed voice line services over a Telstra copper line. This is the arrangement where in that last notionally 10 per cent the copper service will remain.

The prices at which Telstra can offer these services remain subject to the Telstra specific retail price controls. Telstra's carrier licence conditions require it to offer low-income packages for access to a fixed line telephone service and the Low Income Measure Assessment Committee—that is, LIMAC—plays an ongoing role in working with Telstra in relation to the low-income product it offers. I said at the last hearing that NBN Co. had come to a commercial arrangement with Telstra to ensure that those people who are on special services can continue to have those special services provided to them at no increased cost on the fibre network. When it comes to providers other than Telstra, I understand there is no obligation upon them to provide discounted services to people on low incomes. This obligation remains solely with Telstra.

Since our last discussion, it is interesting to see that Primus Telecommunications has released a voice-only product at $24.95 per month, and that is obviously on the fibre network. So, while there may not be RSPs other than Telstra offering services to those who qualify for low-income assistance, there will still be voice-only options at reasonable rates. In fact, the investigation analysis that we have done concluded that the basic NBN offering provides RSPs with a capability of providing voice-only services that are roughly equivalent to today's offering of copper, with an equivalent input cost. We have detailed this all in a response to your question, Mr Fletcher. Also at the last hearing, the committee was interested in how the company was ensuring that people in communities across Australia were fully informed about how the NBN would affect them and what they would need to do. There are a number of ways in which the NBN Co. is engaging with many stakeholders. First we are focusing on community engagement activities around the rollout of the network. We are committed to providing communications and stakeholder engagement activities, particularly for each fibre-serving module, as we call them, which is roughly 3,000 premises. We will do that prior to and during the physical rollout. We also make information available through regularly updated websites, media announcements, community run forums, ongoing liaison with key stakeholders and speaking engagements. We also run a solution centre and a 1-800 number to answer people's questions. We also engage in communications with industry groups, community groups and state and local governments. For example, earlier this month representatives from our stakeholder engagement team and our satellite and wireless areas attended a Royal Flying Doctor Service CEO conference, where they were able to give an overview of the project and explain in detail the capabilities of the satellite and wireless products and what it would mean for their organisations. As I mentioned last time, we are planning comprehensive nationwide information activities to make people aware of exactly what they have to do when the NBN comes to town. We are still working through the details of the public information migration activities with the government and with industry.

Turning back to the slides, you can see the slide labelled 'NBN Co. product release 1'. I draw your attention to the progress we are making with access seekers. On the slide it says some 27 access seekers have signed the fibre access agreement with NBN Co. I believe the number is now actually 30 or 31. We have 12 successfully on-boarded and we have 11 more scheduled for on-boarding—that is the process where their systems and NBN Co. systems can intermesh and the two systems can talk to each other.

We have already seen some innovative bundling of services—12-megabit down, 1-megabit up pricing from $34.50 and 100-megabit pricing from $49.50. As I mentioned, six providers have released pricing—and that is only two months after our mainland launch—so we have about 100 retail price plans in the market now. What is also particularly interesting is that four previous satellite-only retail providers are now offering a fibre product service as well. They have come to the conclusion that, whereas before they were only addressing satellite, now it is so easy for them to also access fibre our footprint, they can offer both. That was in fact the intention—to make it easy for a retail service provider to access any premise in the catchment area of that point of interconnect irrespective of what technology was being used, whether it was satellite, fibre or fixed wireless.

I would also like to point out the next slide, slide 3. We did a comparison, since there is a lot of interest in retail prices in the marketplace, of NBN fibre service compared to ADSL2+. Whereas a year ago we could only speculate, now we have reality. We now have six RSPs. In that picture you can see in front of you, the shaded band gives you the range of ADSL2+ prices—the dollars are along the vertical axis, while along the horizontal axis are the various download plans offered by service providers. The bottom of the band is the minimum ADSL pricing; the top of the band is the maximum ADSL pricing for those various downloads. Remembering that ADSL2+ gives you 20 megabits if you happen to be right next to the exchange but, on average across the nation, it would be likely to give you around 10 megabits per second. Obviously uploads would be considerably less than that. What you can see in all the dots is all the different prices for the 12/1 service in the NBN platform now—12 megabit service down and one megabit service up. You will also remember that ADSL2+ serves only a percentage of the country—60 per cent or 70 per cent. With NBN, we are talking about 93 per cent of the country being reached with the fibre service.

There is even more good news on the next slide, which shows 25 megabits down, five megabits up. Our prices for this service are also reasonably comparable to ADSL2 service, but of course a 25-megabit down and a five-megabit up service is far superior to anything you can get on an ADSL2+ service today. You will also recall that the 25-megabit down and five-megabit up is the service at layer 2 that we provide irrespective of the distance. That, I think, is good news on the retail pricing that we are seeing and we have not yet seen prices from either Optus or Telstra. We are likely to see those within the next short period, I believe. What we have also seen in fact is the first retail supplier into the market has lowered their prices over a period of a month or two—when they saw competition at the retail level they dropped their prices. We expect to see more of that happening.

The last item I would like to mention is on slide 5 and there is a very important message in that, one that confirms what we have been talking about for the best part of 18 months now. The recent slides from the Australian Bureau of Statistics are from June. The left-hand slide shows you that the number of mobile broadband subscribers in Australia is continuing to climb. The number of fixed broadband subscribers is also going up, but obviously at a much slower rate. That is what we know and expected.

The picture on the right-hand side shows something quite different and it is consistent with what is being seen around the world: the average amount of downloads per month in gigabytes has doubled in the last 12 months for the fixed line network and on the mobile network the average download for a broadband subscriber has dropped by 20 per cent. That is a trend we expect will continue. In fact I was speaking to the folks from Ericcson just the other day and they told me their prediction for 2016. When looking at total worldwide broadband data downloads they expect the amount of traffic on mobile broadband to be one half of one per cent of fixed line network traffic by 2016.

CHAIR: By 2016?

Mr Quigley : By 2016—one half of one per cent. What that says is what we all expect. We expect the number of connected devices to keep going up very rapidly. In fact in our first release sites we have measured the number of connected devices to be five on average, and Cisco are predicting that to be close to seven or eight on a worldwide basis by 2020. We expect the number of devices to go up, but the heavy lifting of applications other than voice is going to be done on fibre-based networks. We are seeing that same message coming from France Telecom, from operators like Shaw. Juniper Research I think recently estimated that there would be a seven-fold increase in the cost of just trying to keep up with the basic data that is being downloaded on wireless.

Increasingly we are seeing a situation in which iPads do not have a 3G interface; they are being used on wi-fi. They are portable devices—mobile devices—but they are used on wi-fi when they are in the home or in the office or in airports. Only under exceptional circumstances is traffic being downloaded over the 3G network. This in fact is something that the operators recognise and are planning for. They are struggling even to keep up mobile networks at that relatively modest total data growth because the number of devices is going up but, while the average might be going down, the total gigabytes is still climbing on mobile networks, though not as fast. There are only two things you can do: you can get more spectrum or you can build more cell sites. Building more cell sites, however, is becoming increasingly difficult in many parts of the world.

I thought that would be a useful summary. In conclusion, next week we will be releasing our 12-month rollout schedule and that will begin to show people everything that will be starting in the next 12 months. Early next year we hope to extend that out to a three-year indicative rollout schedule. We are continuing to work with the ACCC and are meeting with them regularly on our special access undertaking. We have now completed four rounds of public consultation on our wholesale broadband agreement. We are engaging with industry, taking on feedback and trying to get the best possible outcomes we could.

I would also like to thank some of the committee members for the issues that they did raise last time around: Mr Fletcher on voice-only customers and Senators Xenophon and Ludlam for their questions on regional communities. We have just lodged this morning a comprehensive answer to the question that you raised on satellite services. There is a little paper that we wrote on that. We would be delighted to continue to supply the committee with such papers in response to your questions as fast as we can. I believe we have lodged answers to all of the questions you raised last time.

CHAIR: Yes, I think we got a bundle of questions on notice today. Thank you for that. Ms Mason and Mr Quinlivan, do either of you want to make an opening statement?

Ms Mason : No.

Mr Quinlivan : No.

CHAIR: I just want to clarify that what you have given us in the update is a public document as I know there is some media here. Can we put this on our website?

Mr Quigley : Absolutely.

CHAIR: I will tick through some of the issues that have been in the media recently and give all three relevant bodies the opportunity to respond. The first are some comments regarding the NBN rollout being several months behind, which have received a fair bit of coverage over the last week. Do you want to take the opportunity to put on the record any further details or comments in that regard?

Mr Quigley : Yes. Certainly there have been a number of factors that have caused us to shift our time frames from what we put in our corporate plan of December last year. There is the impact of the points of interconnect decision—the decision by the ACCC to move from the 14 points of interconnect that we had recommended to 121. We had to take that on board and that was quite a significant change. As I mentioned before, from 1 January this year we had an obligation to provide fibre services to greenfields. It was quite an undertaking to make sure that we could do that. We had to divert quite some resources and effort into making sure we could comply with that requirement, which we did. As I said, we are now turning on services. The Telstra deal took a little longer than we thought. It was quite complex and we are still yet to have the deal ratified by Telstra shareholders. The vote happens on 18 October I think. Of course, we also have to have the SSU approved by the ACCC. That time frame I certainly could not predict. As I have said to the committee before, I did suspend the construction contracts because I was not convinced we were getting the right outcome for the taxpayers' money. So I suspended those and went into a new process. That did in fact delay us by some months as well. The combined effect of that has caused a delay that we will reflect in our next corporate plan, which we will submit to the government in due course.

CHAIR: Is it a lost several months or is it recoverable?

Mr Quigley : We have not changed our end date for the program. Of course, that means that we have to work a little harder towards the back end of that. My experience in large projects has been that they often take a little longer to get going, even with the very best intentions, but once they get going you find you can increase the speeds as you move along. Having said that, I would not underestimate the magnitude of this task. It is a big job.

CHAIR: The other issue that has been floating around in the past week is some comments from TheEconomist in regard to the Australian NBN program. Do any of you want to take the opportunity to respond to some of those comments?

Mr Quigley : Perhaps I could start. I have only briefly glanced at the report, but it seemed to me it was great news on the surface of it. According to the report, I can save a tremendous amount of cap ex because I only have to pass 7½ million homes. I thought I had to do 13 million, but they believe it is 7½ million. Frankly, I did not get much further than that.

Mr Quinlivan : I think the minister has quite a few comments on the record already about the report. I do not think we have anything to add to those.

CHAIR: Is there anything that you want to put on the record while you have the chance with regard to the shareholder meeting—Telstra all on track? Are there any comments that the committee needs to be aware of?

Mr Quinlivan : As Mr Quigley has mentioned, the Telstra shareholder vote is scheduled for next week. That is crucial, obviously, in consummating the Telstra deal. Telstra and the ACCC are working hard on the SSU, so we are looking forward to a speedy conclusion of all those processes after the Telstra vote.

CHAIR: As far as media commentary and the opportunity to respond, there was an article in the Age on 22 September that identified some issues of financial control within the department. Does anybody want to take the opportunity to respond to those issues?

Mr Quinlivan : That might be best left to Senate estimates next week. It does not bear at all on the NBN project as a whole—or within the department, for that matter.

CHAIR: The way the article read certainly implied that it did relate, but you are suggesting it does not.

Mr Quinlivan : No, it does not. We will not agree with the thrust of that article, you will not be surprised to hear, when we deal with that next week.

CHAIR: The only other issue I have is with regard to procurement. The committee is starting to do some work in the area of procurement and receiving a bit of evidence that suggests that there may have been some substantial change of direction with regard to procurement policy. Does, more particularly, Mr Quigley want to provide any advice with regard to how procurement policy has developed in the life of this project and whether there have been any substantial changes of direction at all along the way that an oversight committee such as this should be aware of?

Mr Quigley : I do not believe our policy has changed. We wrote up a procurement policy quite early on and have stuck to that. We have in fact used probity advisers in some particularly sensitive areas, since for contracts we are talking about large sums of money. Certainly it is the case that some directions have changed. As I have mentioned, on the construction contracts we suspended a process and started a new one, so it was quite clear there had been a change of direction. Have there been any other substantial changes? No. There have always been negotiations that have gone on. As you would expect, those people who are not successful in tenders would have preferred a different outcome. That is life. I have been on the other end of that many times. That is the way things are. I cannot think of anything in which we have made substantial changes. We have certainly made some corrections or adjustments as we have learnt of information as we have gone through a tender process. But in each one of those we have followed the policy and we are very careful in the way we document our decisions in procurement activities.

CHAIR: With regard to the information we were provided with on 22 or 23 September as far as performance reporting goes, I want to be really clear, particularly as chair of this committee, how both NBN Co. and the department see KPIs or benchmarks and the information that NBN Co. is providing to the department is the same as the information being provided to ministers in government and to this committee. If not, where are those points of difference that we need to be aware of and potentially work on? I want to clarify exactly who is establishing benchmarks and how that information is being screened along the way before it actually reaches us as an oversight committee.

Mr Quinlivan : There are two separate points there. On the performance benchmarks, there was a presentation to this committee in June, I think. I was not present personally but I understand there was a discussion about a proposal from Commonwealth officials then about what might be included in the report. That has been the base for this report and for subsequent reports. As the note to the KPI says, the material becomes more meaningful as it is added to and developed over time. If there are areas in which the committee would like reporting, you are very free of course to ask the government for reports on those and the minister would consider those, I am sure. This is a start rather than the steady set of reporting arrangements.

CHAIR: You answered my next question.

Mr Quinlivan : On the content that you have been provided, the company provided a quarterly report to the government as shareholder. The government considered that and has deleted some material that would not normally be provided publicly—and was not provided in the corporate plan that was released last December—such as commercially sensitive material about risks that the company is facing and some forward looking material. Because of the passage of time there was, as you have noted, a month between the arrival of the report and its provision to the committee. There was also some additional material added to pick up developments over that period. That explains almost all the changes that were made.

CHAIR: I am just trying to establish the boundaries. In a spirit of openness between all the relevant parties, there is going to be a clear boundary that will be a determination by the department on commercial-in-confidence. It is not necessarily a determination of NBN Co; it is a determination of the department.

Mr Quinlivan : By the government. It is a report to the government, and then the government publicly—

CHAIR: This is unclear, how do you define 'government'? The executive?

Mr Quinlivan : The executive, yes.

Ms ROWLAND: I would note that the issue of the three-month delay is not news. The minister has been talking about that since April, so I just wanted to make that first comment. I have practical questions regarding the second release site in Riverstone, which is the area I represent. I can understand that some of these you might not be able to answer straight away but if you could take them away so I have accuracy for the record that would be great. I represent an area in western north-west Sydney. I do not need to tell anyone else here that they are not asking why we are getting the NBN; they want to know when it is coming and they want it yesterday. The Riverstone second release site construction has been announced for commencement next month. Can you confirm we are on target for that, or has that been affected by the delay?

Mr Quigley : No, I believe the dates we set last month should be right. But we will be releasing next week further details for everything we are commencing for the next 12 months. Riverstone will be in there and the dates will be confirmed.

Ms ROWLAND: Will that include the footprint?

Mr Quigley : No, the issue we have is that we cannot establish precisely the footprint down to an individual premise until you do what is called the network design document. It is what you do at the very front end of the process. You have to do a design document that goes street by street, premise by premise, so you can draw that boundary. What we can give is indications, which is what we will be giving, but until you are 12 months from turning on service, on average, you do not lock down precisely the boundary at a premise level.

Ms ROWLAND: Understood. My other question relates to the fibre in greenfields estates legislation and the impact of that. One of the new estates that I have is a suburb called The Ponds which continues to develop in separate release phases. I would like to know—if you need to take it on notice—which aspects of those developments are now affected by the fibre mandate and which ones are not.

Mr Quigley : I am reasonably familiar with The Ponds. If it is an area that over three years it is going to have more than 100 premises then we have a obligation to provide fibre services. The developer provides a duct for us as they are providing utilities. We will then provide fibre to that so that fibre services are available when premises are then occupied. Even if it is done in tranches, we will be making sure that fibre services are available in each of those tranches. Many of the developments we are doing are in tranches over a period of time.

Ms ROWLAND: The problem I have is that The Ponds is adjacent to and separated by one road from the existing suburb of Kellyville Ridge. The majority of Kellyville Ridge has not been served by fibre and the biggest complaint I get in that area is access to high-speed broadband services. Earlier in the year Telstra announced an upgrade of the Kellyville exchange to be able to service a limited number of residences. They were able to give me the map and I was able to take that back to residents. Previously, as you understand, people would only be able to get a connection if someone moved out of the suburb, because there was such a lack of capacity in the exchange to keep up with demand. As soon as the design phase is known, I would particularly like to know the timing of that. I must say Telstra has been quite cooperative in listening to consumers' concerns and doing those upgrades, but, of course, as you appreciate, they need a business case to be able to make that extra investment. I know you cannot give me the footprint now, but, if you would when you can, I would like some aspects of timing so that I am able to follow that up with Telstra.

Mr Quigley : Yes, we can certainly do that.

Ms ROWLAND: That would be great.

CHAIR: There was some very good local member work there! To be fair, it is an issue across the board.

Mr FLETCHER: Mr Quigley, thank you for the information about voice-only prices and I apologise that I missed the first part of your evidence. I will ask you a couple of questions and I hope you will indulge me if the answers were contained in what you have already said. I think you said that Primus has announced a voice-only product at $24.95 a month.

Mr Quigley : I believe so.

Mr FLETCHER: Do you know what Primus's market share is right now?

Mr Quigley : No, not off the top of my head. That is public information, I think, that is produced regularly.

Mr FLETCHER: They are not a market leader in voice services, are they?

Mr Quigley : No, clearly there is somebody who absolutely dominates voice services and that is Telstra.

Mr FLETCHER: Primus is paying the standard wholesale price per service of $24, I presume.

Mr Quigley : We have equivalents. In fact, we have an obligation—we have no choice but to provide equivalent services to all retail service providers at the same rates, same commercial conditions, same everything. We cannot distinguish between retail service providers.

Mr FLETCHER: I understand that. I just want to make sure I have this right. They are paying the same $24 price as everybody else—

Mr Quigley : Yes.

Mr FLETCHER: and they have taken a commercial decision to operate at a very low margin with a voice product.

Mr Quigley : Yes.

Mr FLETCHER: As a wholesale provider, do you turn your mind to the question of the viability of the retail business cases that retailers are—

Mr Quigley : Not right at the moment. I have enough on my mind to not worry too much about the details of the business cases, other than the fundamental work we did right up front, which was to look very carefully at the input costs to retail service providers and try to make sure we could come up with a business case that would come as close as possible to those input costs for somebody providing a combination of DSL and voice service. I think what you are seeing in the retail prices that I have showed you for the 12/1 and 25/5 is that we have done a reasonable job of that. We have prices that are comparable, which, I have to say, was not a foregone conclusion given that what we are talking about here is a brand-new fibre network which is also doing two parts that are extremely uncommercial, namely the fixed wireless and satellite in those areas, and we are also fibring out to places that no commercial entity will do. So we are pretty happy with the retail prices that we are seeing in the market.

Mr FLETCHER: Just to be clear, it is a matter for the retail service providers as to whether they can make a business case or not.

Mr Quigley : Absolutely, it is up to them, yes.

Mr FLETCHER: Do you have a view as to whether 95c per customer is sufficient to cover billing and—

Mr Quigley : I think if that was the only service they were selling they would have a hard time, but I think they are doing what many people in business do and I have done myself, which is pricing a product on the expectation it is going to get you into the market and you are going to build on that.

Mr FLETCHER: Coming to what you said about Telstra, and again apologies if you made some of this clear before I came in, I think I heard you say that Telstra today has special arrangements for certain classes of low-income consumers.

Mr Quigley : I believe so, yes.

Mr FLETCHER: And that those arrangements will be maintained.

Mr Quigley : This is a question that is probably better answered by the department, because TUSMA is being set up to ensure that those kind of arrangements are maintained.

Mr Quinlivan : I think the issue is that Telstra has specific obligations that do not apply to other carriers, so they have arrangements to meet those obligations. As I understand it they are proposing to continue with those arrangements.

Mr FLETCHER: There is one group of customers who qualify for those arrangements. Is it right that, separately, there is the HomeLine Budget line-rental product and there is no qualification required for a customer to have the benefit of that pricing—they just choose it?

Ms Spence : That is correct.

Mr FLETCHER: And that is $22.95 a month?

Ms Spence : That is right.

Mr FLETCHER: It has recently gone up, I think.

Ms Spence : As I understand it, it is $22.95 a month.

Mr FLETCHER: Do the arrangements that Mr Quigley described also guarantee the continuation of the HomeLine Budget price.

Ms Spence : I do think they guarantee; as Mr Quinlivan said, it is our understanding that Telstra is going to continue to offer the current low-income package that includes that e HomeLine Budget.

Mr FLETCHER: Let me understand that. If I choose today to get the HomeLine Budget product from Telstra it is open to me or any customer to do that? Is there an additional eligibility requirement? It is not a concessional offering; it is a commercial product.

Ms Spence : As I understand it, it is open to anyone to take up the service. But the information I have is that there are only around 600,000 people on that service at the moment.

Mr FLETCHER: Will Telstra continue to offer a $22.95 a month line-rental product when the NBN is operational and they no longer have their own network?

Mr Quinlivan : I think that is a question you would have to direct to Telstra, because they have not released their product and pricing plans for the future. But, as I mentioned before, and also in the last discussion here, our expectation and understanding from the discussions with Telstra is that they are not proposing any significant changes in this area. So, our expectation is that there will be a product that is roughly comparable with that one in their future pricing and product offerings. But that cannot be said with complete certainty until Telstra have released those.

Mr FLETCHER: Do they have a regulatory obligation or a contractual commitment to continue to deliver a $22.95 a month voice-line rental?

Ms Spence : They do not have a specific requirement on that actual price. The licence condition is around making sure that they have the low-income measures in place.

Mr FLETCHER: So if Telstra were to say—and as you rightly say, we do not know what pricing they are going to offer—that, with a $24 a month per service wholesale price, commercially we have decided that our lowest line rental product has to be higher than $24, would there be a regulatory or contractual barrier to their doing that?

Mr Quinlivan : There would be no regulatory or contractual barrier, but we have an understanding with Telstra, as a result of the negotiations with NBN Co., that that is not the situation we will find ourselves in.

Mr FLETCHER: So, what you are putting to us is that the government is confident that there will continue to be a $22.95 line rental?

Mr Quinlivan : Or something in that vicinity, yes.

Mr FLETCHER: But it is a generalised confidence from the negotiations and it is not based upon a specific regulatory or contractual—

Mr Quinlivan : No, not at this stage.

Mr FLETCHER: If for any reason your confidence proved not to be well founded, would the government then act to impose a regulatory obligation?

Mr Quinlivan : It is a matter of degree, I guess. That would be a matter for the government at the time. I cannot really speculate. But I think if there were to be an outcome here that was significantly at variance with its expectations, then the matter would certainly be considered carefully. But we have no reason to believe that is the situation we will be in.

Mr FLETCHER: Can I ask, Mr Quigley, about the penetration experience. You have provided in your report figures as at 30 June from which a penetration figure can be derived in terms of services in operation as a percentage of homes passed. Has that performance materially changed in the last four months?

Mr Quigley : Yes. The numbers are climbing. The last time I was here I cannot remember exactly what the numbers were. In the last four months, frankly, they were probably quite low, as you would expect, starting up. As I mentioned, on the various platforms we have now there are roughly 2,300 active subscribers and users.

Mr FLETCHER: Sorry, just on the fibre.

Mr Quigley : On the fibre alone I think, if I take the three Tasmanian sites and the five mainland sites, as of probably about last week, there are about 1,500 subscribers. Remember, we have just exited a trial phase. Our intention at the end of September on the five mainland release sites was to have 400 active subscribers. We ended up with slightly above 800. We do not have yet Optus and Telstra who have released their plans, so we are not in a fully operational mode. You could not possibly draw any conclusions other than that its take-up is faster than we expected.

Mr FLETCHER: Do you expect any penetration consequences as a result of the trial pricing being replaced with commercial pricing?

Mr Quigley : We saw that what the RSPs tended to do was anticipate what—because, when we launched the files, we had already had our corporate plan out. We had already announced the wholesale prices. That was with the intention that we should do it as early as possible and there would be no surprises. In the trial phase, RSPs were offering prices to the market. In some cases they were not charging; in other cases they were charging. We certainly have seen no impact. The numbers have not gone down; they have continued to rise.

Mr FLETCHER: Thank you for the answer to the question on notice regarding the point at which the Telstra network will start to be switched off. I think you have said that the disconnection regime will commence at a point in 2012. I am interested in what NBN expect the penetration profile will be as you approach that point. Do you expect to be at 100 per cent or close to before disconnection commences?

Mr Quigley : No, the process is somewhat more complex than that. There is a set of preconditions we must meet in NBN Co. before Telstra will start retiring their copper network. We have agreed that with them, which makes perfect sense. In other words, operational support systems and business support systems all have to be functioning. We have to be able to exchange information, take orders in—all of those background systems. What then happens is that we plan what is called a fibre-serving area, made up of a number of modules called fibre-serving-area modules, each of which, as I mentioned, is about 3,000 premises. When we have completed a fibre-serving-area module we declare that complete. In that case Telstra will look at it and say, 'Yes, we agree; it is complete.' We then start a process of migration from that point. That process can go over 18 months. We will not, obviously, be retiring any copper service which is a special service for which there is no equivalent replacement on the fibre. That is agreed between us and Telstra. So that is the period over which that will happen. But the intention, obviously, is to bring people across onto the fibre service, and we expect that the vast majority of people would be happy to do so.

CHAIR: Mr Fletcher, I am conscious that there are others who want to ask questions. Do you have many more questions?

Mr FLETCHER: I have one more question—thank you, Chair—to follow that up. What I am interested in is this. There will be a proportion of people who will still be taking their existing service at the time that the Telstra network is switched off. That proportion may be very low or it may be somewhat higher. Presumably that will be the inverse of the penetration rate that is achieved on the NBN. So what I am interested in knowing is this: do you expect that penetration rate to be rising steadily, do you expect it to jump just in the last month or so before the disconnection date or will it jump only after the disconnection date?

Mr Quigley : I expect, if the first release sites are a guide, we will see a take-up rate which will be relatively modest until we come to the point where we start the migration process. That is the point at which we will start to see there is substantial migration taking place.

Senator CAMERON: Mr Quinlivan, I have two areas that I want to raise with you. On the issue of pricing for voice calls, I suppose other than health insurance the telecommunications industry is one of the most complex areas for a customer to understand what value they are getting. Would you agree with that?

Mr Quinlivan : I would agree with that personally as a consumer, yes.

Senator CAMERON: So you just cannot say that there is a price and then compare that with another price because you may not be comparing apples with apples.

Mr Quinlivan : It needs to be done carefully, I would agree, if it is to be done fairly.

Senator CAMERON: I am advised that for Telstra their budget calls are $22.95, as you have outlined, and the calls are 30c plus $2 for STD up to 20 minutes, so there are variations to how that operates. Is that correct?

Mr Quinlivan : That is correct.

Senator CAMERON: Primus is $24.95, they have got free local calls and free STD calls. So that is the competition kicking in in the retail sector in telecommunications. Would that be right?

Mr Quinlivan : Yes. Mr Quigley might want to expand on this, but you would expect the increasing use of Voice Over Internet Protocol calling services to lead to very significant changes in voice pricing in the future.

Mr Quigley : I think that is right. Also, Senator, there is a clear trend. The primary voice network, I believe, in the future is going to be the mobile network. People will increasingly use mobile voice. That is the way operators are looking at it. The primary data network, including for video and internet and all those applications, is likely to be the fibre network. But, as a consequence, you can carry voice over the fibre network at relatively low cost, so we see the price, for example, for VOIP at $10 with calls free. I think we will see that slow evolution take place, but you are absolutely right: you cannot directly compare the $22.95 from Telstra with the $24 from Primus. They are different packages.

Senator CAMERON: I had a briefing, along with a number of other MPs and senators, from Foxtel, who spoke about what is happening overseas with broadband, and that goes to this issue of being able to package up a range of products on the NBN. They will be able to provide their services through the NBN but they could also expand. So they are looking at what opportunities the NBN provides to them to expand their services. Is that a typical approach from companies? Have you been getting any feedback on that?

Mr Quigley : Yes. Looking at, for example, the delivery of pay TV, increasingly pay-TV operators, such as Foxtel, are interested in interactivity. Satellite is undoubtedly the most cost-effective way to be able to get, by streaming, a large number of channels into premises. But where customers want individual services—in other words video on demand or those types of services—and they want to decide what they are going to watch at what time, not select one of a large number of video channels, then an interactive network such as the NBN is what they are quite interested in using. That is why we are now working hard with the industry on developing what is called a multicast product, which allows video services to be deployed throughout the network very efficiently so you can get what is called unicast, where you can just stream a single stream down to an end user or you can, in fact, stream to a combination of users the same content. So the network will have quite some capability to support and complement the networks of pay TV providers.

Senator CAMERON: Mr Quinlivan, the chair raised with you the issue of differentiated reporting to the board and this committee. I have always had a concern that some might have a view that this committee is a shadow board for the company. But we have got a resolution of appointment that is restricted compared to the obligations of the board. Would that be correct?

Mr Quinlivan : I might just distinguish there between the reports that the management of the company provide to their board, which I have no specific knowledge of, and the reports that they provide to their shareholders, who are the government in this case. That is the report that we received from the company as a whole, endorsed by the board. The material that the government has then provided to the committee is different again, as I described earlier. In each of those cases, the board, the shareholders and then the shareholders and the company are providing a product in the interests of public accountability. They are all serving different governance purposes and have a different character for that reason.

Senator CAMERON: The resolution of appointment is about the rollout.

Mr Quinlivan : Yes.

Senator CAMERON: The rollout is the major part of the work of NBN at the moment—I accept that—but that will be a diminishing part. It will go for a long period of time, but it will diminish over a period of time. The board would receive much broader information than simply information about the rollout. Wouldn't that be the case?

Mr Quinlivan : The board and shareholders, yes.

Senator CAMERON: Our remit, if you like, our resolution of appointment, is on the rollout, and that is what the report would be expected to be on, not the full gamut of the operation of NBN. Would that be correct?

Mr Quinlivan : That is correct, but I think the government has been keen to provide as much information as it reasonably can to the public and to this committee. That was the objective behind the release of the corporate plan last December, which was quite an unusual thing to do. I do not think corporate plans for GBEs had been released publicly previously, so it was an unusual event, recognising the high level of public interest in this project. I think the reporting to this committee will reflect that in part as well.

Senator CAMERON: But the committee has defined areas of operation. There has been some meandering, let me say, from time to time for various reasons. I am pretty keen to have as open a book as possible, but I have always been worried—Mr Quigley has just indicated that he is appearing four times at committees in five weeks. He will be appearing before my committee at Senate estimates. There has to come a time when Mr Quigley has got to get on with running the business and not reporting, hasn't there?

Mr Quinlivan : I think the government is very happy with the way Mr Quigley is running the company—

Senator CAMERON: That is not what I have asked you.

Mr Quinlivan : and is also very keen on the public accountability and transparency that is currently happening. But, if that got to be an operational problem for Mr Quigley and the company, I am sure he would make it known to the minister, who would then have a judgment to make about what was appropriate.

Senator CAMERON: It is a fairly unique situation. I do not know that any other such companies, such as Telstra or Australia Post, have had to report to the extent that we have here, have they?

Mr Quinlivan : There is a very high level of public interest in this project.

Senator CAMERON: I support that. That is fine. But I just want to indicate that I think there are limitations, in terms of the public interest, in how wide we range as a committee. That is all.

CHAIR: I will take that as a comment.

Mr TURNBULL: This is probably a question more appropriate for Mr Quinlivan because it is really a policy issue. I recently visited with Deutsche Telekom, BT and the relevant regulators and government officials in Germany and Britain. The broadband upgrades in both countries are occurring in a policy environment where facilities based competition is being actively encouraged and that is a key objective of government policy, which of course is not the case here. In particular, BT are undertaking a fibre-to-the-cabinet rollout which will give two-thirds of the country a capacity of 80 megabits down and 20 megs up by 2015—indeed, probably a bit earlier than that—and the balance up to about 92 per cent with similar conductivity but enabled by a government subsidy of £534 million. The first part of it is being done by BT itself.

The reason they are undertaking that, and Mr Quigley and I have discussed this before, is that this VDSL solution—fibre to the node, fibre to the cabinet—is obviously a lot cheaper. The Analysis Mason estimate is that it is between a third and a quarter of the cost of fibre to the premises. Given the very high speed that can be delivered, and is being delivered, with this VDSL fibre-to-the-cabinet approach in Britain—and the Germans are doing something very similar—has the government thought about recalibrating the approach of the NBN? The experience everywhere is that customers are very reluctant to pay for the higher speeds. In Germany they told me 40 per cent of the country has access to 40 to 50 megs on VDSL but only three per cent will actually pay for anything above the basic 16 meg entry-level tier. There are similar problems elsewhere. Given that you can deliver 80 megs at a much lower cost than fibre to the premises, has the government considered, in light of these developments in other comparable countries, taking that different approach?

Mr Quinlivan : I think the minister and Prime Minister have made it clear over the last two years that they fully considered all the options that were available to them before making the decision in April 2009. Since that time we have been implementing that decision, as we are discussing today.

Mr TURNBULL: So there has been no reconsideration. That is what you are saying to me.

Mr Quinlivan : There has been no reconsideration of the basic policy parameters, no.

Mr Quigley : I have also had discussions with France Telecom, Deutsche Telekom as well as a few others. It is very important when comparing the costs of fibre to the premises and fibre to the node or fibre to the cabinet—whatever you want to call it—that we talk about who is doing it. If it is the incumbent who has access to the copper, it is a different story, a different comparison. It is also very important to really understand the demographics, the population distribution and also the state of the copper—what grade of wire is used and simple things such as whether or not in most premises the telco runs two copper pairs. If they have used two copper pairs then you can use techniques such as phantoming to get much higher speeds. In Australia to get the sorts of speeds you are talking about you would have to go very close to the premise and would end up with an enormous number of cabinets. It is simply not a smart commercial proposition I think for a country like Australia to get the sort of coverage that the government was aiming at. Also the same company you quoted, Analysys Mason, has said that the long-term architecture that most telcos aspire to and will end up with is fibre to the premise and, if you deploy a fibre-to-the-node network, you are likely to waste about half of the investment you made in so deploying. It is interesting to see Deutsche Telekom—in fact, I worked with them when they first started deploying VDSL—are now starting to replace a lot of that with fibre to the prem.

Mr TURNBULL: We are not going to resolve this here. This is a big issue and we are having an important discussion about it. You have said regularly that, if you do an upgrade to VDSL fibre to the cabinet and then you subsequently wanted to go fibre to the premises, you would waste half of the—

Mr Quigley : That is Analysys Mason's figure.

Mr TURNBULL: In New Zealand, where they are doing exactly that, the advice I have had from the relevant executives at Telecom New Zealand is that that is simply not true. I put that proposition to them directly and it was flatly contradicted by the relevant executives at Telecom New Zealand and also by Mr Quinlivan's equivalents in the New Zealand government. They said that that is simply not true.

Mr Quigley : Then in that case Analysys Mason has it wrong.

Mr TURNBULL: I am a simple soul simply trying to find out the truth. You made that point to me and I took it on board. I went to a company in a country where they are doing exactly that. They did a FTTC upgrade in New Zealand, as you know, and now they are doing fibre to the prem for much of the country. They said that that is dead wrong.

Mr Quigley : Perhaps I can put it this way. I will keep it simple. When you deploy a fibre-to-the-node network you are putting out a large cabinet with active electronics in it—in other words, you are putting devices in there which drive a copper network. You have got DSLAMs, digital subscriber line access multiplexers, which have VDSL cards in them. You have to provide power to that cabinet and you have to provide battery backup. The cabinet has to be environmentally controlled. All of those cabinets when you switch to fibre to the premise are removed. What is more, you supply a fibre to that cabinet that then uses the tail of copper. When you do fibre to the premise you have to replace the fibre cabinet with a splitter, which is absolutely active. It is a different type of cabinet. Then you have to run fibre to each premise from the splitter. Common sense would tell you that the overlap between those two technologies is very small.

Mr TURNBULL: My feedback has been from people who are actually doing it. Let us not argue about it, because there is another thing I want to go to.

Mr Quigley : Just before we do, if I could, Mr Turnbull. This I think is a very important discussion to have. It is very important the committee understands. I would be delighted to spend half a day with you and take you through that analysis if you would like to do so. This is such an important issue. I think it is worth the investment of time to put your mind at rest.

Mr TURNBULL: We should see if the committee can get the executives from New Zealand to talk to us. They are there actually doing it, so it is not a theoretical, suppositious consultant type of issue.

CHAIR: We are as a committee arranging some conversations with New Zealand. We may, with some further committee deliberations, take up the very kind offer from Mr Quigley to give us more time.

Mr Quinlivan : On this specific point, in this Australian context the ACCC provided an opinion which was along the lines that Mr Quigley has described. That was quite important in the government's decision-making process. I have heard Mr Willett, a commissioner at the ACCC, make the same point in public presentations and so on. You may wish to get an opinion from him on the issue as well. They have obviously done this analysis as well.

CHAIR: All right. I appreciate that.

Senator CAMERON: Obviously you were called out on this. I was interested in the New Zealand gaff by Mr Turnbull.

CHAIR: It was not a gaff; it is another country.

Senator CAMERON: What is the context of this discussion, so we are aware?

CHAIR: I will answer that. It is a comparison of jurisdictions and the models with regard to how fibre to the premise or other alternatives are rolled out. It is a broader policy question. I think it has been resolved. Mr Turnbull, would you like to move on to—

Mr TURNBULL: Mr Quigley, is it your contention that, notwithstanding that other comparable developed countries are upgrading broadband services with fibre to the cabinet rollouts and notwithstanding that they can deliver 80 megs and are delivering that, nonetheless it is more cost-effective to do fibre to the premise in Australia?

Mr Quigley : It all depends on the objective you are trying to meet. What I would say first of all is that there are countries doing fibre to the node. I was involved in some fibre-to-the node rollouts in the US quite some years ago, both fibre to the node with AT&T and fibre to the premise with Verizon. I was involved with the fibre-to-the node rollout with Deutsche Telekom. By the way, it was perfectly logical for an incumbent telco, as they own the copper, to do a fibre to the node, but even those that did sometimes took an option to go to fibre to the premise. Increasingly, companies are going to fibre to the premise. It is very important to take into account what technology is capable of delivering and what the plant is that you have to deal with. Australia is a little bit unique in terms of what plant has been deployed. You cannot really compare us with, for example, Germany. The demographic is quite different.

The analysis that we do that says, 'If you want to provide reasonably high speeds, some of the techniques that allow you to get to 80 megabits, such as phantoming, vectoring and DSM, are very difficult to apply in Australia.' You would need a huge number of cabinets to get anything like those speeds, whereas you can with fibre to the premise. You can cover 90 per cent of the country. You just cannot do that. You would have to stop at somewhere around 60 to 65 per cent with a fibre to the node to get, say, 12 megabits and above. Telstra did this analysis some time ago. The question is: what do you do from there? We looked at those various scenarios. That is what I would be happy to share with you to show you it is not such an easy thing to do. It depends on your objectives. One thing I would say is that you cannot, to 90 per cent of the population and over the copper network, use VDSL at those sorts of speeds for a low price. It is not possible.

Mr TURNBULL: Mr Quigley, do not get me wrong. This is a fairly significant point of strategic philosophy, if you like—the difference between our approach and the point the government has been making. I am not contending that fibre to the premise is bad or should not be deployed, nor am I contending that fibre to the cabinet should be deployed universally. What I am struggling with is that, wherever I go, anywhere else in the world, countries, by and large—there are some exceptions—are using a mix of technologies. As the gentleman at BT was saying to me just last week, we decide whether to go fibre to the premise or fibre to the cabinet depending on what is most cost-effective in the relevant location, and they use different technologies. I guess what I was really asking Mr Quinlivan is that: given that very high speeds can be delivered over what is unquestionably a much cheaper deployment, why is the government not taking a more technology agnostic approach rather than the one size fits all. As you know, I was with your former employers in Paris at Alcatel and talking to them about the very significant upgrades in VDSL technology in very recent times, within the last year. The fact is that the technology landscape is changing and, given we are in these straitened times, I ask whether the government is reconsidering its approach without compromising the broadband objective to be able to achieve it at lower cost. I think Daryl Quinlivan's answer is, 'No, we made a decision two years ago and we are not reviewing it.'

CHAIR: That is what I understand.

Mr Quinlivan : Mr Quigley has talked about some of the technical issues there. There are also some broader industry policy objectives. I do not know what the comparable industry policy objective might be in those countries, but the government clearly had an objective here of integrating a structural separation process with achieving universal access to a broadband service. So, it is not simply an infrastructure project, it is also an economic reform program. I think you have to look at the combination of those things in various countries before you can make a valid comparison.

Mr TURNBULL: I am very happy to discuss that with you at any time, Mr Quinlivan. All of those countries are very focused on promoting facilities based competition and are stunned that it would be government policy to take HFC out of the broadband mix.

CHAIR: Do you have a question?

Senator CAMERON: Are you serious? What about Cuba?

Ms ROWLAND: There are China and Cuba.

Mrs D'ATH: Why a government would want to spend money implementing an alternative strategy that leaves one-third of the country with an inferior service or no service at all compared to providing the service that the NBN would?

Mr Quinlivan : I think I have made the point that the government made the decisions based on a combination of objectives which included industry, policy and universal access to broadband services. There are no plans that I know of to revisit those decisions. In fact I am confident in saying that.

Mrs D'ATH: Isn't the purpose of the NBN to address the problems we currently have across the country? The member for Greenway already mentioned deficiencies in her electorate. I think every single one of us can talk about areas where there is no service at all or inferior service. Isn't the whole purpose of NBN to address that?

Mr Quinlivan : That is one of the main purposes, yes.

Mrs D'ATH: I have one last question on the report that has been given. For the purpose of future reporting, I am very interested and I know we have had some discussion at previous meetings about communication strategies and the importance of communication strategies, managing public expectations. It is not the case out there that people are saying, 'Why are we doing this?' People are saying, 'When can I have it and can I have it now.' I would be interested in future reports with a little bit more detail about the communication strategy and what communication is occurring. Mr Quigley, you have already mentioned meeting with the Flying Doctor Service, which is fantastic. Instead of broad statements, a bit more detail about the communication strategy in future reports would, I think, be really useful. This is a big infrastructure project, it is going to take a fair bit of time and consequently we are going to have to manage that communication strategy very well with the Australian people and business.

CHAIR: My ears pricked up when you mentioned the figure of 65 per cent. I just read a recent blog article about the move from first generation broadband to ADSL2+ and, left to commercial forces, it was exactly that figure—65 per cent gets covered and 35 per cent gets left behind. With that in mind, and now that this policy issue has been opened up, did NBN Co. or the department ever actually cost what a rollout to 65 per cent of the population would be as compared to a 93 per cent rollout as per the statement of expectations?

I understand the growth in the cost is exponential if you are moving from upgrading 500 exchanges, which is related to 65 per cent, to what I gather is 4,500 exchanges, if you are trying to include all Australians. So obviously there is going to be a greater cost. I was just wondering whether for the exercise of dealing with some of these policy arguments the argument can be put to bed that commercial forces are going to do what we are trying to do here and build a monopoly utility like we have for water and all sorts of other utilities. Was that exercise ever done?

Mr Quinlivan : Mike might have comments about the company's analysis, but the government commissioned the implementation study from McKinsey which was published 18 months ago. You will find in that a diagram which shows the cost profile for a fibre rollout. If my memory serves me correctly, it is a relatively flat line until you get up towards 90 per cent, and then it begins to climb. The move from 90 to 93 per cent, which was taken in the government's response to the implementation study, was really about the relative costs between that three per cent and the wireless services, which were the next increment of broadband services that were available. So there was a logic that got you to both 90 and then 93. We will send you the reference.

CHAIR: I have seen it. I was just wondering: why, then, is there a difference between what happened when it was left to commercial forces to go from first-generation DSL to ADSL 2+, which got us to 65 per cent coverage?

Mr Quinlivan : That is just looking at the cost. If you are looking commercially at what revenue you can earn and the capacity to pay and so on, which is—

Mr Quigley : There is also cost. It is a relatively straight line. It trends upwards. Obviously the first percentile is considerably cheaper than the last percentile, even at 90 per cent. So it trends up. If you try to grapple with it, the first thing you have to decide is what it is you are trying to supply to these people in that 65 per cent or so and what you would sensibly do with a DSL type solution. The issue is that it is very expensive to provide people with a DSL type solution, even in that last 30-odd per cent, which is why none of the commercial companies would do it. It is just very expensive. So you then look at the alternative. If people then said that the alternative is wireless because these are more outlying areas that simply does not work unless you are happy to have people having a 3G type experience where they simply cannot afford to download much data at all. If you try to do it with a fixed wireless solution, it ends up between about 90 per cent downwards to 65 per cent more expensive than doing a fibre-to-the-premise solution. Then the only alternative you have is fibre to the node. But a fibre-to-the-node solution is very expensive because you need a huge number of nodes. What is more—I want to keep stressing this—you can only do a fibre-to-the-node solution if you have access to copper. You have to get that access to copper in some way.

Senator XENOPHON: We have limited time, so I will try to make the most of it. Can I just go to the issue of the procurement process for the NBN. At the end of March or early April this year the NBN suspended a key tender process because none of the proposals had acceptable prices. Is that a fair premise?

Mr Quigley : I would say that the proposals in total were not what we considered value for money.

Senator XENOPHON: Therefore, the tender process was suspended; is that correct?

Mr Quigley : Yes.

Senator XENOPHON: What procurement process was there in place up to that point in time and what has happened since then? Presumably there would have been a procurement process for that tender process that was suspended.

Mr Quigley : Yes, there was a procurement process which we ran. Our procurement function ran that process. When we made the decision that we were not going to get what we believed was value for money, we suspended that process and we started a new process.

Senator XENOPHON: Can I just go back a step. In a tender process you would normally have a few rounds; is that right?

Mr Quigley : That is correct.

Senator XENOPHON: At the point that you suspended the tender process, how many rounds had you gone through in that tender process?

Mr Quigley : I will have to take that on notice, but it was several. I do not remember the exact number.

Senator XENOPHON: Three, four, five?

Mr Quigley : A number, yes.

Senator XENOPHON: Presumably, at each round of that tender process—in terms of what normally happens—there would have been a better or more acceptable price.

Mr Quigley : A more acceptable package in total, yes.

Senator XENOPHON: Which would include a price.

Mr Quigley : Yes.

Senator XENOPHON: Was any consideration given to having some further rounds of that tender process, or did NBN Co. feel that that was the end of the line in that procurement process?

Mr Quigley : There was a judgment made that we were not going to get where we needed to be under that process.

Senator XENOPHON: The decision was made at your level, presumably. Was there a procurement committee at that stage? What was the actual structure in place?

Mr Quigley : There is a committee we have in place that looks at every large procurement.

Senator XENOPHON: What is that committee called? You can take it on notice.

Mr Quigley : I will take it on notice. We use a three-letter acronym which I will not use here. It is just another three-letter acronym for that committee.

Senator XENOPHON: You can take that on notice. Is that the advice that committee gave you—to say, 'That is the end of that procurement process'?

Mr Quigley : No. It was not quite that simple. Obviously, this is one of the biggest costs for the company, so I was watching the construction negotiations as they were taking place. I was updated regularly. I sit in on some of those committee meetings to get briefed. It is fair to say that management made a collective judgment in the end that we were not going to get where we needed to be. We took that judgment to the one of the committees of the board, the implementation committee, to say, 'This is where we think we're up to' et cetera.

Senator XENOPHON: There was a procurement committee, whatever it was called, that gave advice that was involved in that process. Did that committee say, 'We should end this process and we should start from scratch'? Was that the advice of that committee at that time?

Mr Quigley : No. I would not say the advice was that we should end this process and start from scratch. There was a general recognition in the committee, and amongst the management of the company, that this process we were under was not going to get where we believed we needed to get to.

Senator XENOPHON: I am just trying to establish whether the committee that was charged with undertaking the tender process gave advice to you, to NBN senior management, that you should either continue with this process to have another round or two or you should go to something else. Are you in a position to answer that?

Mr Quigley : No. I think I need to go back and have a look. The process is not as simple as a committee working away, reaching a conclusion and bringing it to me. I was involved, as you would expect me to be, along the process, as were some of my senior management colleagues.

Senator XENOPHON: I am just trying to establish whether the advice that NBN Co. took to scrap that procurement tender process was in any way at odds or contrary to the advice of the actual committee that was charged with procuring.

Mr Quigley : I will check the records here, but my belief is that the committee came to the conclusion—of course, we minute all these committee meetings—that we needed to move into a new process.

Senator XENOPHON: Could I ask you on notice to provide those documents to the committee? If there are any sensitivities there, you can take advice on that but—

Mr Quigley : There is almost certainly some very sensitive commercial information in those committee meeting notes.

Senator XENOPHON: Sure. I am just trying to establish to what extent the procurement committee had a view about the procurement process being changed or scrapped at that time. Presumably those threshold decisions would not be commercial-in-confidence. The reasons for them might be. I am just trying to be fair here in relation to that.

I will quickly move to a couple of other issues. Firstly, there is now a new procurement process in place. Is that right?

Mr Quigley : That is correct.

Senator XENOPHON: Where are we at with that? I saw some commentary by analysts such as David Kennedy, Kevin Morgan and Paul Budda. Are you laughing there? I am not as familiar with them as you are, but they have been quoted in the media. I am just referring to media reports. I am not saying that their views are valid or not, but their criticism was that they could not see why that process was scrapped.

Mr Quigley : I wonder how they would know—how Mr Kevin Morgan would possibly know.

Senator XENOPHON: I saw this piece in the Australian today, which I will ask you about; I might put some things on notice there.

Senator CAMERON: Don't talk about the Australian! That is the coalition's line.

Senator IAN MACDONALD: That is the hate media, Doug, isn't it? We couldn't have the hate media!

CHAIR: They are online as well.

Senator XENOPHON: I mentioned Kevin Morgan because I understand he served in Kim Beazley's ministerial committee on telecom reform, and on behalf of the ACTU. So I thought he had some credibility there. Perhaps on notice, could you advise where we are at in terms of the procurement process now—

Mr Quigley : Certainly.

Senator XENOPHON: and how close you are to delivering the outcomes that NBN Co. wanted in terms of pricing and cost structures. Without going into detail now, is there some indication that you will be getting there in the next month or two, or the next three months? What sort of time frame are you looking at because of that suspension of the tender process that occurred?

Mr Quigley : First of all, I can say that we have got there in some areas. We have already let a contract and announced another two, so we have covered Queensland, New South Wales, the ACT, Western Australia and Victoria. We are still working on the Northern Territory and South Australia. What I can also tell the committee is that we are not letting the fact that we have not finalised contracts for South Australia and the Northern Territory delay the work on the second release sites; we are doing that in another way and then we will pick those up. So, while we might start them a little late, we will not end them late. I can already tell you that, with the contracts that we have let, we are convinced that we have reached the right deal for taxpayers. We were not convinced in the previous process that we were going to. We are convinced now.

Senator XENOPHON: Perhaps you can take that on notice. Finally, Kevin Morgan, Kim Beazley's former consultant, asserted that in Tasmania—

Senator CAMERON: He had lots of consultants.

Senator XENOPHON: That is raised in the article as well. He asserted that in Tasmania the take-up rate is less than 15 per cent. That is not right, is it?

Mr Quigley : If Mr Morgan wants to take a trial and extrapolate the take-up rate, he is welcome to do so. Likewise he is welcome to take the cost of a trial, divide by the number of premises and extrapolate that to 10 million. If that is what he wants to do, he is welcome to do it. He is wrong, but I understand that is what he is doing.

Senator XENOPHON: I just want to get an explanation.

Mr Quigley : Frankly, if I can say so, it is a bit of a nonsense to take these very, very early numbers and extrapolate anything from them, especially in take-up. We all know the take-up is going to be a function of the deal that we have done with Telstra; that is the way it will work out.

Senator XENOPHON: Sure. So a fairer thing to say is that, once it has been rolled out further, you can then get a better idea.

Mr Quigley : Yes.

Senator XENOPHON: That would be in six or 12 months time? When would we be able to get a better idea of take-up rates and costs?

Mr Quigley : I think that we are already seeing in the mainland sites—places like Aldinga and Willunga, which are in South Australia—the take-up rates, frankly—

Senator XENOPHON: I know where Aldinga and Willunga are.

Mr Quigley : The rates are well above what we would have expected. Frankly, when we have had discussions with other telcos around the world about rolling out, they say, 'These are pretty high take-up rates.'

Senator XENOPHON: If you could give us something on notice on those early take-up rates, particularly in Aldinga and Willunga, I would appreciate that.

Mr Quigley : I am happy to do so.

Senator XENOPHON: Finally, on contractors, lawyers and IT contractors, Mr Morgan asserts that in the 12 months to June $60 million was spent on consultants and $42 million on legal costs. Could you, again, take on notice whether those figures are accurate and whether there is some basis for that. I am just trying to deal with that.

Mr Quigley : I will do that.

CHAIR: Before I hand to Senator Ludlam, this point of procurement, as I said in some opening questions, is something that the committee is starting to drill down a bit on, as you saw from Senator Xenophon's questions. So I am just flagging that, if there can be some good work done in those responses and some clarity between—

Senator XENOPHON: And some documents.

CHAIR: Yes—as explicit and specific as you can be, because it is an area that the committee is looking at and wants some detail on. Particularly, in the comments, if you want to have a look at the transcript from today in regard to the response you gave to me on procurement and some of the responses there, please do. I think it might be at our end or it might be just language. There seem to be some differences in responses in regard to procurement policy and then construction contracts. There might be some confusion at our end as to whether you are viewing those differently in the use of language. I am not sure.

Mr Quigley : No, in negotiating a construction contract it is part of a procurement process, and our procurement policies will certainly cover those contracts.

CHAIR: I just want to line up what is being said to make sure that there is clarity. I am not trying to pin anyone; I just want to be clear on the procurement policy and the overall direction that has been taken.

Senator LUDLAM: I have a range of items I want to cover but I will start with something you mentioned in your opening statement, Mr Quigley—I think it was you. You say you are appearing at five committees in the next couple weeks, but I can only make it add up to two—this one and the estimates committee.

Mr Quigley : No, I am making four separate appearances in five weeks.

Senator LUDLAM: Okay. What are the other two?

Mr Quigley : I think I was at this committee on 20 September. I will be at Senate estimates next week and I will be at this committee again in October.

Senator LUDLAM: It is good that we are such nice people!

Mr Quigley : And I am delighted to do so. That is four appearances.

Senator LUDLAM: Okay—three here plus estimates. Thank you. Speaking of estimates, will your 12-month rollout schedule be ready in time for your appearance next week? It would be great to be able to go through that in a bit of detail.

Mr Quigley : That I am not sure of. It depends on the exact date we release that.

Senator IAN MACDONALD: You can bet it will be ready the day after Senate estimates.

Senator LUDLAM: All you have to say is that the dog ate your homework.

Mr Quigley : We are making a public announcement about it. Obviously it is quite an important piece of information to get out there in the public domain, so it is something we need to get right.

Senator IAN MACDONALD: It would be good for the public to be able to question it though, and there would be a good opportunity at estimates.

Mr Quinlivan : In any case, you have got an assurance that it will be released publicly before the next meeting of this committee.

Senator LUDLAM: Thanks for tabling these slides this morning. You have what look like reasonably fine-grained maps of the fibre and wireless footprint. Is that what you are proposing to release next week for a number of sites?

Mr Quigley : It will be that sort of granularity—well, down to the suburb level. As I have said, it is very difficult, until you have done the design, to know exactly which premises in an area are in the fibre footprint or not. You can only do that when you get onto the ground and actually do the surveys. We are acutely conscious of not wanting to disappoint people. We do not want them to turn up in a map and then, when we do the design, we find that for some reason they are not. We are absolutely trying to avoid that.

Senator LUDLAM: But this stuff still gives us down to suburban resolution, if not street by street. Is it that kind of material that you will be proposing to release?

Mr Quigley : We would expect to release it not at a street-by-street level of granularity but certainly at the suburban level.

Senator LUDLAM: When are you coming to Fremantle?

Mr Quigley : I wish I had a dollar for every time I was asked that!

Senator LUDLAM: I will give you a dollar! Actually, that is probably really inappropriate.

Mr Quigley : I probably could not accept it!

Senator LUDLAM: You also mentioned that you would be providing some answers on notice relating to the discussion we had previously about remote Aboriginal communities in Central Australia. Has that been provided to this committee, or where is it going to pop up?

Mr Quigley : We have provided answers about the general services in remote areas of the satellite services and what it provides. Certainly in remote Aboriginal communities that are being served by satellite there is a fair amount of information there.

Senator LUDLAM: We are trying to get a sense of what it would cost to provide some of these off-ramps. I think you have been discussing this with Senator Macdonald or a particular community in Queensland and some other places. How would that work where you have got Aboriginal communities that are reasonably sparsely distributed across an area. Is that possible? Many are stitched together by this fibre; it is just that they are not going to have access to it, even though the service will run through there. Would it be possible to model the cost of putting at least a wireless tower in each of those communities on the way through?

Mr Quigley : The difficulty we have is that we are getting many requests from people in a satellite footprint asking what it would cost for wireless or fibre instead and from people in a wireless footprint asking what it would cost for fibre. These are not easy exercises to do, and they are all what-if questions. Each time we answer them we take up the resources of a company that is not getting on with planning the actual rollout. That is the difficulty we have. To answer Senator Macdonald's question, several weeks of a person's work had to go into that. You have to look at it, design it, plan it and cost it. It is not a trivial exercise. I am reluctant to keep trying to answer what-if questions that are not related to the rollout. When we do that we simply slow up the rollout.

Senator LUDLAM: How is it not related to the rollout? Sooner or later these services are going to be patched in, one way or another. How is it unrelated?

Mr Quigley : If an area is clearly in the satellite footprint and we have to look at what about if it was a wireless or a fibre, that is kind of a what-if question. We would not do that work because we know it is in the satellite footprint.

Senator LUDLAM: All right. I am going to keep pestering you about this. Could I ask you to take notice in time for next estimates—just a yes or a no—whether you think it would be possible to set free the resources within the company to look at the Central Australian cable—which runs from WA right across to the east coast through central South Australia and stitches together a number of remote Aboriginal communities, many of which are barely persisting with dial-up at the moment—and what it would cost in resources and staff time to look at providing wireless, given that that backbone runs right through their backyards?

Mr Quigley : To do that is quite a substantial piece of work. What I can try and do is give you an estimate next time of how much work that is to do that type of thing. I would also welcome the opportunity to convince you that the satellite service is going to be a very good service.

Senator LUDLAM: It is going to be a lot better than what they have at the moment. They are going to be using that service for things like videoconferencing, where latency will be an issue. A am just going to push the boundaries a little bit but maybe we will revisit this next week.

To take up some of the issues Mr Fletcher about voice services, at the moment you would not substitute somebody's fixed line copper voice service for a VoIP service—or I would not propose that we do that; the service is still a bit flaky. But I am wondering at what point you would propose the seamless substitution for a voice-only service with a VoIP, with an IP phone.

Mr Quigley : We are providing a service with an analog terminal adapter on the network terminating device we put in the premises that allows just a normal analog phone to plug in. It is a simulation of the same service. I do not want to say it is not a VoIP service, because it is using the same protocol, SIP, session initiation protocol, but it is equivalent to an analog type service—in other words, a stitched-up link that does not rely on internet packets and the delays that you get with those. So we are providing that service over fibre. It is the equivalent of a circuit switch type existing telephone service. Obviously people can put VoIP on the general broadband internet service. What I can tell you is that the reactions we are getting from people to that kind of voice service is that it is anything but flaky; they just cannot believe it is a VoIP service over fibre.

Senator LUDLAM: At what minimum speed does that kind of service become indistinguishable from a regular landline?

Mr Quigley : That is what we are providing with what is called a committed information rate within the service. Even in a 12-meg service we are providing about 100 kilobits per second of committed information rate, which can provide a very, very good telephone service.

Senator LUDLAM: Even if someone is watching TV over the same wire?

Mr Quigley : We have these things we call priority classes, which is what you can do in this new type of network, so that you can in fact prioritise services that are very important such as voice where you have very low latencies. You can make sure that packet delays and packet variations and jitter are very low.

Senator LUDLAM: I want to raise the issue of batteries, which has had a bit of press recently. Would you prefer it if that obligation was not on the company to provide a battery backup, in order to not have at least the voice services go out in a power cut? Are you looking for something a bit more nuanced?

Mr Quigley : Our obligation is to report back to the government the reaction we are getting in first release sites from end users to the battery backup unit. It is quite negative. I can well understand the policy that the government has set of having battery backup, but there is also a recognition that a smaller and smaller percentage of people actually have a true analog phone over the copper network that is not cordless of some sort or is not VoIP. So there is a decreasing percentage of people who today really have a voice service that is backed up from the exchange. Emulating that for 100 per cent of the population, one could say, does that make sense? It is a policy question and it is one that I think is active, being looked at, in the department. We are supplying information to the department on various costs and technical issues and also on the reaction from people out there in the field to the battery backup unit.

Senator LUDLAM: You are just installing some anonymous equipment on the side of a house. Why would people be complaining in particular about the fact that there is a battery installed in there? Would they even know?

Mr Quigley : It is not so much that there is a battery in there; it is the size of the unit. These days a network terminating device is quite small. The battery back-up unit is bigger than the active electronics. Often—increasingly—these are being installed internally.

Senator LUDLAM: Would you prefer a model in which customers could opt in to having a battery back-up?

Mr Quigley : Once again this is a personal view; it is not a policy view. I think there should be an opt-out policy, in which people say, 'I understand the issues. I don't want it,' or 'I've got a cordless phone; I'm never going to use it.'

Senator LUDLAM: Can I throw to you, Mr Quinlivan? Where does the government sit on that issue at the moment?

Mr Quinlivan : As Mr Quigley said, this is a live issue so there are a range of options and views. The one thing that is essential in all of them is that people are able to make informed decisions, whether you end up with an opt-in or an opt-out model.

Senator IAN MACDONALD: Who would pay for it?

Mr Quinlivan : The current presumption is that the initial battery will be supplied, if requested, under whichever of the models we end up with, by NBN Co. But subsequent replacements would be done by the retail service provider.

Senator IAN MACDONALD: Is that cost factored into the NBN's figures that have been—

Mr Quinlivan : Yes it is. It is part of the corporate—

Senator LUDLAM: I will leave the battery issue there. I do want to come—

Senator IAN MACDONALD: I want to come back to the battery issue.

Senator LUDLAM: In the financial summary that the government has made public—that you provided some time ago—there are big discrepancies in your executive summary and that little table on page 16. You are about $45 million ahead of where you thought you would be now on opex but you are a billion down on where you thought you would be on capital. Do you want to talk us through what that means?

Mr Quigley : In general terms in opex we had to take on board a cost which was not in our original estimates, which is related to the greenfields. We had to take on board all of the processing of the greenfield applications from developers. And we had to do that almost instantly from January. To do so we had to contract that out to Telstra, because they were the ones doing it up to that point. We took it on board, so a substantial part of that $45 million is to pay for that service, which we have now taken in-house. So we had a short-term contract with Telstra to do all of that processing up front.

Senator LUDLAM: That is $8 million?

Mr Quigley : No; that was the difference between our projection of opex and the actuals.

Senator LUDLAM: So that is all accounted for by that—

Mr Quigley : It is not all accounted for. There are some other amounts but that was the bulk of it. Why is our capex lower? Our capex is lower for a number of reasons. We had expected to get to a point where we had put a deposit down on a satellite service. We have not done that yet. The other one is, of course, the roll out. That is where the bulk of the capex was spent—on the fibre roll out. We are a bit behind on that roll out.

Senator LUDLAM: Can we just talk about the delays. It seems to me that there would be three sources of delay—the reasons you are running behind. One is that this parliament took a year longer than expected to pass your enabling legislation; one is that the Telstra deal has lagged substantially; and one is the internal delays caused by miscalculations within the company—things slipping or whatnot.

Mr Quigley : I would not completely agree with that. I would say that the greenfields decision had a substantial impact on the company and that the POI decision had a substantial impact on the company.

Senator LUDLAM: All right then. I just wonder if we can tease out how many of those three or four things would account for the slippage in the scheduling?

Mr Quigley : Most of them. Those factors are by far the biggest factors in the rescheduling we have to do. Remember, in some areas we are actually advancing things. With the fixed wireless, the priority the government set us recently was to make sure that we put a considerable focus on regional Australia. So we put a lot of focus on the interim satellite and we put a lot of focus on the fixed wireless, and we actually brought the fixed wireless service forward. We are doing something we did not even expect to do, which is the greenfields.

Senator LUDLAM: All right. I will just get through this quickly. Page 18—can you tell us what the difference is between services and premises active? What is the terminology there? There is about a 150-odd discrepancy in your Tassie rollout.

Mr Quigley : You said page 18?

Senator LUDLAM: It is page 18 in the committee document and page 3 on yours, under the heading 'Networks'—services premises or to premises active. What is the difference between a service and an active premise?

Mr Quigley : A premise active is a premise that has a service. That premise may have more than one service. In other words, it may have both a voice service and a broadband service. We are counting those as two separate services. The thing we focus on is the number of premises activated, and then it is up to the customer how many different RSPs they plug in.

Senator LUDLAM: Okay, great. On your page 7 you talk about a new outsourced contact call centre capability. Is that running out of Bangalore or somewhere? How far outsourced has that been?

Mr Quigley : It is within Australia.

Senator LUDLAM: Okay. I am interested to know how that is going to work, given that you are a wholesale provider. Is your call centre for dealing with calls from iiNet and Telstra, or from somebody in a suburb?

Mr Quigley : We have had a very large number of calls coming in. We are tracking all of this data now and we do get calls from service providers, but far and away the largest number are from end users.

Senator LUDLAM: How many of those are you having to refer and say, 'That is iPrimus' problem, it's nothing to do with us'?

Mr Quigley : We try to avoid making statements like that.

Senator LUDLAM: I am sure, but there is a split in responsibility.

Mr Quigley : There is a split in responsibility, and in developing processes with the RSPs we are trying to have almost a seamless handover. We log incoming queries and are trying to put in place a process whereby we close them off. We only close them off when the person who has had the query is satisfied that it has been resolved. We try to track that through and we are trying to set that up with RSPs.

Senator LUDLAM: Even at this stage.

Mr Quigley : We well understand that what we do not want to get into is a situation where customers bounce back and forth between a wholesaler and a retailer.

Senator LUDLAM: Or you will be hearing from ACAN. I will leave it there.

Mr HARTSUYKER: There was a reference to Kevin Morgan and there was a piece in the Australian today referring to the cost per premises passed. Quite clearly it is early days, set up costs and so on. With the latest round of rollouts are you achieving that cost per premises passed yet that is indicated in the corporate plan? And if not, when do you expect to achieve that cost level?

Mr Quigley : In the corporate plan we have overall numbers. I cannot recall—in fact, I would be surprised if a cost per premises passed—

Mr HARTSUYKER: Kevin Morgan reported it as $2,300 per premises.

Mr Quigley : I do not know where he got that number, frankly. The reason that I do not try to respond to Mr Morgan's statements is that I have no idea where he gets the numbers from. He just takes ratios and divides them.

Mr HARTSUYKER: Okay. If I rephrase my question: are we currently able to install the fibre rollout at the price envisaged in the corporate plan?

Mr Quigley : As you would in any business you have a trajectory when you start something new in which you are aiming towards a cost that you think is the right cost. The very first one you do—

Mr HARTSUYKER: Sure.

Mr Quigley : And then you go down and say, 'Are we confident that we are going to be able to meet the corporate plan targets at this stage?' I say yes, we are still confident. We will update the corporate plan. There have been some moves and shifts. But, overall, are we on plan? I would say yes.

Mr HARTSUYKER: What is the current cost per premises passed being achieved in the latest round of rollouts?

Mr Quigley : I could not give you that number, Mr Hartsuyker. Even if I had that number in my head, I could not give it to you, because it is a commercially quite sensitive number. We are negotiating and we will continue to negotiate with construction contractors.

Mr HARTSUYKER: Obviously you will get to a point where you reach the lowest costs you are going to achieve, on average, throughout the project.

Mr Quigley : No. I would not say we will get to that point. In every business I have run before, I have never stopped cost reducing.

Mr HARTSUYKER: Okay. When do you believe you will get to a cost per premises passed that will ensure that the rollout remains within budget? When does the learning process end, basically?

Mr Quigley : The learning process never ends. We will continue, every year, right up until the last six months of the rollout, to be focused on getting costs lower. That is the way I have always run a business. I think it will become clear to the government and to the committee, as we continue to report both our financials and our KPIs, whether or not we are meeting our overall corporate plan. Of course, the corporate plan itself has to evolve to take account of changes that take place, as I have said, such as the focus on greenfields initially—those types of activities. We have to adjust the corporate plan for those.

Mr HARTSUYKER: Given that Mr Morgan has highlighted a very substantial difference—

Mr Quigley : How would he know?

Mr HARTSUYKER: Obviously in the committee we have a concern that cost overruns will—

Senator CAMERON: You have a concern. I do not.

Mr HARTSUYKER: Can I finish? You have had a long time, Doug, and I have got three minutes.

Senator CAMERON: You cannot talk for the whole committee.

Mr HARTSUYKER: We have a concern that this project needs to remain within budget. Mr Quigley, what assurances can you give the committee going forward, as part of the KPIs, that we are within the cost parameters?

Mr Quigley : I can only report the range of KPIs that have been agreed with the finance department. There is a very large list of those KPIs. Clearly the department of finance will be focused on those. They get a large amount of information. We will be doing it.

Mr HARTSUYKER: Will you be able to report to us historically—which would basically be no longer commercial-in-confidence and no longer relating to contracts that may lead into the future—the cost per premises passed in the rollout areas, as you achieve them?

Mr Quigley : My job is to report to the government on a range of parameters, which I will then do. It is up to the government to decide what information it releases to the committee.

Mr HARTSUYKER: I would maintain that the cost per premises passed is a very important point. The cost to install to each premise is also a very important cost indicator that I would like to see reported on a regular basis as each rollout is conducted. That is a vitally important piece of information.

CHAIR: That is an issue for us to talk about. We are going to talk about the performance reporting separately. I am pleased to hear that the kaizen principle—the Japanese business principle about constant improvement and learning—is in play.

Senator IAN MACDONALD: Mr Quigley, I did not hear your answer about batteries. Are the batteries budgeted for in your costings?

Mr Quigley : Yes, they are.

Senator IAN MACDONALD: Are the RSPs who will supply the first down battery aware of that and including that in their costings?

Mr Quigley : We provide the first battery.

Senator IAN MACDONALD: The first down, I mean. Once the first goes, Mr Quinlivan said—

Mr Quigley : Yes, I think they are. We have communicated that.

Senator IAN MACDONALD: Do you know off the top of your head what the cost of a battery is?

Mr Quigley : Off the top of my head, I do not.

Senator IAN MACDONALD: Are we talking $100, $500—

Mr Quigley : No, no. They are not—

Senator IAN MACDONALD: Twenty dollars?

Mr Quigley : Yes. I think more like that.

Senator IAN MACDONALD: Mr Quinlivan, the government is still considering whether battery backup will be there or not?

Mr Quinlivan : It is considering the model that will be applied, I think. It is clear that there will be some form of battery backup available for people who want it. It is just a question of what the model is and the decision-making process that are at issue.

Senator IAN MACDONALD: I remember this was raised at length in the very first NBN committee of the Senate, more than a year ago. I am surprised that there is not some conclusion.

On another matter, someone told me out west the other day—I did not pick this up; I hope it is right, but I do not think so—that you are actually going to connect Julia Creek with fibre to the home. Is that correct?

Mr Quigley : No.

Senator IAN MACDONALD: I did not think it was, but someone told me that they had heard it. I was hoping it might be. Going back to the question Senator Xenophon asked about the tender process, when the process was stopped did you at that stage have an alternative strategy in hand? Did you know what you were going to do once you stopped the process that was in train?

Mr Quigley : Certainly we did not stop the process and not know what to do next. The committee discussed the options to the process we were in. So, yes, we certainly had a view of what the way forward would be.

Senator IAN MACDONALD: I think you said the final decision was made by a committee of the board.

Mr Quigley : Yes.

Senator IAN MACDONALD: Did that discuss your recommendation?

Mr Quigley : Certainly, yes.

Senator IAN MACDONALD: Your recommendation?

Mr Quigley : The company's recommendation. I speak on behalf of the company to the board.

Senator IAN MACDONALD: You were saying that there was a committee set up and it went to the management committee. Who is the management committee?

Mr Quigley : No, when I say that in the end this is a management decision, there are various members of management on the committee that looks at various procurement activities. I will have to check the record to see who was a member of what, but what I can say is that the company in the end made a judgment that it was better value for taxpayers to suspend the process and move into a new one. We sought expert advice on that before doing so and obviously we took that to the board for their ratification.

Senator IAN MACDONALD: I am not looking for a name, because that is not of interest, but which group of people, if it was a group, or what level of person was doing the negotiations in relation to the first round, second round and third rounds?

Mr Quigley : Certainly the head of procurement would have been involved. The head of procurement has a prime responsibility in this regard—for all procurement the head of procurement has prime responsibility. He reports to the head of corporate services.

CHAIR: I think there are some questions on notice and we will get some information back on that procurement. Senator Xenophon asked them. I am not sure if you were here or not.

Senator IAN MACDONALD: I was here when Senator Xenophon was here. I did not think he asked the same questions. Finally, did that same group of people or that person continue with the new tender process?

Mr Quigley : Certainly the head of procurement would have been involved in the ongoing tender process, yes.

Senator IAN MACDONALD: And the same team?

Mr Quigley : I cannot tell you whether it was exactly the same team, but it would certainly have had some individuals who were the same.

Senator IAN MACDONALD: Have you had any repercussions from any of the tenderers who were involved in that first tender? Has anyone threatened to sue you?

Mr Quigley : No. I have had various calls expressing interest in participating in the next round and how supportive they are of getting this job done.

Senator IAN MACDONALD: So no suggestions of breach of contract or faith?

Mr Quigley : No.

CHAIR: I am conscious that we had little time and we are juggling a lot of members with a lot of interests, and I thank you for running over time. Thank you for assisting the committee. If you have been asked to provide additional information, please forward it to the secretariat, ideally by 20 October. I know next week is a busy week for you as an organisation, but that would assist us with our reporting. If the committee has any further questions they will be sent in writing through the secretariat. I thank colleagues and all witnesses for their time.

Resolved (on motion by Mr Hartsuyker):

That this committee authorises publication, including publication on the parliamentary database, of the transcript of the evidence given before it at public hearing this day.

Committee adjourned at 11:08