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Joint Committee on the National Broadband Network
Rollout of the National Broadband Network
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Joint Committee on the National Broadband Network
CHAIR (Mr Oakeshott)
Senator IAN MACDONALD
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Content WindowJoint Committee on the National Broadband Network - 05/07/2011 - Rollout of the National Broadband Network
QUIGLEY, Mr Mike, Chief Executive Officer, National Broadband Network Company
QUINLIVAN, Mr Daryl, Deputy Secretary, Department of Broadband, Communications and the Digital Economy
Committee met at 18:20
CHAIR ( Mr Oakeshott ): I declare open this public hearing of the Joint Committee on the National Broadband Network. We need a motion to allow the media to take footage of the hearing, so I ask a member of the committee to move that the media be allowed to broadcast the proceedings today in accordance with the rules set down for committees, which include fair and accurate reporting of proceedings and not taking footage or still images of members' papers or laptop screens.
Senator STEPHENS: I so move.
CHAIR: There being no objections, it is so resolved.
Tonight the committee will be hearing from the Chief Executive Officer of NBN Co. on the recently announced Telstra and Optus deals and the construction tender awarded to Silcar. If time allows, the committee may also seek information on the contract awarded to Fujitsu. Thank you, Mr Quigley, for appearing before the committee this evening. We mentioned in the private meeting that Mr Daryl Quinlivan will be sitting in and available for the committee if needed.
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, would you like to make an opening statement to the committee?
Mr Quigley : Chairman and members of the committee, I am going to start off with an opening statement reflecting some of the areas in which I understand the committee is particularly interested, some of which the chairman has just mentioned. They include the state of NBN Co.'s construction contracts and the deals that we have recently announced with Telstra and Optus. I would also like to comment on a few other matters—our ongoing deployment plan, our corporate plan and the greenfields program, which is topical at the moment—and perhaps just touch on the points-of-interconnect issue.
I will turn first to construction. We announced on 1 June that we had reached an agreement with Silcar to allow us to begin large-scale deployment. Silcar is a fifty-fifty joint-venture between Siemens and Thiess Services. The agreement reflects terms and prices for construction worth $380 million over the next two years, with the option of two further years, at an additional value of $740 million. The agreement covers Queensland, New South Wales and the ACT and it represents about 40 per cent of our national construction activity for the next two years.
The design and construction pricing in the Silcar agreement is consistent with NBN Co.'s corporate plan and it followed some eight weeks of rather intensive negotiations between NBN Co. and Silcar. We believe the agreement represents a competitive and acceptable baseline for design and construction across the project. Through the negotiations, NBN Co. and Silcar have established what we believe is the right balance between price reductions, certainty of volume, location of premises, appropriate payment terms and the benefits of initial exclusivity to defray overheads.
The agreement includes nine of the 19 NBN second release sites which have been previously announced by us. These are, first of all, extensions to the existing works of the first release sites in Kiama, Townsville and Armidale and then new sites in Springfield Lakes, Toowoomba, inner northern Brisbane, Riverstone in Western Sydney, Coffs Harbour and Gungahlin here in the ACT. Following on from that contract, some time ago we commenced discussions with a group of construction companies for other regions in Australia, and we are obviously using the framework of the Silcar deal as a basis for those negotiations. We expect to be able to finalise those discussions with those other companies over the coming months, and we believe this will then put us in a position where we can deliver on the other second release sites and, in fact, have construction coverage for the whole of the country.
That is a brief summary of the construction. I now move on to the deal with Telstra. We announced that deal on—
CHAIR: Sorry to interrupt. I am conscious of the clicking. Can we wrap the photos up relatively quickly. Sorry to interrupt, Mr Quigley. Feel free to keep going.
Mr Quigley : We announced the deal with Telstra on 23 June. As you know, it took quite some time to reach that point. That is not too surprising; it was a very complex transaction. It was worth the wait, as I have said before. The outcome, we believe, is good for taxpayers and good for the broader community. We will, in making use of Telstra's facilities, avoid duplicating existing infrastructure. The deal reduces our costs to build the NBN, it reduces the risk of delays and, very importantly, it reduces potential disruption to local communities.
Importantly, Telstra also becomes an NBN customer, with the NBN becoming the preferred fixed-line platform to be used by Telstra for many years to come. This, as you would understand, provides some certainty on our revenue line. The deal allows NBN Co. to use Telstra infrastructure over a minimum of 35 years. As I said, it eliminates the need to build duplicate infrastructure, which would have been a very bad outcome for the nation. The deal will have NBN Co. pay Telstra progressively for the disconnection of copper connections and HFC connections other than for HFC pay TV customers. We have also negotiated interim arrangements for immediate access to Telstra's infrastructure; that is ahead of what is called the commencement date, which is when the deal would become unconditional assuming it was approved by the ACCC and by Telstra shareholders. So that interim arrangement allows us to get on with the network deployment for our second release sites.
The total payments over time are estimated to deliver approximately $9 billion in June 2010 post-tax net present value to Telstra; that is based on their estimates. I guess it goes without saying that the definitive agreements reached with Telstra are financially beneficial to NBN Co., which is consistent with the company's corporate plan which we submitted to government back in December last year.
While we are talking about the Telstra deal, at the last committee meeting that I attended some of the members were interested in the question of an FTTN deal as an option. If I can, I would just like to make a couple of remarks on that. The first is that the deal was an extremely complex deal with Telstra. To have negotiated, in parallel, another deal to allow us to use the copper would have been an added layer of complexity which I am sure would have taken many, many months to reach a conclusion on, if it were possible to reach a conclusion at all, because it almost certainly would not have been a lease arrangement.
The second thing I would say is that, in terms of infrastructure, the deal that we did involved ducts, pits, exchange space and dark fibre; it does not include copper. We did not negotiate a deal on the copper itself. We are not acquiring the copper; we are not leasing the copper. To contemplate doing an FTTN solution would have meant that we would have to include that in the deal; it would have been another component. There have been various public comments by various bodies about the cost of acquiring that copper. It would certainly have been an additional cost; there is no doubt about that. The third point I would like to make is that NBN Co. is a government business enterprise, and our objectives are set by the government. The government did not instruct us at NBN Co. to consider an FTTN deployment, and so it would have been irresponsible of NBN Co. to start negotiating a deal which we were not instructed to negotiate, which would almost certainly have taken much longer and for which we would have had to pay more money. By the way, if the committee has any other questions on FTTN, I would be happy to address those if I can.
I will just say a few words now on the SingTel-Optus deal. The deal with Optus is one in which they progressively migrate their cable customers—that is, their customers on their HFC network—to our fibre network. At the same time, Optus has agreed a fixed-line network preference in favour of the NBN for residential and small business customers, so Optus will become a large retail customer of NBN Co. In turn, we at NBN Co. have agreed to make progressive payments to Optus based on the actual number of customers that migrate from their HFC network to the NBN. Optus's estimate of the value of that deal, which is based on the number of customers, is approximately $800 million on a post-tax net present value basis. Once the migration from HFC to the NBN is completed, Optus will decommission the parts of the HFC network that do not provide ongoing support for their mobile infrastructure and their business customers, so clearly we are not asking them to decommission parts they continue to use. Once again, it goes without saying that the definitive agreement that we reached with Optus is obviously of financial benefit to NBN Co.; otherwise, of course, we would not have done the deal. It both improves our take-up rate and, of course, in turn improves our revenue line.
I will now move to just a couple of words on those other matters I mentioned. I will look at our ongoing deployment plan. For those of you who have read our corporate plan that we submitted last December, we had projected that we would have passed 13,000 brownfields premises by the end of June—that is on page 15 of our corporate plan. I am pleased to report that, as of the end of June, we have passed 14,256 premises. We had also anticipated launching our interim satellite service by 30 June. We did so on 1 July. We had anticipated that the interim satellite service would cover 165,000 eligible premises; that was our estimate at the time. Our latest estimate is, in fact, somewhat more than that: we expect that it will be above 200,000 eligible premises that that interim satellite service will cover. We had also anticipated prior to December of last year that there would be some 45,000 greenfields lots that would need to be passed, but, as everybody in the room probably knows, there has been ongoing policy debate about the greenfields—the new developments. In fact, that policy has been particularly around the responsibility of Telstra and NBN Co., and it has taken some time to resolve that. I believe that has now been resolved and is subject to a bill that is before parliament at the moment.
CHAIR: Right now. We may have to go and vote on it.
Mr Quigley : The other thing I would comment on is that greenfields is somewhat different to the brownfields in that greenfields is demand driven. It is not a supply-driven business; it is a demand-driven business. We are now working well with developers and, I believe, satisfying their requirements. So the numbers that we pass in terms of greenfields will be the numbers that demand dictates. So we continue to look at what those numbers will be, but they are really set by the developers. In terms of our overall deployment plan, we are now working closely with Telstra on determining the detailed availability of their infrastructure. We will be using their ducts, their dark fibre and their exchange space. We are working with them over a 12-week period to ensure we have a fixed plan with them. So when that is completed—and perhaps even a little before that—we may be able to release a 12-month deployment plan and then a three-year indicative deployment plan. So we hope to be able to do that in the near future.
I will just say a couple of words on the corporate plan. Committee members will know that we submitted a corporate plan on 17 December which anticipated a Telstra deal but did not anticipate an Optus deal; we did not have the Optus deal built into the plan. It also did not include the requirements we now have on us for greenfields. There are additional consequences of the points of interconnect decision, moving from our assumption of 14 points of interconnect to 121. The consequences were not fully included in the corporate plan, because that decision came just before we submitted the plan; we did not have an opportunity to incorporate all of the issues. So we will, over a period of time, be including all of those factors and any other implications that come from policy decisions by government in the next version of the corporate plan, which will be submitted to the government at their request. I would just like to make sure that the committee understands that it would be irresponsible of me to provide an on-the-run update of the corporate plan. It is an integrated document, for those of you who have seen it. It has a lot of moving parts in it. It really needs to be produced and read as a whole, so I will not be commenting on any particular aspect of the corporate plan in relation to those changes I have just outlined. We need to recast the corporate plan, integrating all of that together.
I will just amplify a little bit on greenfields. As I have said, I believe we now have clarity—assuming the bill passes in the way we anticipate it will—on the responsibilities for Telstra and us, both in what are called broadacre developments and in infill developments in greenfields. That has been clarified by the government, and I hope it is what we will see in the result of the legislation. We are now getting on with the job of meeting our obligations under that policy. Since 1 January this year, we have had approximately 1,800 development applications, representing close to 150,000 lots or premises. On the latest projections we have, we plan to pass approximately 65,000 lots and connect approximately 40,000 premises during the coming fiscal year in greenfields. But, as I said before, this is a demand-based business. It really will depend in the end on what the developers need and want. We should be able to firm those numbers up as the year progresses.
We have now started fibre deployment in three new developments in New South Wales. One is called Bunya, which is a broadacre estate in Blacktown, in Western Sydney. It has a total of 730 premises. There is another new multi-dwelling unit in Rhodes, which is on the Parramatta River, with 107 premises. In Bonnyrigg we have a mixed low-rise MDU and single-dwelling residential development for 104 premises. We also have 33 new developments that are currently moving through various stages of our design and construction. We expect to start work in these estates, together with our partner, Fujitsu, over the next four months. We expect retail services to begin and be provided by retail service providers in some of these new estates from the second half of August. It has not been an easy task to make sure that we met those obligations when we did not have a network, so we have had to take some extraordinary measures to ensure we can locate fibre access node sites and provide transit backhaul back to interim points of interconnect to meet the demand from developers.
Finally, on the points of interconnect, as you know our original plan was to deploy 14 points of interconnect, but following the work of the ACCC the government instructed us to deploy a semidistributed POI model with 121 points of interconnect. With the 14-POI model, we would in fact have built our own POIs. With 121 POIs, it makes much more sense to largely use the existing Telstra exchange facilities, because they are the points at which competitive backhaul generally terminates. So we are now working closely with Telstra, as I mentioned before, to establish the availability of those facilities and hence the schedule under which we can bring up the 121 points of interconnect and the associated fibre access node sites to which they connect; also, then the dark fibre availability which connects those FAN sites to the point of interconnect. That obviously has a significant influence on our deployment plan and obviously our corporate plan.
In conclusion, we are now working hard to plan on the basis of the Telstra infrastructure being available. But, as we all know, that has yet to be finalised and will not be finalised until Telstra shareholder and ACCC approval take place.
CHAIR: Thank you. I might start with some governance questions and then hand over to the deputy chair and then bounce around the other members. It has been indicated by the committee that we are looking for regular reporting from NBN Co. on how you are meeting key performance targets and measures with regard to the rollout. Are you able to inform the committee what you have undertaken to provide the committee with on a regular basis?
Mr Quigley : Yes. We have been working closely with the government on a range of KPIs. My understanding is that the instructions to us from government are that when that is established the government will liaise with the committee to find which of those KPIs you would be interested in seeing. I think I have that correct, Daryl?
Mr Quinlivan : That is right. Chair, I am not sure if you received a letter from the two shareholder ministers today, but I understand a letter is on the way with a proposal for future reporting arrangements.
Mr HARTSUYKER: Previously, you had undertaken to provide us with, firstly, a draft proforma program by 1 June and then on 30 June the first program detailing the various elements of the project. That is where we left it the last time.
Mr Quigley : Maybe I misremember, but I thought I had taken it on notice to consult with our board to see how we should approach this issue.
CHAIR: If there is a letter in the mail that captures some of those governments issues, I look forward to reading it. That would also contain information on the follow-up question around the performance report?
Mr Quinlivan : That is right, yes.
CHAIR: To your understanding, is that in that letter?
Mr Quinlivan : Yes.
CHAIR: In regard to the Telstra and Optus deals, has there been any concern that the time taken to arrive at the deals will affect the rollout time frames? If so, in what way and by how much?
Mr Quigley : Yes. Clearly, if the Telstra deal had been done earlier, it would certainly have been one less complexity about which the company was dealing. But, overall, if you take the long view, the Telstra deal will certainly make the construction of the network considerably less difficult. We will not be boring, digging trenches and putting ducts in. So, overall, we expect the completion time to move forward, even though we may have started a little later because the deal was so complex and took quite some time. We will certainly do it more cheaply and faster, which is very important, and with a lot less disruption to the community. Also, importantly, it has shifted the ratio of aerial to underground deployment. We will be doing far more underground deployment with the deal than we otherwise would have been doing.
CHAIR: How much of the existing Telstra network will be subsumed into the NBN?
Mr Quigley : I cannot answer that question. The topology and the overall lengths of the existing Telstra network are confidential information with Telstra. I do not have access to that. I know what it is that we have planned to order; I do not know what percentage of the network it is. My feeling is that it would be a substantial percentage of their duct network.
CHAIR: Would that be the same answer for the existing Optus HFC network as to how much would be decommissioned? Are you able to say what is going on at their end?
Mr Quigley : No, I cannot answer that. The only thing I can say is they use some of the fibre reticulation network that is part of the HFC network to feed mobile base stations and perhaps satisfy some business customers. They obviously will stay, but the connections to residential premises for normal broadband services will be decommissioned, all of them.
CHAIR: My love is the satellite and wireless part of it for regional and rural areas. Can you give an update on how these deals will add value to both of those networks?
Mr Quigley : One of the things that we have negotiated with Telstra is to accelerate what we call the transit build. Transit is going from 121 points of interconnect to something like 1,000 fibre access node sites, with all those duct fibre links that go in between them. That same transit network, which I distinguish from the fibre access network, is what we use for satellite and also for fixed wireless. We will generally go out roughly 75 kilometres to base station sites from the fibre transit network. That is a very important part of the fixed wireless network and it is also an important part of connecting up the earth stations for satellite. That is why we are accelerating. That has allowed us to secure, and perhaps even bring forward somewhat, our fixed wireless service, which we are working quite hard on now. We hope to be able, in the second half of next year, to begin to turn services on. We have signed a contract with a leading vendor in wireless technologies, which is Ericsson of Sweden.
I have been asked several times why are we not using LTE. We are using LTE in fixed wireless configurations, not in mobile, but it is exactly the same radio technology.
CHAIR: As a bit of a tangent but an important example, I have received some correspondence from the School of the Air, which is concerned about the potential loss of videoconferencing with the so-called upgrade in services. They are very worried that it will not be provided through either satellite or wireless. Have you had any contact with the School of the Air that you are aware of on this issue around what they see as a potential downgrading of their ability to deliver School of the Air services?
Mr Quigley : No, I have not heard that. I am a little puzzled as to what would be downgraded.
CHAIR: They currently are providing videoconferencing services and in their correspondence they are indicating that you will be unable to provide the equivalent services that they currently can. But I am happy to hand it over to you.
Mr Quinlivan : Perhaps we could have a look at it, if that correspondence could be brought to our attention.
CHAIR: We would be happy to.
Mrs D'ATH: As we all appreciate, technology moves very quickly. I am interested to hear how innovation in NBN technologies and applications would lead to cost reductions and efficiencies being encouraged over the lifespan of NBN.
Mr Quigley : They will go in various areas. Obviously there are advances in technologies. We expect to see continuing advances in LTE technologies so that we can increase the speeds and capacities in the fixed wireless network. As you know, at the moment, it is 12 megabits per second that we have committed to. You will hear a lot of statements about 100 megabits per second on LTE and 300 megabits per second. I think there is even a trial somebody talked about for 600 megabits or 800 megabits per second on trial. You have got to put those in the same category as you have probably heard of 26 terabits per second on lasers, on fibre; you have to put those in the same category. In the end you have to do the engineering and the traffic engineering and say what service you can really be confident that you can deliver. And with fixed wireless using LTE technologies, we can be confident we can deliver 12 megabits per second to a cell edge.
We are hoping, with evolution of that technology and improvements in radios, we will be able to lift those speeds up. We would also expect costs of technology to come down over time. We expect that to happen in wireless, we expect it to happen in fibre technologies using GPON and we will see ongoing continual improvements in GPON capability. Today it is two and a half gigabits per second down and 1.25 gigabits per second up which is split. It will not be too many years before that will be 10 gigabits per second down and then some years after that it will be 40 gigabits per second down. The fibre itself has almost unlimited capability, so it is just the terminal equipment on either end that needs to be upgraded.
In terms of driving costs, we are treating the NBN using the same process improvement methodologies that you would use in running a factory, except it is distributed all over the country. So you can have a lot of continuous improvement-type activities to lower costs and to continuously be reviewing your construction methodologies and your architectures and try and continue to drive improvements. I would be absolutely astonished if we did not get the price per premise costs down progressively year after year. We would expect to do that and the volumes are large enough that we absolutely should be able to do that. If I can just mention one area in which it is a little trickier to do, and that is in satellite technology. You place a bet in satellite technology. When you launch the satellites, they are up there, you cannot tweak them and do retrofits on them. Once they are up, they are up.
CHAIR: Susan, we might hand over to you. We have lost Paul and Luke, I was going to hand to them.
Ms LEY: I have a question, which really follows from the Chair's question, concerning what happens to wireless and satellite. Particularly in parts of rural New South Wales, Telstra's Next G Network for wireless, not mobile phones obviously, is becoming increasingly more prevalent and they are adding to it quite a lot and it is being seen as quite a reasonable broadband service even though it is quite sensitive and has to be got just right. I say that because it seems to require a lot of intervention by Telstra. I am just trying to get a picture of what will happen to those areas, both that are described as being within the footprint and outside the footprint, as NBN moves into that area and how will constituents and subscribers be looked after given that Telstra will be going out one door and the NBN will be coming in the other and that development may not happen in a seamless way.
Mr Quigley : We will absolutely try to make sure it does happen in a seamless way, working with Telstra, if you are talking about the retirement of the copper, and moving across onto another technology, remembering that in the wireless and the satellite footprint the copper will remain for a long time. That is part of the TUSMA; we will be doing that. Our fixed wireless service is intended to be complementary, in the same way as a fibre service is complementary to a mobile service. The wireless service is not a mobile service, it is a fixed service, which means there is an antenna on the premise and there is a base station. The way in which we dimension that is considerably different from a mobile network. Mobility is good for mobility but you may very well find, for example, that somebody is in our fixed wireless footprint and they are getting a broadband service as they do on their mobile service, and they have one on their fixed wireless service, and they will run wifi off that. Just as you do now, you will find when you use, for example, your iPad when you are travelling around you will use it on a 3G mobile network. But when you come into your home you immediately switch onto a wifi network, and that is a fixed line service with a little radio bit just in the home, because you can download much greater amounts.
Ms LEY: I understand that, and I can see that it would be a perfect world for subscribers to have a choice of both, but in reality Telstra needs all of the business, I would think, to be there in the first place. How will it be determined who is looking after those people's needs? Will there be a planning exercise done? You have to say, first of all: are they in the fibre footprint and, if so, would it be in their interests to stay with the existing Next G network for broadband? You are not going to be laying out a service that, in fact, people would not take up given that we are talking about the edges of the service, the more regional areas?
Mr Quigley : Let me distinguish those two cases. If they are in the fibre footprint, in that 93 per cent, it does not matter where they are—they will get the same service. Whether they are in the city or whether they are in the most remote places in the last percentile of the 93 per cent, they will still get exactly the same service as people in the city on the fibre footprint. I expect they would do what most people in the city do: they would use both services. It could be that Telstra would be supplying both services, Optus could be supplying both services, VHA could be supplying both services or they could be getting mobile service from Telstra and a broadband fixed line service from iiNet, Internode or any one of the others. They will have much greater choice than they have had previously.
The two services, as I mentioned, are complementary. Mobile is good for mobile, but it simply is not a good solution for downloading large files because spectrum is scarce and it is expensive. I would expect them to use them in those complementary ways. If they are just making a phone call, they will likely use the 3G network. If they are going to download a file, either on their PC or on their iPad, especially if it is a video file, they would use the fixed line network.
Ms LEY: I understand. I will frame the question in a slightly different way. What proportion of the Next G network that operates for broadband, as opposed to mobiles, do you expect to be reduced as a result of NBN moving into the area—none at all?
Mr Quigley : I do not expect it to be reduced at all. What I expect to see is what we are seeing in a lot of overseas mobile carriers, which is they are building more and more 3G mobile networks, putting in more capacity, trying to acquire spectrum, building more capability and at the same time trying to get more traffic off the mobile networks just as fast as they can because the mobile networks cannot keep up with the demand for downloads. So iPads and iPhones are just simply killing 3G networks in other parts of the world. That is why the two are complementary.
Ms LEY: Thank you.
Mr HARTSUYKER: If we go back to the construction contract and the tender that was curtailed on 1 April, could you just give me a bit of a cook's tour of the way that tender was structured as far as what NBN Co. was seeking from the tenderers—fixed time, fixed price et cetera? Then could you move to Silcar and the variation between what you originally tendered for and what we now have as the contract offering.
Mr Quigley : I can answer the question in general terms. Perhaps I can take the details on notice, just to be precise about it to the extent that I can. The original tender was a tender in which we went out, I think my recollection is, to 15 tenderers that came in. We specified what it is we needed. We broke the country up into quite a number of regions and people were free to put prices in for different regions. We did our best to specify everything we could that we thought would be useful to the tenderer in terms of information they would need to supply us with prices and conditions. We had set clauses, as you would normally have in such tenders, and what we got back from the 15 tenderers was a range of different prices, different legal responses—what we would call a pricing and compliance matrix. We went through several rounds of refining that and going back to the tenderers.
As you would expect, what you also find is some people who have fallen right off the end. Their prices are so high they really cannot be considered too much further. You then start to look at it and ask: what if we change these conditions or those conditions? What impact would that make on your legal compliance statements? What would it do to prices and terms and conditions? But we had to go through that with everybody at the same time. It was quite a difficult process. Remember that this was also somewhat new and it is large scale. People were concerned about a number of issues, of course, as you would understand if you are a contractor looking at this deal. We came to the conclusion that we were not going to get to the position that we needed to get to under that construct.
Mr HARTSUYKER: Was the contract for a fixed guaranteed price for, let us say, the 10 units or however many units you have broken it up to? Were you contracting for a fixed price?
Mr Quigley : No, I would not say it was for a fixed price. Normally—I would have to check the details of this—such contracts are on a schedule of rates.
Mr HARTSUYKER: It was on a schedule of rates?
Mr Quigley : More a schedule of rates, yes. I am giving you the general picture. We should take this on notice.
Mr HARTSUYKER: On the schedule of rates, what were the rates? Were they per house connected or per kilometre of wire?
Mr Quigley : There were a lot of details. Many activities would go into building up the job.
Mr HARTSUYKER: How many activities?
Mr Quigley : I do not know off the top of my head. Quite a number.
Mr HARTSUYKER: From a layman's point of view, there would be the number of houses passed and then there would be the number of houses connected, and then there would be the—
Mr Quigley : No. There is much greater granularity than that. You look at remediation of pits and ducts—there are a whole range of activities.
Mr HARTSUYKER: So we have a schedule of rates. What were the variances? Were there variances for the ground conditions, for instance?
Mr Quigley : Certainly. Almost certainly there would be rock allowances. We would not expect people to have the same price if they are going through sand as they would if they were going through very hard granite.
Mr HARTSUYKER: Was a fixed time involved for the completion of certain elements of the contract?
Mr Quigley : No. I have to check on this. We may have had some indicative times. But there is—as you do in any contract, whether you are buying equipment or services—generally a negotiation. The tenderer offers you what they think are realistic time frames that they can do things in. That is one of the things you compare.
Mr HARTSUYKER: What about if the project went longer than expected? What were the arrangements there with a contractor?
Mr Quigley : They are quite complex in terms of a whole range of potential—
Mr HARTSUYKER: That is why I am asking the question.
Mr Quigley : You can have liquidated damages. You can have various extensions. You have all sorts of arrangements.
Mr HARTSUYKER: You had all of those?
Mr Quigley : Once again, I cannot tell you off the top of my head what was specified in that original contract or whether we left it open to a negotiation. I cannot tell you; I have to go and check.
Mr HARTSUYKER: This is a hearing to ascertain the details of the building contracts. On labour rates, was there provision for escalation in labour costs in the original contract?
Mr Quigley : There almost always is in labour. If you are looking at multi-year services that have a large component of labour, it is not unexpected; you would have some expected escalation. Once again, I have to check on the details.
Mr HARTSUYKER: Let us say that labour escalated over a particular rate. Where did that risk lie?
Mr Quigley : That I will have to check.
Mr HARTSUYKER: This makes—
Mr Quigley : We have been through a process. We have gone through a new process. I have been focusing rather heavily on the latter part.
Mr HARTSUYKER: I am trying to go back to where we were and then to where we are now.
Mr Quigley : That is why I like to be sure. I do not want to mislead the committee, so I had better take that one on notice and check.
Mr HARTSUYKER: We have talked about cost. We have talked about labour. We have talked about time. What about prolongation because of wet weather? Who would take the risk on wet weather on that project under the original tender?
Mr Quigley : I have to take that one on notice.
CHAIR: Would it fair enough if what is taken on notice is basically the issue of how risk is calculated and how it has been or will be managed? Is that basically where you are going?
Mr HARTSUYKER: I want to get a handle on the division of the risk between the client and the contractor and, within the original contract sum, the degree of assurance that the costs as tendered were going to be the actual costs incurred by NBN Co. Then, moving on to the new contract, what were the differences between the new contract and the old contract?
CHAIR: Do you want a risk comparison?
Mr HARTSUYKER: Yes, exactly. And a cost comparison.
Mr Quigley : We issued tender documents. There will be a lot of detail in those tender documents about those conditions for the original tender. We can look those up. They are public documents, frankly. We can pull them out and we will find all that information for you.
Mr HARTSUYKER: So to arrive at the new contract, which is now within budget—the old contract was not within budget—
Mr Quigley : We never reached a contract in the other one.
Mr HARTSUYKER: Correct. Between the original offers at a certain sum and the new arrangement that you have come to there must be a difference in the way the risks were shared and apportioned, I presume. What were the basic differences between the sharing of the risks?
Mr Quigley : If I can distinguish, just to be clear there: we may have in the tender document our proposal for how risks should be shared and how certain things should be done. The responses we get from all of the tenderers may not comply with those; they may suggest alternatives. What I cannot do is give you those responses. I cannot tell you what we originally requested or what each individual respondent responded with.
Mr HARTSUYKER: As a matter of broad principles, just for my education, what was the shift in the risk-taking from the original versions to what you have settled on?
Mr Quigley : I can tell you what was in the original in terms of our proposal. As I mentioned in my opening statement, the framework for the agreement we have reached with Silcar is the basis for the ongoing negotiations that we have now with a number of other parties. It would be inappropriate for me to spell that out at this point in time, because there is an ongoing competitive process.
Mr HARTSUYKER: But, as a matter of principle, could we not talk about the risks that NBN Co. is now assuming to achieve a lower cost price or contract price? Or are you proposing to be varying the mix of risks between tenderer and NBN Co. from contract to contract as you move forward?
Mr Quigley : That is quite possible. In the same way as the deal with Telstra and the deal with Optus are different—they are two different deals; we negotiated them separately—it is quite possible that the deal that we would strike with contractor A might be different to the one we would strike with contractor B because they may have various relative weights, they may be operating in regions where things are somewhat different and they may put a different value on different components. It is quite possible.
Mr HARTSUYKER: It is certainly of interest to me, and I would imagine that it is of interest to the committee, to get a handle on the risks to which we are exposed. Certainly the Wonthaggi desalination plant site agreement was something that was of great interest within the contracting industry. As a member of this committee I am really interested in our risk exposure to cost overrun, given that back on 1 April the tender process was abandoned on the basis that the costs were substantially more than budget. We managed to bring those within budget, and I am really interested in whether we are going to actually achieve a turnkey cost that is within budget or whether we are really only shifting the risk to be realised by the client, by NBN Co., at a later time.
Mr Quigley : In each case where we have negotiated deals we have never just looked at the price. We look at a combination of factors such as timing, performance and risk—which is why, by the way, the Telstra deal took so long to negotiate. Frankly, it would have been simpler for us just to sign up a construction contract with the tenders that had come in. As you would probably realise, going out to the market and saying we are suspending this process and moving into a new one subjected us to a lot of public criticism. We knew it would; we undertook it to look after the best interests of the public. So you can be assured that we did not look just at price; we looked at that combination of price, risk and terms and conditions. To the best of our ability we will try to give the committee an insight into that without prejudicing the ongoing negotiations that are taking place.
Mr HARTSUYKER: The sorts of things that I am interested in would be: who is responsible for prolongation due to industrial disputes, who is responsible for materials cost increases—all those sorts of very basic parameters. I think it is important for the committee to have an insight into those risks and the degree of protection from risk that is inherent in the contract.
Mr Quigley : Understood.
CHAIR: Are you happy if that question on notice is: 'How is risk calculated and how is it managed at the same time?'
Mr HARTSUYKER: But I would like it in fairly specific terms, not in broad-brush general terms.
Senator FISHER: Including the factors that are taken into consideration.
Mr HARTSUYKER: And itemised.
Mr Quigley : Correct. We will do the best that we can, as I said, without prejudicing the negotiations that are going on.
Mr HARTSUYKER: You mentioned 'design and construct'. The new contract is design and construct?
Mr Quigley : Yes. Sorry, when we say 'design and construct', design means different things to different people. What we are talking about here is the physical implementation of the architecture is reflected in a top-level design that NBN Co. will have done, and then the implementation in a specific instance—in terms of this fibre goes from here to here in this way—is done by the construction company, in most cases. So that both to do the physical design on the ground, in detail—
Mr HARTSUYKER: Do you give them a schematic and they then work up the detail from your schematic? Is that what happens?
Mr Quigley : It is not so much a schematic that we give them, as a document—quite a substantial document—in which we have planned out what is called a fibre-serving access module. This is about 3,000 premises. We will have put the boundaries on it, we will have determined which premises are in those boundaries. In fact, one of the things we have done is buy a toolset from a small Queensland company. It is a very sophisticated mathematical optimisation toolset—it is really very clever—using integer programming. It optimises the path, given the cost of pits, ducts and all the different components. We run that tool and then supply the file and the dataset to the construction company, which does the actual, physical design work. So they may say, 'This is where the concrete plinth for the fibre distribution hub is going; this is exactly where the duct is going to go.' In that process, of course, since we are using Telstra ducts, we have to supply information to Telstra to tell them which ducts we anticipate using, so if they need remediation Telstra can remediate them.
Mr HARTSUYKER: Does NBN Co. warrant all the consulting work that your consultants do? Do you warrant that to the contractor as being all tickety-boo?
Mr Quigley : Which consultants?
Mr HARTSUYKER: The design consultants that you use.
Mr Quigley : They are not consultants; they are employees of NBN.
Mr HARTSUYKER: Or employees. Do you warrant to the contractors that that is all good?
Mr Quigley : Yes, of course. I will not say we warrant it to the contractor. The contractor will use that. If there are small differences—for example, let's say there wasn't duct available and they had to do some boring and hit some real obstacle, we would have a real interchange and say, 'Let's do it this way.'
Mr HARTSUYKER: On the Optus deal: you said $800 million post-tax PV—
Mr Quigley : NPV, yes.
Mr HARTSUYKER: What is the nominal pre-tax cash cost?
Mr Quigley : I could not tell you off the top of my head.
Mr HARTSUYKER: Could you let us know?
Mr Quigley : No, probably not.
Senator FISHER: That was in the Telstra bill, was it?
Mr HARTSUYKER: I will just ask for Optus.
Mr Quigley : We have done deals with two public companies. We have to make sure that we respect confidentiality.
Mr HARTSUYKER: But, at the end of the day, you will draw a cheque that is funded by taxpayers for X dollars in nominal dollars. It will not be in present value dollars. I would really like to know what the cheque that the taxpayer is handing over is going to be. I think that is a fair question, because it will be borrowed against the taxpayers liability.
Mr Quigley : I can only tell you that we have released the information that both parties we did a deal with were comfortable with our releasing. I will have to take that on notice.
Mr HARTSUYKER: All right.
Senator FISHER: But the government has publicised the post-tax values, hasn't it?
Mr Quigley : Yes.
Senator FISHER: So to put the tax back in—how can that be commercially sensitive?
Mr Quigley : I have no problem putting the tax back in—we can probably do that.
Senator FISHER: But in terms of pre-tax values, which I understood Mr Hartsuyker to be asking about?
Mr Quigley : No, he was asking about another level of detail beyond that. He was asking for nominal dollars, not NPV.
Mr HARTSUYKER: Yes. So there were two elements.
Senator FISHER: Okay.
CHAIR: Now that Mr Fletcher and Senator Xenophon have turned up, we might have a break. I will go and get a bit of that correspondence I was taking about before. Just before we do, can I just clarify something. You gave some figures in your opening statements that I wanted to confirm for the fibre to the premises for the brownfields at June 2011. In the corporate plan it is 13,000. You had a figure over 14,000.
Mr Quigley : I think it was 14,125; I will just look it up again. It was something close to that.
CHAIR: These two I am not that fussed about, but the satellite first release in the corporate plan was 165,000.
Mr Quigley : Yes, 165,000.
CHAIR: And are you up around 220,000?
Mr Quigley : No, I am saying we believe it to be above 200,000. That is on the basis of people who we think will qualify for that satellite service.
CHAIR: It was this other one, the fibre to the premises greenfields BOT, or build-operate-transfer.
Mr Quigley : We are not using a build-operate-transfer model now.
CHAIR: That is the one I just wanted to clarify. So how are we to benchmark against that?
Mr Quigley : It would be very difficult to benchmark against that number in the December corporate plan because the model has changed and what we have to do has changed. As I said, this is demand-driven. That was our estimate of what the demand from developers would be, with all the shifts and changes between us and Telstra. What we are now dealing with is the demand that is actually coming in to us and projecting numbers on the basis that that demand is coming in. As far as I am aware we are satisfying developers' requirements to provide them with services when they will need services turned on. That is our aim.
CHAIR: So what we would use would be more a time-specific benchmark?
Mr Quigley : Yes. It is more a timing thing. I think the benchmark for the committee, if you wanted to see how well we were performing on greenfields, would be to see if we are meeting our obligations—
CHAIR: Sixty-day, 90-day—
Mr Quigley : Yes—to our contracts. If we get, for example, a request from a developer to turn a service on in Mount Newman tomorrow, we obviously cannot do that; we have to negotiate with them what is feasible and agree with them and then we have to perform to that.
CHAIR: Okay, thanks for clarifying that.
Proceedin gs suspended from 19:18 to 19 : 36
CHAIR: On the School of the Air issue, I just went back to the office and got some correspondence. To clarify, Mr Quigley has kindly agreed to take it on notice and provide some information back to the committee in regard to the ability of the School of the Air to conduct distance education programs better than they have done in the past using, where possible, the NBN service. The other issue is that I have not received that letter from the two shareholder ministers, as far as my inbox shows, so I look forward to getting that in the next couple of days.
Senator CAMERON: Mr Quinlivan, are you aware of the magazine Technology Spectator?
Mr Quinlivan : No, I am not, Senator. I am aware of a Business Spectator journal that you are probably all familiar with as well. But, no, not Technology Spectator.
Senator CAMERON: This one may be part of it; maybe the technology part. A writer called Paul Budde talks about building high-speed broadband. He says that to have a successful and high-speed broadband network you need to work on both the demand and supply sides. He calls it the trans-sector approach and says:
It is ... very pleasing that in Australia the NBN is linked to a trans-sector policy. This is clearly stated in the recently-launched National Digital Agenda.
What link is there to NBN on the national digital agenda?
Mr Quinlivan : I assume what he is referring to is an attempt by the government through the programs you referred to—the digital economy strategy—to create innovative uses of the NBN in a whole range of nominated sectors, but particularly education and health. The government has made a series of announcements since the budget, and I think there are a number more to come, around the digital productivity agenda. I assume the point being made by that writer is that they will stimulate use of the NBN and generate economic benefits.
Senator CAMERON: He goes on to say:
Comparing South Korea with Australia - or, for that matter, a similar comparison between any two countries - is futile, since political, social, economic, geographic and environmental situations vary so widely. This is also the viewpoint of the ITU/UNESCO Broadband Commission for Digital Development, the OECD and the World Bank. They all advocate that we should learn from each other but not copy each other. South Korea has most certainly been a leading case study for countries developing their own national strategies; and now the world is watching Australia.
Is that a fair comment?
Mr Quinlivan : I take it that the point being made is that countries should do what is in their own best interests and in pursuing those interests they should seek to learn the lessons from experience elsewhere but only apply it where it is in their interests. I would certainly agree with that principle.
Senator CAMERON: Mr Quigley, you invited further questions on the fibre-to-the-node issue. Again, Mr Turnbull has been raising the cost-effectiveness of fibre to the node as compared to fibre to the home. Do you want to expand on your initial comments on that?
Mr Quigley : Yes, Senator. I was commenting on the question that was raised at the last committee meeting about why we did not negotiate a deal for fibre to the node as well as fibre to the home, and I think I explained why that would probably have not been the appropriate thing for NBN Co. to have done at that time. To add perhaps a little more detail on that, to really negotiate a deal with Telstra to look at a fibre to the node or even a hybrid combination of a fibre-to-the-premises/fibre-to-the-node network you really have to do a proper architectural design for fibre to the node. It takes into account a large number of factors and it would require a great deal of work. With fibre to the node you can use various technologies such as ADSL2+, VDSL and VDSL2. The cold, hard reality for the existing copper infrastructure in our estimates—and we have not done all the detailed work so it is approximate—is that on approximately 40 per cent of our fibre footprint of the 93 per cent that we have today, if you were use to a fibre to the node, you could not use VDSL2, which means you will not get the sorts of speeds that people are often quoting. As I talked about before, some of these are very high speeds.
If I can just draw that distinction again so that everybody understands, with ADSL and copper based services the performance declines as you move further away from a node or an exchange. With the higher-speed technologies, such as VDSL and VDSL2, the rate at which it declines is even more rapid. You can get higher speeds close to the node but it declines quite rapidly. So we would be in a situation where, with a fibre-to-the-node solution—and you would have a large number of cabinets, by the way; each one of which has to be powered and thought about in terms of environmental conditions, and if you are building a fibre-to-the-node network there would be something like 70,000 of these cabinets all over the country—you would have quite big differences in performance, depending on where you are. You would also need to do some remediation of the copper, and the reality is that some of these techniques that you hear about overseas, where people talk about hundred-meg services, use technologies such as vectoring, phantoming and bonding. Each one of those requires you to have more than one pair available, which means you need to have two copper pairs for every premises you are going to put this service on. We often do not have that in Australia and the lengths are long. The only way to get over that is to push these nodes closer and closer to the end point.
The other fact that we would need to take into account if we did a design is that the watts per service in a fibre-to-the node-technology is about double that of fibre to the premises. That is something that the University of Melbourne, for example, has done a lot of study on. When you are talking about something that is nationwide, that is a big difference in energy consumption, so it is something that we would have to take into account. We need to remind people that with fibre to the premises you go from a fan site all the way to a premises—and that can be 12 or 15 kilometres—and there are no active electronics in there; it is all passive and you do not need to power anything in that. So there is a huge difference between fibre-to-the-node and fibre-to-the-premises architecture. Increasingly people are using fibre-to-the-premises architectures. People who have used fibre to the node tend to be the large incumbents who do not have a requirement to separate—they do deals with regulators. They say, 'We will broadband stuff provided we do not have to unbundle in any way.' It is a technology that tends to be used more by vertically integrated incumbents. You have even seen companies such as Deutsche Telekom, who started probably around 2004 with a fibre-to-the-node technology and who subsequently moved to fibre to the premise. They have done that shift. For all of those reasons the job of creating, designing and thinking about the architecture and the building of a business case for fibre-to-the-node technologies is a very big job. It is not that it is impossible; it is just a very big job to do. It almost certainly means that you need to have good access to the copper, which would probably mean an acquisition of the copper in some way. It was simply not NBN Co.'s direction to undertake that kind of analysis. It is not a straightforward analysis to say that it is a clear case that you could do it cheaper in these circumstances with fibre-to-the-node architecture. You have to compare apples with apples. For 93 per cent of the population, if we do it with fibre to the premise we get guaranteed performance in that footprint. With a hybrid, a fibre-to-the-node type architecture, we simply do not get that kind of guaranteed performance. So the objectives would need to be modified of what it is we are trying to do.
Senator CAMERON: Mr Turnbull has just arrived. It is good timing, because I want to take you to some of the comments that Mr Turnbull made in the debate on the fibre deployment bill. Mr Turnbull said that the reality is that the NBN will not deliver more affordable broadband. He argues a number of points on that. One is that Telstra and Optus will not be able to use the HFC networks and that is a lack of competition, so you will not be able to have a competitive pressure. In relation to broadband speeds at 100 megabits a second, in South Korea people are not prepared to pay more for the higher speeds. You have factored into your business plan that people will pay more for higher speeds. Maybe just take those two points, because there are a number of points that I want to take you to. What is your view on those two points?
Mr Quigley : First of all, on the HFC network, it is true that in the deal we have done with Telstra and Optus they will not be able to use the HFC because the deal says that those two networks will be decommissioned for the purposes of broadband. That was a choice that those two companies made in doing the deals. But I would say that overall there is a fundamental principle here. It is a question of: what is the right answer for Australia? Is it to have a uniform wholesale architecture that is built once that allows people to get onto the network with the same price issues no matter where those customers are and with the same systems and the same interfaces that provide the same services, or do you build a patchwork of networks? That is an argument that you can take both ways. There are pros and cons of that. I guess the principle on which the NBN is based is that it makes good sense for a country the size of Australia to have one wholesale, open access network so that you are building a uniform network. It is true that if you were to build it in different bits, different technologies, you could probably build it somewhat cheaper, but you have got to think about the long term there as well.
I think very few people would doubt that fibre infrastructure is going to be here for a very long time. You simply cannot say the same thing about a fibre-to-the-node network. You may put active cabinets out, which may do the job for five years or they may do the job for 10 years—you just do not know. So there is a fair chance you will be putting a large investment out, some of which might have to be scrapped at some point in time. So there is a fundamental question there for what is the right answer, given the size of Australia. The fact is that the government of the day made a decision; it instructed NBN Co. to go build a fibre-to-the-premise network, and that is what we are doing.
CHAIR: Are there any more questions?
Senator CAMERON: I am happy—
Mr Quigley : Did you want me to answer the second part of the question?
Senator IAN MACDONALD: I am not sure what the first question was.
CHAIR: We are trying to keep the show moving.
Senator IAN MACDONALD: What was it? Someone said, 'What do you think?' Was that the question?
Senator CAMERON: Are you questioning me now?
Senator IAN MACDONALD: I am just trying to understand what your question was so I can work out whether the witness—
Senator CAMERON: The point is that the witness understands, and he has a better capacity to understand than you would ever have, so I am quite happy with that.
Senator IAN MACDONALD: You know, Doug, for once I agree with you.
CHAIR: Okay. Paul?
Mr FLETCHER: I will start by checking with you about a couple of the issues I asked you about at the hearing on 16 May that I do not appear to have received answers to. If I have, I apologise, but I just want to confirm. I asked you what the percentage is of homes which would be connected using overhead cable and approximately how many thousands of kilometres there would be in the access network. Have you been able to provide an answer to those questions?
Mr Quigley : I think we provided some answers on that, but we probably did not give you precise answers because we do not know the precise answers.
Mr FLETCHER: So what is the current position on that point?
Mr Quigley : We will not know the final numbers on aerial versus underground until we have actually done the designs. We can give you approximations but that is the best we can do at this stage. I think you asked a question specifically on Bradfield.
Mr FLETCHER: I did.
Mr Quigley : We do not know the answer to those questions on Bradfield until we have done what I talked about earlier, which is that network design.
Mr FLETCHER: Is there a minimum percentage that will be overhead in the network?
Mr Quigley : No, I would not say there is a minimum percentage. We expect to do some aerial. For example, in Tasmania we have done some aerial. We are hoping we can use the maximum amount of duct that it is possible to use, but that will depend on how much duct that Telstra can make available. There will also be some circumstances in which even if there is not duct available we will choose to underground, but in other cases we may do some aerial. I would still expect perhaps 20 to 25 per cent of the access network to be aerial. None of the distribution network will be aerial, but the access network will be perhaps around those figures.
Mr FLETCHER: Is it fair to say that 20 to 25 per cent is the working assumption?
Mr Quigley : Yes. As I said, we have yet to close the loop on all of the Telstra details and build that back into the next version of the corporate plan.
Mr FLETCHER: We also had a discussion at the hearing on 16 May about the basis for the view in the corporate plan that wireless-only households will go from 13 per cent to effectively a ceiling of 16.3 per cent. I think that is what the corporate plan says, and the assumption is that it will effectively get to that number by 2025 and broadly flatten out. There was a bit of back and forth about whether we were talking about the same definition of wireless-only in two different parts of the corporate plan. I think that issue has been resolved. Tell me if you disagree.
Mr Quigley : I would have to check on that in terms of the questions on notice and get back to you on it.
Mr FLETCHER: I will put a question to you, and if you are able to answer it now, that would be helpful. What is the basis for the belief that, with wireless-only homes having grown from roughly four per cent to roughly 13 per cent in the last 10 years, that percentage will now effectively reach a ceiling of 16.3 per cent as opposed to an alternative scenario in which that percentage continues to rise? Can you explain the thinking?
Mr Quigley : I can explain the thinking in broad terms. As I said, we did quite a number of studies. We also got some of our external consultants to give us a view on it as well to make sure what we believed was consistent with a number of independent views. The tendency we are seeing now when we speak to large telcos around the world, as I have mentioned, is that they are continuing to build out their mobile networks, they are continuing to build them out as rapidly as they can and they are continuing to try and apply as much spectrum as they can and to use the latest technologies. While they are doing that, they are trying to shed traffic from their mobile networks as fast as they can. They are trying to get traffic off their mobile networks because those networks are congesting. Why are they congesting? They are congesting because of iPhones and iPads, and they are attempting to get that traffic off onto fixed-line networks and, for example, fixed-line networks terminated with WiFi. That tendency is not decreasing; if anything, we have seen it increase. In fact there was one company—I forget which analysis company it was—that said fixed-mobile substitution is now starting to happen back the other way.
We still believe there will be a significant number of wireless only or mobile only homes but it is clear that with a larger penetration of streaming video, which we know is taking off around the world, mobile networks cannot cope with it. So we will see a reliance on fixed-line networks for a long time to come.
Mr FLETCHER: If that assumption turns out to be wrong—in other words, if wireless only homes continue to grow—how much of a risk does that pose to the corporate plan?
Mr Quigley : We have done a sensitivity analysis for if the wireless only homes were a higher percentage. It has an impact but not a dramatic impact.
Mr FLETCHER: Can you share that analysis with the committee?
Mr Quigley : I will have to have a look if I can. I thought we published some sensitivity analysis in the corporate plan and I will have to have a look at whether we did or we did not.
Mr FLETCHER: Thank you. Under the deal with Optus, as distinct from the deal with Telstra, is it correct that what NBN Co. is paying for is in effect the transfer of customers from Optus's network to NBN Co.'s? You are not separately acquiring the use of Optus assets or facilities?
Mr Quigley : That is correct. We are not acquiring assets.
Mr FLETCHER: There has been some commentary that the per customer price that you are paying under the Optus deal is substantially higher than the per customer price represented by the Telstra deal. What would your comment be on that?
Mr Quigley : First of all, commentary from whom? People who might know?
Mr FLETCHER: A range of people, but let me put the question another way. What is the price per customer that you are paying to Optus as compared to the price per customer that you are paying to Telstra?
Mr Quigley : I am not at liberty to divulge that information. It is commercially sensitive information from either Telstra or Optus.
Mr HARTSUYKER: $800 million divided by 500,000 will give you $1,600, would it not?
Mr Quigley : I would suggest the calculation is not that simple.
Mr HARTSUYKER: Do you want to enlighten us?
Mr FLETCHER: Is it correct that you are paying significantly more on a per customer basis under your deal with Optus than you are under your deal with Telstra?
Mr Quigley : In our deals with both Optus and Telstra we naturally tried to keep the deals as aligned as we possibly could. That was not always possible everywhere but that was my aim—to keep the deals as aligned as possible.
Mr FLETCHER: I repeat the question. Is it correct that you are paying more on a per customer basis under the Optus deal than under the Telstra deal?
Mr Quigley : You cannot compare the two deals. You cannot take one element of the deal and compare them.
Mr HUSIC: And that is because the Telstra deal involves—
Mr FLETCHER: Sorry.
Mr HUSIC: I was just trying to close the gaps. Sorry.
Mr FLETCHER: No, I appreciate your assistance.
Mr HUSIC: I was not asking a different question—it was on that line of questioning. My apologies.
Mr FLETCHER: Can you take that on notice and come back to us with advice on that point?
Mr Quigley : I can tell you that I cannot advise you on the point because it is commercially confidential and in addition there is no direct comparison. You cannot do a direct comparison; the two deals are different.
Mr FLETCHER: When you say you cannot do a direct comparison, isn't it the case that under your deal with Telstra one of the components you are paying for that you have separately broken out is that you are paying Telstra each time a customer switches off on the Telstra network, and your deal with Optus similarly involves you paying Optus each time a customer switches off on the Optus network?
Mr Quigley : Yes, but we have two types of technology with Telstra and one type with Optus.
Mr FLETCHER: In each case what you are acquiring is a mix of broadband and voice-only customers—is that right or not?
Mr Quigley : Yes, but in one case we are paying for disconnection and in the other case we are paying for migration. In one case we are paying for a mix of two technologies and in the other case we have just one technology. You cannot compare them.
Mr FLETCHER: Let me get this clear. What you are putting to the committee is that, after you have done a deal in which you are committing to spend $800 million with Optus and several billion dollars with Telstra—money which is sourced in its entirety at the present time from taxpayers—you are not prepared to disclose to this committee the basis for any difference between the per-customer valuations that you are paying to Telstra or Optus.
Mr Quigley : But, as I said, I have made the very best effort to keep them as aligned as I possibly could.
CHAIR: Is it a value for money question? The line of questioning is in relation to value for money for the overall project or—
Mr FLETCHER: That is certainly one of the questions which is raised by this.
CHAIR: By using a direct comparison between the two deals?
Mr FLETCHER: Absolutely. It would be a standard commercial metric you would apply. If you are paying for, in effect, the transfer of a customer base, you would ask yourself how much you are paying per customer. That is a very standard way you would approach this. So my question to Mr Quigley is this. Let me be clear. Are you putting to us that there is not a material difference between the amount per customer that is being paid to Telstra and the amount per customer that is being paid to Optus?
Mr Quigley : I would say, in the context of the two deals, that we did everything we could to keep them as aligned as possible. You just simply cannot pick a number out and another number out and compare them. You need to look at all of the factors that go into making up the deals.
Mr FLETCHER: So what you are putting to the committee is that it is inappropriate to analyse this in terms of a per-customer valuation?
Mr Quigley : Yes, I am saying if you want to analyse the deals they are extraordinarily complex. We had advice from investment bankers and we had advice from a lot of people. We have done a lot of work on analysing those. It is very difficult to pull out two numbers and say we should compare those. It would be misleading of me to do so.
Mr FLETCHER: Let me put the question another way.
CHAIR: This might be the last way. I think that is the fourth way you have put the question.
Mr FLETCHER: It is an important question, Mr Chairman. I am just trying to get some illumination here.
Are you putting to the committee that, to the extent that there is a difference between the value per customer paid to Telstra and to Optus, it is because of the difference in the value NBN Co. is receiving under those two deals? In other words, are you putting to us it is management's assessment that, while you may be paying more to one than the other, that is justified by the difference in the benefit that NBN Co. is receiving as a result of the deal?
Mr Quigley : Clearly, we would only pay what we put a value on and we would pay what we thought was the appropriate amount for value. Those value equations are different in the two deals.
Mr FLETCHER: So my question to you would be: could you provide to the committee an explanation of which deal involves a higher per-customer cost and what is the value benefit that you get in exchange for the higher per-customer amount being paid?
Mr Quigley : No, because I do not understand what you mean by per cost. Are you talking about just the straight dollar value? So just in dollars? Is that what you are talking about?
Mr FLETCHER: Yes.
Mr Quigley : If one is bigger than the other? But they are not related to the same thing.
Mr FLETCHER: So what I am asking you is: if one is bigger than the other why is that?
Mr Quigley : I can tell you now. For example, one is a migration. The other is a decommission. One is for two types of technology. The other is for one type of technology. There is a whole bunch of commercial commissions, some of which I am not prepared to reveal because they are commercial deals with two external companies. But I can assure the committee that the company took a great deal of time and care in making sure that we protected taxpayers' funds in these deals.
Mr FLETCHER: And that assurance would carry a great deal more weight if you would give us the specific figures and the rationale for any difference in the figures.
Mr Quigley : I cannot give you the specific figures, because they are confidential. But what I can assure you is that there have been independent reviews—as you probably know—of the deals commissioned by the government.
CHAIR: Will they remain confidential?
Mr Quigley : In that case, I think yes. Some specific figures will probably remain confidential.
Mr FLETCHER: It was argued by Kevin Morgan in a piece on Monday that the price per customer being paid under the Optus deal is substantially higher than the price per customer being paid under the Telstra deal.
Mr Quigley : How would Mr Morgan know?
Mr FLETCHER: My question to you: is that right or not?
Mr Quigley : As I have said, I cannot answer that question in those terms because the two deals are different.
CHAIR: We might need to move on. I think that you as best an answer as you are going to get tonight. Do you have more questions?
Mr FLETCHER: I do have my questions. I do not think that I have had a very satisfactory answer at all, in fact, but I will move on.
CHAIR: And be conscious that there are about four other members who want to ask questions.
Mr FLETCHER: You mentioned in your opening statement that there are 14,256 now passed.
Mr Quigley : That is correct.
Mr FLETCHER: How many services are there in operation right now?
Mr Quigley : I would have to take that one on notice, because that would include the services in the three sites that we have in Tasmania together with the services that are just beginning on the first five release sites. It changes day by day, but we can give you a number for tomorrow, probably.
Mr FLETCHER: If you could take that on notice, I would appreciate it. Could you decompose that number by speed bracket—in other words, could you break it down into those who are taking a 100 megabit per second service, if any, those who are taking a 20 megabit per second service and those who are taking a 12 megabit per second service. Or whatever the brackets are that the retailers are offering.
Mr Quigley : We could probably do that, yes.
Mr FLETCHER: Thank you. What is the status of the special access undertaking that, as I understand it, the company is required to lodge with the ACCC?
Mr Quigley : The associated documents with the special access undertaking is a wholesale broadband agreement. I believe that we have scheduled for 19 and 20 July to have the third public consultation and review of that WBA. In parallel, we have been holding discussions—as you would expect—with the ACCC on the special access undertaking. That is progressing. We will probably take inputs from the third public consultation on the WBA and incorporate those and submit it to the ACCC in due course.
Mr FLETCHER: Do you have a target date for the lodgement of the special access undertaking?
Mr Quigley : No, I do not have a target date. That will probably be done in consultation with the ACCC.
Mr FLETCHER: The HFC networks of Optus and Telstra that are to be effectively withdrawn from service in the provision of consumer and small business broadband—
Proceedings suspended from 20.08 to 20.23
Senator LUDLAM: Apologies if I cover ground that you have already addressed. Just let me know if you have. I am interested in your statement of expectations. You were requested or required by the government to engage a panel of providers for greenfields estates and I understand that that has been your intention from the beginning. Can you tell us what the status of that panel is?
Mr Quigley: I would have to check. Perhaps Daryl could help me out here. The statement of expectations required us to have a panel of providers or suggested we could have a panel of providers if we found that was the optimum way to approach it.
Senator LUDLAM: It was a suggestion?
Mr Quinlivan: I think that is right. It was a proposition which was to be tested in the field and it was.
Senator LUDLAM: Okay, you have tested it—what was the outcome?
Mr Quigley: Our judgment was that we would be better served in meeting the objectives by having one partner with considerable experience and enough resources and skills who could assist with the greenfields job that we had to do, using our architecture and the one design. We looked at the possibility of using a number of possible suppliers of fibre to the prem in greenfields. Because of the complexity of dealing with numerous technologies, numerous systems, trying to integrate all of that would have been quite a difficult job—not absolutely impossible but quite difficult. When you couple that with the fact that there were a number of quite small players, about whom you would have to ask: did they really have the capability to do this?—and some tenderers looked at only specific locations and did not want to work on a national basis; they wanted to only work in specific locations—this would have been a very complex issue to manage. We were also under a very tight timescale, so we took the option which we thought would give us the best in terms of reliability, ongoing maintenance of the network and the lowest cost that was achievable and that would allow us to actually do the job. That is where we ended up.
Senator LUDLAM: Tell us how the tight timescale came about. Parliament had an earlier version of the greenfields bill probably more than a year ago, so you have known there was going to be a requirement to bring other parties on board. How did it end up being a tight time line when things have actually slipped quite substantially since you first started?
Mr Quigley : As I mentioned in the opening statement, we now have some 1,800 applications from developers. They are scattered across several hundred sites around Australia, some of them being in quite remote places. To provide a fibre-to-the-prem service to those places in the time frames that developers want is quite difficult to do when you do not have a network. So when I say there is a very tight time frame, we had no choice. It is not like a brownfields site where a service can continue. There is no service on these new developments so, if we do not provide it, they do not have a service. So we had to meet those time frames and it was a very tough job.
Senator LUDLAM: It has led and it will lead to accusations that this is just another example of competition being collateral damage on the path to a National Broadband Network in the sense that I think it was the government's intention that you, at least, evaluate the idea of taking on multiple parties to do the greenfields work.
Mr Quigley : We do evaluate that.
Senator LUDLAM: What can you provide the committee with by way of documentation of the process that you went through?
Mr Quigley : I would have to have a look at what I could provide. A lot of the information that was sent to us is obviously a response to a tender. I would need to check what we can and cannot provide.
Senator LUDLAM: I have been pursuing this kind of stuff for the original RFT for a couple of years, so I understand you will not be able to provide me with the bids. I am more interested in the thought processes that led you to deviate from the path where there was some expectation by the government that there would certainly be more than one provider. Can you provide any evidence as to NBN Co's thinking as to why one provider was the best?
Mr Quigley : We can certainly lay those out and provide you with a document that says: 'This is why we took the approach we did.'
Senator LUDLAM: That is great; I appreciate that.
Mr FLETCHER: What would be the cost comparison between the approach that you have taken in the existing HFC footprint and an alternative scenario in which you do not build your own new network but use the HFC network to deliver services? Could you take that on notice for us and let us know?
Mr Quigley : I can give you a preliminary answer to that. I know of no HFC network that provides a wholesale only, open broadband access platform anywhere in the world.
Mr FLETCHER: Thank you for that. The question I am putting is: if you were to take an alternative strategy of using the HFC network to deliver services, what would be the cap-ex savings involved?
Mr Quigley : Do you mean as per the objectives the government set for us for an open access, wholesale only network? Does it have to be open access and wholesale?
Mr FLETCHER: Yes, and the HFC networks are subject to the open access requirements of the old Trade Practices Act, now the Competition and Consumer Act, already.
Mr Quigley : I am not aware of either Telstra or Optus providing wholesale services on their HFC network.
Mr FLETCHER: They are subject to the access regime now.
Mr Quigley : But they have never done it, as far as I am aware.
Mr FLETCHER: As a matter of law they are subject to the access regime. In any event—
Mr Quigley : For HFC?
Mr FLETCHER: Yes.
Mr Quigley : So you are asking: in terms of technology, is that capable of satisfying the requirements that we had? I will certainly look at that.
Mr FLETCHER: Thank you. Regarding the process to appoint the party which is to build NBN Co's wireless network, which I understand is Ericsson, can you inform the committee whether all major international wireless network vendors were given the opportunity to participate in that tender process.
Mr Quigley : After a preliminary evaluation, we went to, I believe, a tender process with what we regarded as the two major vendors of wireless networks that had the capability in Australia to build this type of network.
Mr FLETCHER: Which two were they?
Mr Quigley : I am not sure whether the name of the other one is confidential or not, so let me take that on notice.
Mr FLETCHER: Thank you.
Mr HUSIC: I have a range of questions in relation to workforce issues. I used to have some great conversations with one of your managers, Kevin Brown, about workforce planning by NBN and I look forward to having similar conversations with you, Mr Quigley.
Mr Quigley : I look forward to it.
Mr HUSIC: Especially with a project as big as this, but there are two particular—
Senator FISHER: You are not a union official anymore, though.
Mr HUSIC: I know that, but I also have an interest in the workforce issues in relation to the project.
Senator CAMERON: Once a unionist, always a unionist!
Mr HUSIC: My first question is in relation to the $100 million that is being set aside for training with Telstra. Would you explain your understanding of how that $100 million is to be used and the performance indicators, if you will, where you feel Telstra will have satisfied its end of the bargain, so to speak, in training people to work with fibre as opposed to copper.
Mr Quigley : That question is probably best addressed by Mr Quinlivan, since the $100 million is actually paid by the Commonwealth, not by NBN Co.
Mr Quinlivan : Part of the agreement with Telstra includes a component for retraining Telstra staff. This was agreed in the June 2010 announcement. The detailed arrangements have been developed and Telstra have various milestones that they are required to meet in return for the payments. The intention is that they will retrain their staff to work in a new fibre world. The avoided redundancies create significant value for Telstra.
Mr HUSIC: What are the milestones that you referred to?
Mr Quinlivan : I do not have the document here. I know there is some quite detailed material. Can I take that on notice and provide you what I can?
Mr HUSIC: Sure. I am interested in NBN's model in terms of workforce and why it sees that the entire project can be done by contract and that very little workforce will be engaged in the network planning and the actual physical rollout of the network.
Mr Quigley : We do not anticipate it all being done by contracting staff. We now have roughly 800 people as employees of the company. Quite a number of those are engineering staff engaged in architectural work and planning work. We have a growing planning team. When it comes to, as I described before, the physical detailed planning that is done on a site-by-site basis, our view is that is best done by the construction company under our supervision of the overall architecture, because they will be doing the physical layout and then they will do the construction. If you separate those two, you will probably end up with not as tight an interface as you would like. So it makes good sense for the constructor to do what we call the detailed design on an FSAM-by-FSAM basis, first under our architectural rules and then under our top level design. So we are doing a substantial amount of design work ourselves. There is a very capable industry in Australia for construction and it seemed to us, unless it turned out otherwise, that we should try to leverage that capability in Australia because that is their ongoing, long-term business.
CHAIR: To consummate this issue of workforce, do you want to put some answers to questions on notice to the secretariat? I know we have been chasing this for some time and it is of interest to the whole committee. If a list of questions were to be put in, could you provide us with some feedback?
Mr Quigley : Certainly.
Mr HUSIC: Just for the record, I cannot fathom how the department would not have the details about the training arrangements.
Mr Quinlivan : We do have them. I just do not have them with me at the moment. But we would be happy to give you a description of what is in the agreement with Telstra along with as much material as we can. We would be happy to provide that.
Mr TURNBULL: Mr Quigley, can I remind you of the Commonwealth government's procurement guidelines. Are you familiar with them?
Mr Quigley : In general terms, yes.
Mr TURNBULL: They were published by the then finance minister Lindsay Tanner in 2008, setting out a number of principles on which government contracts should be negotiated. Principle 4.2 stated:
Value for money is enhanced in government procurement by:
a. Encouraging competition by ensuring non-discrimination in procurement and using competitive procurement processes;
b. promoting the use of resources in an efficient, effective and ethical manner 6; and
c. making decisions in an accountable and transparent manner.
My question is: how can the NBN Co. say that it entered into the Silcar contract consistent with this principle of nondiscrimination if, as you have conceded, you negotiated intensively with only one company?
Mr Quigley : First of all, if I could clarify the premise of your question. As a government business enterprise we are not subject to those Commonwealth procurement requirements. That does not mean that we do not voluntarily use them as guidelines, and wherever possible we do use them. Our overriding interest and objective is to get value for money for the Australian government and hence the Australian taxpayer. It is not uncommon for large telcos to enter into negotiations such as we did. I have, in a previous life as a vendor, entered into such negotiations with companies such as AT&T, who may decide under certain circumstances, even for very large bids, that this is the right way to approach the problem. We did go out, as I said before, to a broad-ranging open tender process, but it was clear after some months of effort that that was not going to get us where we needed to be in terms of the best value for this project. So we changed approach.
Mr TURNBULL: Thank you for that. Your own company's procurement strategy was approved by your board in December 2009. Is that right?
Mr Quigley : I would have to check on that. But, yes, it certainly was approved by the board.
Mr TURNBULL: That strategy has not been published, has it?
Mr Quigley : That I do not know. We have quite a number of policies on our external website. I am not sure whether that is one of them. I would have to check.
Mr TURNBULL: My information is that it has not been published on your website. On that basis, would you agree that the failure to publish that procurement strategy runs counter to the principle of transparency that the finance department has outlined and which I just read back to you?
Mr Quigley : No, I would not necessarily agree with that. First of all, I will have to check the basis on which we make decisions about what we put on our website and what we do not.
Mr TURNBULL: How can you be transparent about procurement if nobody knows what your strategy is?
Mr Quigley : Our strategy will vary depending on what it is we are trying to procure.
Mr TURNBULL: Doesn't transparency mean that you have to be open about the way you do business, and if you have a procurement strategy you publish it?
Mr Quigley : If you are talking about the construction contract, we were quite open. We went through an open tender process and then we publicly said, 'This process is going to be suspended and we are going into a different process.' We made that absolutely public.
Mr TURNBULL: I refer you now to your latest corporate report. In it you state that your procurement strategy should:
… demonstrate alignment to the essential probity, transparency and value requirements articulated by the Department of Finance and the Australian National Audit Office (ANAO).
I put it to you that on that basis you have breached your own procurement strategy with this contract because you said in your own corporate report that your procurement strategy is aligned to the values articulated by the department of finance, yet you said a moment ago that you do not believe that you are bound by those principles articulated by the department of finance and you have not complied with them.
Mr Quigley : What I have said is that GBEs, if I am correct, are not bound by those Commonwealth procurement guidelines.
Mr Quinlivan : Correct.
Mr Quigley : That is a statement of fact. What I said is that wherever we could, and where we thought it was in the best interests of getting the job done at the maximum value and protecting taxpayers' interest, we would obviously follow those guidelines wherever possible. If we thought that we could get better value or do a better job by perhaps using a slightly different process then that was the process we would follow. Once again, we were perfectly transparent about it. We made it public what we were doing and why we were doing it.
Mr TURNBULL: Has the contract been finalised now?
Mr Quigley : Which contract?
Mr TURNBULL: The Silcar contract.
Mr Quigley : It has.
Mr TURNBULL: That happened on 17 June?
Mr Quigley : I cannot tell you the exact date, but I can tell you that it has been finalised.
Mr TURNBULL: Okay. You stated in your press statement about the Silcar contract that:
… NBN Co would assume the risk of other infrastructure providers and Silcar would assume the risk of construction.
Unless you have done this earlier, and I apologise that I was detained in the House on the fibre deployment bill, can you explain to us what that means and describe what specific areas of risk NBN Co. will be responsible for?
CHAIR: We did cover it. We have some information coming back to us on notice on exactly how they calculated and managed risk.
Mr TURNBULL: Okay. I will then ask some questions following on from some of the questions that Senator Cameron asked you. He referred to competition from HFC and so forth. In your corporate plan on page 105 you have forecasted some retail prices. Do you recall those estimates there?
Mr Quigley : Yes.
Mr TURNBULL: And the estimate for the basic 12 megabits per second service is $53 to $58 a month. Is that right?
Mr Quigley : Yes. As we made very clear, these are prices that are the purview of the retail service provider; we are a wholesale company.
Mr TURNBULL: This is your best guess?
Mr Quigley : Yes, it is our best estimate.
Mr TURNBULL: You would agree with me that that is substantially more than, for example, the prices charged for broadband services of similar, and indeed higher speeds, in other broadband enabled markets, including South Korea?
Mr Quigley : As we discussed a little earlier, it really does not make a lot of sense to compare, as the OECD has said, different markets for prices.
Mr TURNBULL: Would you agree with me?
Mr Quigley : No, I would not agree with you.
Mr TURNBULL: Is 30,000 in Korean currency—the won—more or less than $53 to $58 a month?
Mr Quigley : I do not know today's exchange rate.
Mr TURNBULL: It is about 1,100 won to the Australian dollar.
Mr Quigley : Okay. How much is that.
Mr TURNBULL: So you cannot divide 30,000. It is about A$30 a month.
Senator CAMERON: That is a bit disingenuous. Give us a break.
Mr TURNBULL: Mr Quigley, do you agree with me that the retail prices you are forecasting on page 105 are substantially higher than the retail prices for broadband in South Korea and indeed in many other OECD markets, including the United States.
Mr Quigley : I know some broadband prices in the US—I lived there for some time—and, no, I would not necessarily agree with that on a like for like basis, and for what is trying to be achieved in this country, if you took some spot areas. Remember that there are a lot of ranges of prices for different types of services in Australia. So it is not so simple to do a one-off spot comparison. So I would not be prepared to agree with you on that basis.
Mr TURNBULL: Okay, I will ask you another question about price. Accepting that prices for broadband in Korea are significantly lower than as those forecast on page 105 of your corporate plan, do you believe the fact that there is extensive facilities based competition in Korea contributes to those lower prices, or do you think that competition is irrelevant to those prices?
Mr Quigley : I would have to look very carefully at the Korean market. What I think I have learnt over the years about telco prices is that they are very complex. One needs to look in detail at what is being offered, what the duration of the contracts are, whether or not the modems are thrown in, what are the guarantees on download capacities, what are the speeds, are you doing MDUs, are you doing SDUs and how much government subsidy is in there. It is a complex question.
CHAIR: I am conscious that there are two more people to ask questions. If we could wrap it up, and then there are opportunities for questions on notice.
Mr TURNBULL: Perhaps if I could just ask one question of Mr Quinlivan from DBCDE, because I think this is in your area. The universal service payment that Telstra is receiving has been the subject of a lot of criticism by other telcos, who have contended that it is about twice the level of the existing payments and represents an extraordinarily generous payment to Telstra, particularly given that it is paying Telstra to maintain a copper network, which you plan to overbuild and render obsolete and cause to be decommissioned. Can you tell us whether you agree that this payment is in fact twice or substantially more than the existing payment? Also, what is your view of this industry criticism? I ask this because there has been very trenchant criticism and the suggestion is that this is a sweetheart payment as part of a package of payments given to Telstra in order to get them to vacate the field and not compete with the NBN with their HFC network and other fixed lines.
Mr Quinlivan : I am not sure the criticism has been trenchant, as you have said. We have not been on the receiving end of that criticism. This might be slightly apocryphal, but my understanding of the origins of the current number is that there was some rigorous analytical work done in the late 1990s that generated a cost of somewhere in the order of $550 million to $600 million for the then universal service obligation. The then minister thought that was too high, which is perhaps not a surprise, and decided the cost of the USO would be $250 million. The current number, which I think has been stable for several years, has been derived from that number and has been adjusted for market trends over time. The current number bears no relation to the cost of providing that universal service obligation. It is based on an arbitrary number developed quite some time ago which has just been adjusted over time—sometimes for probably quite defensible reasons; at other times for pragmatic reasons. The number that has been agreed with Telstra has been based on a serious analysis of the costs.
Mr TURNBULL: Sorry—it has been based on?
Mr Quinlivan : It has been. There was, in the suite of documents that was released last week, a document by a financial consultant, who was engaged by McKinsey, which estimated the cost of the various categories of universal service obligation payphones, the standard telephone system and so on. In that document there is an estimated range of costs of providing those services, and the numbers that have been struck with Telstra by the government fall squarely in the range of values identified in that study.
Mr TURNBULL: That study has been published?
Mr Quinlivan : That study was published on our website with all of the documents on the day the Telstra deal was announced, so it is freely available. Perhaps the reason we have not been on the receiving end of the criticism that you refer to is that the industry people who we deal with—perhaps they are the same ones who have been talking to you—are aware of that, have dealt with it, understand the origins of it and accept that it is a rigorous piece of work.
Mr TURNBULL: There was quite a big story in the Australian quoting a whole series of people from the industry making criticisms—
Mr Quinlivan : Yes, I am well aware of that, but we have also spoken to all those people, who seemed quite relieved that the number was as small as it was. I think there are a variety of ways of looking at it and it depends a bit on the audience.
Senator FISHER: Regarding the existing Optus cable that passes about 1.4 million homes in Brisbane, Sydney and Melbourne—and I understand it could be upgraded to top speeds of 240 megs a second—will NBN Co. decommission that and start again or will you upgrade and utilise?
Mr Quigley : It is not up to us as to whether we decommission; Optus will make that decision on their HFC plant. I said a little earlier that some of those HFC facilities will be used to continue to supply mobile base stations and perhaps business customers, so I cannot tell you which parts will be decommissioned and which will not. In terms of speeds available on HFC, I have not done an analysis of what is practically available—never mind the headline speeds of what people talk about is possible. As I said before, with us using the latest LTE technology, we are providing a 12-megabit per second service on cell sites. You will hear top speeds talked about of 100 meg and more. We have to be very careful about what is really possible. The other point that I would make again is that HSC is not so easy to provide a wholesale open access solution on.
Senator FISHER: Given that decision is for Optus, whether it is decommissioned or upgraded depends on the cost of whichever is therefore embedded in the Optus deal?
Mr Quigley : Optus did their own calculations on options that are available to them and decided that they wanted to do a deal with us at a value that was—
Senator FISHER: Is there any set transaction or agreement between NBN Co. and Optus or the government and Optus with respect to that existing cable and what happens to it?
Mr Quigley : I cannot speak for the government, but, in terms of NBN Co., no, there is no other deal, other than the one we have announced.
Senator FISHER: Townsville was to be the first mainland rollout site, wasn't it?
Mr Quigley : As I might have said before, there were different times at which different mainland sites—
Senator FISHER: Townsville was to be before Armadale, wasn't it?
Senator CAMERON: Give the witness—
Senator FISHER: There are about eight minutes left, Senator Cameron, and Mr Oakeshott is the chair. Mr Quigley, Townsville was to be before Armadale, wasn't it?
Mr Quigley : At one stage in the rollout, it looked like Townsville was going to be completed before Armadale.
Senator FISHER: And why wasn't Townsville completed?
Mr Quigley : There was a cyclone there.
Senator FISHER: What damage did the cyclone do to the infrastructure that was rolled out at that time?
Mr Quigley : It brought down a number of pieces of fibre infrastructure that we had already put in place. But, even more importantly, access was quite difficult for quite some time, which we found quite understandable. There were other priorities for contractors doing civil works in Townsville.
Senator FISHER: I am not asking about that. I am asking about the damage that was done to the infrastructure, the NBN infrastructure, already laid at the time Cyclone Yasi hit.
Mr Quigley : I can send you some photographs if you would like, Senator.
Senator FISHER: How much infrastructure was laid and to what extent was it damaged? Maybe it was totally wiped out. I am asking: to what extent was it damaged?
Mr Quigley : I will have to check. It certainly was not totally wiped out. There was damage done to a number of fibre sections. As I said, I can send you the pictures if you would like to see them.
Senator FISHER: Can you please quantify the extent of the damage and the extent of—
Mr Quigley : I can tell you how many segments were damaged, yes.
Senator FISHER: You can now?
Mr Quigley : No, I can go and look it up.
CHAIR: That is on notice.
Senator FISHER: In quantifying that can you give us a sense of proportion—if you are going to talk segments, for example? Was it three segments out of 10? Was it 10 segments out of 10 that were damaged?
Mr Quigley : It was not 10 out of 10 otherwise it would be all of it. I will certainly try to provide that information.
CHAIR: I think NBN and the CEO have agreed to take that on notice.
Senator FISHER: Thank you. Can you quantify the infrastructure which survived Cyclone Yasi in Townsville?
CHAIR: I think NBN and the CEO have agreed to take that on notice.
Senator FISHER: I hope so. I am just making sure, Chair.
Mr Quigley : If I could quantify how much was damaged I would probably be able to quantify how much wasn't.
Senator FISHER: I would hope so. So thank you. Are you familiar with head agreements reportedly reached with the ETU and/or the CEPU and companies to employ workers to roll out the NBN?
Mr Quigley : No, I would have to take that one on notice. If you have a specific question I can try to answer it.
Senator FISHER: Were you consulted by anybody in the process of the drawing up of those agreements?
Mr Quigley : I have obviously had discussions with Mr Brown, who is our head of HR and corporate services, who had the prime responsibility for the EBAs that we have entered into.
Senator FISHER: Are you talking about EBAs for NBN Co. workers?
Mr Quigley : Yes, I am talking about EBAs for NBN Co.
Senator FISHER: I am asking about agreements between the various unions and companies external to the NBN to engage workers to build the NBN. I am asking you whether you are familiar with or were consulted at any stage in the preparation of those.
Mr Quigley : No, that is a matter for the companies and the unions. It is not a matter for me.
Senator FISHER: So you have not been involved?
Mr Quigley : No, I have not been involved in—
Senator FISHER: Has Mr Brown been involved?
Mr Quigley : Not that I am aware. That is an issue for the company and the union.
Senator FISHER: Fine. That is why I am asking.
Mr Quigley : If we believe that some relationship is going to have an impact on us, then of course we would inquire about that. Mr Brown may have had discussions. Unless that is the case, I would not imagine he would.
Senator FISHER: Can you bring Mr Brown with you next time you appear before this committee so that he can help us with the sorts of questions that I have—and, indeed, the sorts of questions that Mr Husic might have, given your references to his knowledge?
Mr Quigley : There could have been many questions that—
Mr HUSIC: You have in fact asked stacks more questions than I have on this issue and I defer to the Chair's wish that we limit the questions.
Senator FISHER: Thank you for my entire four-and-a-bit minutes of questioning tonight, Chair.
CHAIR: No—have you got more?
Senator FISHER: Oh, no.
CHAIR: Senator Macdonald?
Senator IAN MACDONALD: The two of your senior executives resigned recently. What were their names? Flannigan was one. Mr Certerio?
Mr Quigley : Mr Certerio I think worked for Mr Flannigan.
Senator IAN MACDONALD: Not for NBN?
Mr Quigley : Yes, but you are saying two of mine, so—
Senator IAN MACDONALD: Two of NBN's senior executives.
Mr Quigley : I would call senior executives people who are in the senior management team.
Senator IAN MACDONALD: Did these people resign? Were they on a contract?
Mr Quigley : I would have to check on that.
Senator IAN MACDONALD: Okay, could you do that. I'll note it. I am interested in what their contract said about them resigning before their contract expired: what, if any, payments they were given when they left or what penalties they paid for leaving early. Could you get me all that information on notice?
Mr Quigley : I will check with our HR people to make sure it is proper to do so but, yes, I will try to do so.
Senator IAN MACDONALD: It is proper to do so. Whether you mention figures is another thing, but what their contract said—
Mr Quigley : I would have to check but I understand that when it comes to employment contracts between NBN Co. and its employees some of that information is confidential. Even the terms of the contract are confidential.
Senator IAN MACDONALD: Did they get paid a lump sum at the time of the termination?
Mr Quigley : We have various arrangements on different contracts. It depends on the circumstances under which a person leaves or under which their contract is terminated.
Senator IAN MACDONALD: Can I just refer you to something by way of Senate experience. When David Hill left the ABC and resigned well before his time, he was paid a lot of money and—
Mr Quigley : He was the CEO, was he?
Senator IAN MACDONALD: He was the head man at the ABC.
Mr Quigley : Well, you were talking about somebody who is three levels down in the organisation.
Senator IAN MACDONALD: I am just giving you the example that shows the Senate usually requires answers to those things. We did in Mr Hill's case, and this committee, I imagine, would in this case. I just want to know what they were paid for leaving early, if they were paid anything. So could you take that on notice.
Mr Quigley : I will take that on notice, yes.
Senator IAN MACDONALD: You said before that documents were taken commercially—
Senator CAMERON: Could I just interrupt for a minute?
Senator IAN MACDONALD: I am afraid I have two minutes, Doug, and you have had a lot more time.
Senator CAMERON: I would like you, Chair, to consider whether individual employees' rates of pay and individual employees' termination payments fit within the terms of reference. I would like you to have a look at that, thanks.
Senator IAN MACDONALD: I would also be interested in whether there was any confidentiality imposed on them when they left.
CHAIR: In response to that, so that we are clear: this is an issue that the committee does want to look at with regard to the two individuals involved. Therefore I think it is a fair question. It has been taken on notice, and I am sure Mr Quigley will provide as much information as commercial-in-confidence arrangements allow.
Senator IAN MACDONALD: On your arrangement with Telstra and Optus, which we have been talking about: did they anticipate that a certain number of customers would be transferred?
Mr Quigley : With Optus, for example, the $800 million NPV number, which is based on an assumption of how many customers would come across onto the NBN, was made by Optus—how many customers they have, how many customers are expected.
Senator IAN MACDONALD: Could you give us, in both cases, the number of customers you anticipated coming across.
Mr Quigley : Certainly the numbers of customers have an influence on how much both companies are paid.
Senator IAN MACDONALD: You must have had an expectation of a certain number of customers coming across. I want to know either how many did come across if that is the end of it or, if it is still happening—as I am sure it is—
Mr Quigley : It has not started yet, Senator.
Senator IAN MACDONALD: what you anticipate; what forward planning you did on the basis that X number would come across. I want to know what your X number is, in the case of both Telstra and Optus.
Mr Quigley : I think that kind of calculation is the one I referred to earlier, which we will now, having completed the Telstra deal, the Optus deal, the Silcar deal and done a number of other things, look at again in our overall corporate plan, which we will reissue in due course.
Senator IAN MACDONALD: But in doing the deal with Telstra you must have had an anticipation that X would come over, and I want to know what your anticipated gain was from whatever you paid them—okay?
Mr Quigley : I understand. We may or may not be able to provide that information, depending on what can be calculated from it. We are in a process where I have to be extremely sensitive. Telstra is going through a shareholder vote. It is a public company. I just have to be careful with that.
Senator IAN MACDONALD: Just finally, in responding to Mr Fletcher you indicated you could not answer because of commercial-in-confidence. I think there is a ruling from the Senate, and Senator Cameron will no doubt correct me if I am wrong, that it is not sufficient for witnesses to claim commercial-in-confidence—and perhaps this is freedom of information I am talking about. You actually have to establish why it is commercial-in-confidence. Bearing in mind that this is taxpayers' money, and a helluva lot of it, could you perhaps on notice, because we do not have time now, establish for me, having completed the deals and having paid the money, what is now commercial—
Mr Quigley : We have not paid the money.
Senator IAN MACDONALD: When do you pay the money?
Mr Quigley : Progressively as we use the infrastructure and as the HFC, the copper network, is decommissioned.
Senator IAN MACDONALD: But the calculations for payment of the money are completed, the tenders are completed, or the buying arrangements. I would like to know now why you are claiming that that is commercial in confidence. As I say, the Senate just does not accept you blandly saying that it is commercial in confidence. It may well be commercial in confidence, but I would like you to establish, perhaps on notice if you cannot do it in 20 seconds now, why you are claiming that those contracts, having been completed, are commercial in confidence.
Mr Quigley : I would be happy to do so on notice.
CHAIR: There is one final question that we have missed that we did want to get on the record as far as option B. If the Telstra shareholders for some reason reject agreements reached, is there an option B in place—and in as short a time as possible—if so, what is it?
Mr Quigley : Clearly, in order to value the deal with Telstra we had to have an option, a business case without the deal, and we have calculated the net benefit of that to us. But it is not a plan that we are actively working on. We are assuming that the deal will be consummated. As I said, that has to have ACCC approval, it has to have shareholder approval, and there are a number of other CPs to be met. We are working actively on that. So we do not have, if you like, an up-to-date alternate plan and I think that it would be remiss of us to do so at this point in time. If we were to hit that eventuality, we would obviously do some work on it.
CHAIR: Thank you for attending to assist the committee and for running over time this evening. You have been asked to provide a range of additional information and as much as possible, if you could forward it to the secretariat no later than Friday, 22 July that would be appreciated. I know that there are members of the committee who may have further questions. They will be sent in through the secretariat and where possible could you respond to those in good faith as well?
Mr Quigley : We will do so.
CHAIR: Thank you both very much for your attendance this evening.
Resolved (on a motion by Senator Macdonald):
That this committee authorises publication, including publication on the parliamentary database, of the transcript of the evidence given before it at public hearing today.
Committee adjourned at 21:07