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Role and potential of the National Broadband Network

CHAIR —Welcome. Although the committee does not require you to give evidence under oath, I should advise you that the hearing is a legal proceeding of the parliament and therefore has the same standing as proceedings of the respective houses. We do not have a written submission to the inquiry from you, but would you like to make a submission to us now and then we will have a question and answer session on the basis of that?

Prof. Coutts —Okay. Just for background, I was on the original expert panel, which we refer to as NBN1, the first variant, so was intimately involved in the processes of the initial policy development. What came out of that it was the genesis of the current policy, NBN2, as we refer to it as. Since 7 April 2009, I have had nothing officially to do with the implementation of the policy. I have from time to time assisted clients to, shall we say, grapple with the complexities of what was likely to come out as a result.

Most people would know that I have certainly been an advocate of the NBN policy. My personal view is that it is probably a one in 50 years or more opportunity for this country to not only achieve a ubiquitous broadband network but address coverage 100 per cent—not just the cities. It is very much a game-changer in terms of the competitive framework. It presents a lot of opportunities. At various conferences where I talk, people continually ask, ‘What about this and what about that?’ and I say, ‘You’ve got to realise that the NBN is very much a work in progress, so to speak,’ and, wherever I can, I encourage people to speak up and voice their concerns. There are myriad issues that are still uncertain, but hopefully we will get to a stage where, as a community, there is perhaps broader embracement of the direction so that we can focus on the things that we need to get right. I have not made an official submission because I think that is up to everyone around Australia to do now.

CHAIR —I appreciate what you are saying in terms of your own involvement to date. To some extent, I suppose you would appreciate from our terms of reference that this inquiry is attempting to look beyond those problem issues that are being debated around the infrastructure rollout and the structural organisation of that, to the sorts of things where you are saying that this is the opportunity to make that quantum shift and change. So I would be interested to hear, from your own, clearly international experience, what you would say to people about where you see the key strategic significance of this form of infrastructure in terms of transforming health, education, regional economies and export markets. I think your experience and how you see that would be very interesting for us, and if you see from international experience or even from some of the national to-date experiences some warnings for government about what it needs to make sure also happens at that point to maximise utilisation.

Prof. Coutts —I am going to Sydney later this afternoon and doing a presentation on a similar type of issue. If you look comparatively at what other countries are doing in the NBN space, there is a complex balance of potential forms of government intervention to the roll out of broadband. Characteristically, they have been different, particularly in the three regions of Europe, Asia and North America. But if I can just put it simply, I guess the big one is the balance between supply-side and demand-side interventions. By any measure, the supply-side intervention of the current NBN is large, and certainly in terms of quantum per capita it is larger than most OECD countries. Though I do know from contacts that many of those countries are saying, ‘I wish we would do that.’ There are a lot of reasons for that but I will not go into them. The other thing, which is my concern at the moment, is that there is probably insufficient leadership or intervention on the demand side. A number of countries, such as Korea and Singapore—in its standard Singapore style—have been doing a lot more thinking about that market intervention side.

CHAIR —Can you give us an example of something that would epitomise that for you?

Prof. Coutts —Western thinking is that if we talk about the opportunities for NBN to change education delivery or health delivery then hope ‘they’ will realise that it might be a good idea. I am not sure I am completely confident that that is going to happen. The other area that I am concerned about is that, while there is a lot of opportunity for innovation in terms of new ways to do things both in the public and private sector, the innovation infrastructure, ranging from commercialisation experience to venture capital et cetera, is appalling in this country.

There are a number of areas in what I would call the demand side that really warrant attention. I am not saying where that should be coming from—specific departments—but it concerns me that if we focus too much just on the supply side we will not be taking the best advantage. An example of where there has not been enough attention to the demand side is Japan. While they put in the big pipes, I do not think they really looked at the re-engineering of service delivery of their health sector, unlike Korea, which I think has taken it more step by step and has had marked interventions. So on the demand side I am worried.

CHAIR —You mentioned education and innovation. Have you got any perspective on regional development? The big thing for Australia is our geographic size and trying to get regional economies reinvigorated. Have you seen—

Prof. Coutts —The key things about NBN and regional development were the two components of the policy. One is government investment in backhaul that has been a problem for decades. Unfortunately, not until recent times has it been adequately recognised, even though I know people in the regional areas have been crying out about this issue. The second part is the access pieces, where the advanced wireless and satellite comes in. The important feature of the proposed NBN is that it is very much an integrated or ubiquitous approach. That has got its own challenges, though. I think it has the potential, yes, to really bring impetus to regional economic development.

But, again, that is going to take a lot of proactive education because you cannot rely on people reading newspapers or watching television and saying, ‘That’s a good idea!’ unless we do intervene there. I have got concerns, which have been expressed, that it will mean that when people in regional Australia get the broadband they can buy even more online from overseas. That does not necessarily help your regional economic development. So you have really got to address the demand side as well as the supply side, and there is not enough happening.

CHAIR —One of the things that have been raised with us—and we have seen it, I think, to some extent ourselves—is that, where there is leadership in a region, people who ‘get it’, whether it be local government or the business chamber, are driving an agenda. I am wondering whether you have seen models which you think do work well in that way.

Prof. Coutts —A number of you may recall that the previous government had a campaign of going around regional Australia, and that was very much drawing on the experience in Canada with Nortel. They developed some ‘must haves’ for regional economic development, and one of them was a regional champion. You could take two communities that had similar socioeconomic backgrounds and one had a regional champion who ‘got it’ and could talk with the community and things happened. Whereas with another community—no. It is so important.

CHAIR —You would say that that leadership has been really critical.

Prof. Coutts —Absolutely.

Mr NEVILLE —Professor Coutts, our last term of reference is the optimal capacity and technological requirements of the network to deliver the various outcomes that we seek—those outcomes being the other nine outcomes that we were seeking. Is it your opinion that the NBN pushes far enough out into regional Australia to achieve that last term of reference?

Prof. Coutts —Again, I would refer you to the quite expensive implementation study report. It actually details the dramatic increase in the capital costs. Once you try to extend the optical footprint beyond 85 per cent, 90 per cent, 93 per cent, the cost goes up very quickly. So, again, like all these things, it is a balancing act. How far the footprint should extend is quite a complex consideration and dependent on the nature of the community, not just the density but their proximity to major highways and other forms of major infrastructure. I think the balance of ‘about 90 per cent’ was right. The paradoxical problem is that, as far as possible, you roll out the optical footprint but, inevitably, you will get to a point where there is a notional border. This side of the border you have the optical footprint and you can do all these marvellous things and then those people over the other side have to make do with fixed wireless and satellite. That is the other issue I have talked about. Unfortunately, Australia has broadly had a poor experience with satellite. I think the experience has, shall we say, not been at international world’s best practice due to a whole number of reasons. So when you mention satellite to some people in various states and regions it is like you are somehow suggesting they are going to hand over their first born. They certainly consider it a technology of last resort. At the conference last week I was saying that, in part, that is because the satellite community—that is the suppliers, international supplies et cetera—do not communicate what they can do. They are too quiet. Engineers are like that; we are very quiet and we just follow orders.

Mr NEVILLE —In an article of yours on WiMAX, you are somewhat critical of the fact that certain bands of the spectrum are being tied up by AUSTAR and Unwired. What are the implications of that coming off the end of the fibre going into those country areas we have just talked about? Would those country areas be enhanced if those WiMAX bands were available? Or are you talking more broadly than specifically?

Prof. Coutts —One of the critical things for fixed wireless is the potential availability of the bands of spectrum—for example, if you look at the 2.3 gigahertz band, you will see that it is essentially split between three lots, of which some is still held by government in remote areas. Until recently, an amount was held by AUSTAR, which has now actually been traded to NBN Co. There is a remaining amount held by Unwired, all part of the spectrum that NBN Co. want to use for fixed wireless. There are several different approaches. If you want a consolidated national approach through NBN Co. then they need to consolidate spectrum holdings. That is what I understand they are in the process of doing.

Mr NEVILLE —I suppose my question in simplistic terms is: has the government retained sufficient spectrum to finish the job effectively beyond the fibre?

Prof. Coutts —As you probably know, a lot of spectrum is becoming available over the next few years, not only through the digital dividend process but also other bands are being opened up. But then that is also a balance. The process of allocation of spectrum is, again, a balance of other economic demands for spectrum.

Mr NEVILLE —Are there optimal bands that would be better than others? I did not express myself very well. Are there certain bands that would optimise the extent of the NBN in country areas, if they could be made available?

Prof. Coutts —Certainly, the lower bands below a gigahertz are preferred because of the extent of their coverage. Currently, they are some of the bands that mobile operators use and also, prospectively, the digital dividend 700 megahertz band is becoming available.

Mr STEPHEN JONES —You spoke a couple of times about the importance of government doing things on the demand side of the ledger. There may be some people who might say: ‘Why has government got a role in this? Isn’t it a bit like government telling people to make more phone calls or listen to more music? Why should the government be engaged in stimulating demand for a new utility?’

Prof. Coutts —Again, when I use the term ‘market intervention’ there is a whole range of options. It might be by government illustrating best practice, for example, in the delivery of government services. In a sense, one form of market intervention would be for it to be seen as taking advantage of this capability and demonstrating what could be done. The other form might be in assisting in the piloting or trialling of different service delivery models in certain regions. There is a whole range. They do not necessarily involve a lot of money per se. It is essentially a government leadership position.

Mr STEPHEN JONES —The terms of reference to this inquiry, I am not sure if you have had the opportunity to have a squiz at them—

Prof. Coutts —I have.

Mr STEPHEN JONES —They essentially go to looking at how the NBN can contribute to a range of economic and social activities. I would be interested in your view of what the big calls are that the government has to make from here on in to ensure that some of these benefits can be delivered.

Prof. Coutts —I think to get a stronger engagement, as I said, between the health and education sector in what the NBN means. At the moment, the business community is still split on the NBN issue. I think a lot of it is about being proactive in the communication of what the various sectors could be doing. I appreciate that they have had their hands full, so to speak, on the NBN. I can see the argument that NBN Co., as a wholesaler, says: ‘I’m a wholesaler. I offer services to retailers. Therefore, it is not up to me to talk about what the new services ought to be.’ If you look at who the service providers are and they are some of our ISP friends—nobody in the room—they never strike me as those who look perhaps 12 months out, let alone five years out.

Part of the issue is that one of the benefits of the wholesale separation is to ensure that you get competitive access. On the other hand, when the monopoly wholesaler says, ‘What happens in the market is just up to others’ that leaves me a bit nervous too. They obviously have a vested interest in seeing demand realised as well. I get the sense that they feel a bit hamstrung in the way that they can involve themselves in helping to expand people’s horizons in what demand could be.

Mrs PRENTICE —You have previously said that NBN cannot be considered complete until the needs are met of the 10 per cent, or two million people, who are going to miss out. Whose role is that and how is it going to be completed?

Prof. Coutts —I have seen it as one of my missions since the NBN was started to speak up for the 10 per cent, now the seven per cent. I said in Sydney last week that I thought NBN Co. was doing a very credible job in that 93 per cent. I am not as confident when it comes to the seven per cent.

Mrs PRENTICE —They said last week that those two million people would miss out.

Prof. Coutts —Who said?

Mrs PRENTICE —NBN Co. It was part of the bill in parliament last week.

Prof. Coutts —I know what you are talking about. I am not talking about the amendment that talked about uniform pricing across technologies.

Mrs PRENTICE —There were 64 amendments and one of them acknowledged that 10 per cent of the population would miss out.

CHAIR —Miss out on what, Jane?

Mrs PRENTICE —On being connected to NBN.

CHAIR —No, I do not think that is correct.

Prof. Coutts —That is why I am hesitating. As I understand it, last week in the Senate there was an amendment moved so that there would be a requirement for uniform pricing across not just the 93 per cent but across all products across all technologies. That was subsequently amended so that uniform pricing applied to the basic NBN product and applied across technologies.

Mrs PRENTICE —So you understand NBN Co. is going to connect to every single premise?

Prof. Coutts —With one technology or another, yes—93 per cent will be in the optical footprint and the other seven per cent will be under advanced wireless and satellite. Those seven per cent will receive the same pricing of the basic 12 megabit product that is available to people in the 93 per cent.

Mrs PRENTICE —Is that what you will be talking about tomorrow in Sydney?

Prof. Coutts —No, I will actually be talking to a conference on OSS and BSS, the operating systems of telcos, about how they get the customer on board, bill them et cetera. I am giving a presentation on essentially the genesis of the NBN, how it differs in different countries and how that has implications for the design of OSS. In the case of Australia, NBN Co. have just announced they have contracted IBM to be their prime for their OSS. Good luck to them.

Mr HUSIC —You discussed with the committee a few moments ago—and this is on the public record—that you do not see that there are necessarily technological limitations, if I can put it in very broadbrush terms, with satellite but there have been other factors that have led to the brand being damaged.

Prof. Coutts —Yes.

Mr HUSIC —What do you think those issues are and how can they be remedied? I notice that you have been quoted publicly in an article, which has been distributed to the committee, written by Daniel Hurst in I think the Sydney Morning Herald. The article states:

Professor Coutts said he held the Australian telecommunications industry responsible for the lack of understanding about broadband issues among economists and the broader community.

I will play the devil’s advocate. Is that being excessively harsh? What do you think could be done by the industry to better educate people? Do you think their own company interest is preventing us from having a better understanding about the benefits of NBN? So there is the question about satellite and then the question about what could be done to lift understanding by the industry.

Prof. Coutts —On the second question, I think it is a combination of things. I refer to an article written by a professor of economics from the Melbourne Business School. His name has slipped my mind for the moment. He commented that as he looked around he saw that everyone on broadband was using wireless and he could not understandwhy we needed a fixed NBN. I suggested he have a chat with another colleague of his at the University of Melbourne, Professor Rod Tucker. Probably he is thinking that when people are on their Wi-Fi at home they were wireless as well as wireless broadband. What got my ire up was that here we have someone making statements about the NBN who seems to be less informed than many of the people in the street I talk to about wireless versus wired. The other related issue is that it is a concern in something like this that many people, both suppliers and academics, are unwilling to speak up because of the nature of the political debate.

Mr HUSIC —Why is that, do you think?

Prof. Coutts —I have heard it said, ‘My grants could be threatened.’ Suppliers say, ‘If I say I am not happy with NBN Co. I will not be considered.’ It is the usual things that have happened. People are concerned that if they say anything that is potentially negative it will rebound on them.

CHAIR —Or, as you said earlier, overall they may be positive but if they want to raise a negative aspect that could be interpreted as opposition.

Prof. Coutts —That is right. Unfortunately in Australia, as I have said to people, we have imported what they call wedge politics, so you are either totally for it or totally against it. Most things in life are never like that.

Mr HUSIC —And satellite? The reason I ask about that is because, as you have already indicated, NBN is considering the use of satellite to address the issue of beyond where fibre to the home can reach and you probably need either wireless or satellite.

Prof. Coutts —Most definitely; in fact that is part of the plan. NBN Co. in their corporate plan et cetera have laid out the proposition to launch two Ka-band satellites and also have an interim satellite service. So satellite is certainly part of the plan, and NBN Co., are well aware of the background to satellite in Australia to date. In many ways they want to see the satellite service as it is introduced very much as ‘satellite gold’—in other words, what satellite could be as opposed to what the previous experience has been. In term of the factors affecting satellite in Australia compared to satellite in North America, purely the population difference has meant that there have not been the same number of satellites with capacity launched above Australia.

The example that is used by most broadband satellite providers at the moment is IPSTAR out of Thailand. Interestingly, when Mr Shinawatra launched IPSTAR everyone thought he was crazy, but in terms of the space infrastructure it was leading technology, particularly for this part of the world. In a sense Australia has been a beneficiary; in fact, if you look at IPSTAR, in the order of 40 per cent of the capacity of that satellite is used in Australia. So the profits, shall we say, of that are actually coming from Australia, assisted by the ABG program, of course—but that is another matter.

The other problem is the nature of the government intervention, which was to subsidise the installation. Again, the implementation study addressed this. The need was to address not only the installation but also the bandwidth cost to essentially get effective parity between a satellite service and the city DSL service. When it was first started, when it was the early days of broadband in metro, probably the ABG program was on a par. The trouble was that, given it was a government program, it fell behind what the market could do in terms of the progressive upgrading of the DSL technology. At the time they introduced the change in the ABG program last year that partly redressed that disparity.

Mr SYMON —Professor Coutts, I would like to go back a bit. You spoke earlier about other countries and their fibre installations. You mentioned Singapore and Korea, both of which are a lot smaller than Australia. Are there other countries of a size similar to Australia which are undertaking plans to install countrywide fibre networks?

Prof. Coutts —Of geographic extent?

Mr SYMON —Yes.

Prof. Coutts —Not to the same degree, no. In Canada, it is very much a case of a big differences from province to province in approach, and you have not seen government intervention there. I think the US government baulked at the prospect in the US environment. So those are two policy approaches, shall we say, to how government intervenes to address underserved areas, and that was the approach of the previous government. The problem with that is that it is never ending, and the interventions are very hard to achieve. The US has gone for a program of serving the underserved areas using wireless, so I think you have to be very careful trying to compare what we are doing in Australia with the US.

CHAIR —Am I right that their original proposal was to roll out fibre, but it could not get through Congress?

Prof. Coutts —When you say ‘their proposal’, this was a—

CHAIR —Sorry—the administration proposal, which—

Prof. Coutts —That is right. I have probably read the same articles by Paul Budde. I think they were enthusiastic about a whole number of policy initiatives, but they were worn down by the political realities in the US.

Mr SYMON —So, as in many parts of the world, services do not get delivered to some less populated or more remote areas unless there is government to help along the way.

Prof. Coutts —That is right. There are even rural areas in Hong Kong, would you believe—I could not believe it—so in every country they have their perspective, and rural areas are disadvantaged by the fact that the cost to provide broadband is a lot larger.

CHAIR —Beyond that—I think it is important to add this, and I will be interested in your perspective—is also the fact that the age of our copper network meant that you increasingly had areas in regions and, indeed, in cities where it had reached its limits; there was very little going back and upgrading. We certainly have evidence that there are suburbs within major city footprints where people cannot get ADSL or wireless. Would that be a fair assessment from your experience?

Prof. Coutts —If we contrast Australia with, say, Malaysia or India, Australia had a substantial copper infrastructure, but the actual costs of just maintaining that copper infrastructure—not improving it; just maintaining it—are in the order of $1 billion per annum, although I do not recall the current figures. In certain areas along the coastlines—in Queensland, for example—there are endless problems with the copper. I left Telstra back in 1993, and we were talking in Telstra then about how we were going to replace the copper network with an optical network.

CHAIR —Considering our terms of reference, I think it is an interesting issue for us in that a lot of the issues around the digital divide were leaking beyond what might have been considered the traditional rural/remote argument into suburbs and cities, whose people were saying, ‘We’re not able to access these education and health opportunities either.’

Prof. Coutts —Yes, the outskirts—there are a number of black holes. Several years ago in Adelaide 55,000 households, I think, were effectively in black holes. It was a combination of being beyond a four kilometre exchange, pair gain systems, et cetera. There was a similar story in many of our other cities.

Mr SYMON —I think you are the right person to ask this question of: we talk a lot about the speed of fibre; is there such a thing as an ultimate speed that can be transmitted over fibre, or do we not know that yet?

Prof. Coutts —I have a saying: what is more important is to ask the right question rather than the answer. It is unfortunate that we have had this preoccupation with speed because, in a sense, when you move to optical to the premise, 100 megabits per second comes with the decision. So you are not actually putting in the optical network to get 100 megabits per second. It is communicated the wrong way around. Certainly the speeds that NBN Co. have demonstrated and Korea has demonstrated in the lab a promise of many gigabits per second, and it could certainly go higher than 10 gigabits per second. There are many other factors which affect the speed experienced by the user. The classic situation is that you could be have 100 megabits per second to your home and go to look up or interact with a website but do so with 10,000 other people—

Mr SYMON —So contention.

Prof. Coutts —Exactly. The classic was when the government released the implementation study report. You could not get it for 2½ hours. Why? Because everyone tried to access the same website. It would not have mattered if they had had a gigabit per second to their premises.

Mr SYMON —So you are saying that it is capacity and speed, a combination.

Prof. Coutts —It is also the applications. The nature of the software that runs in our computers limits the ability. You have to consider all these things as you move up that speed trajectory.

Mr SYMON —Putting fibre in now—I call it infrastructure—is a very long-term project because it is not going to—I have not seen anything on the drawing board to replace such a piece of infrastructure. So what we put in now is really in many cases just like our copper wires—I suspect we will be using it decades from now on.

Prof. Coutts —As I understand, the economic life used in Europe for the passive part—not the electronics—the passive optical fibre, is 25 years. Verizon uses a figure of 314 years. Generally the physical life is about 50 years whereas the actual electronics will be undergoing changes probably every three to five years.

Mr SYMON —As they have in the copper network.

Prof. Coutts —Exactly. When people talk about why we are doing this, I remind them that the copper network was built through public expenditure and it was built to support black, bakelite telephones. Yet here it is supporting our broadband. Why will they not let it retire?

Mr SYMON —Good point, thank you.

Mr HUSIC —In the debate about the structure or the amount of investment there has been a suggestion put forward that if we just—given that you are a former Telstra bloke—patch up some rough ends of the can and address the black spots, that would be a way better means of providing people with broadband access rather than going through the process of replacing the copper network with fibre. What is your take on that prescription? I am going to refer to it, I am going to editorialise and say that it is band-aiding the can versus the actual rollout as has been proposed.

Prof. Coutts —The fundamental problem for incumbent telcos around the world, where they have a copper infrastructure, is that their next logical step after the DSL, as we call it, is to go fibre to the node, FTTN. That was proposed in this country, as you probably know, several years back, and has been implemented in the UK, New Zealand and the US—AT&T et cetera. That extends the life of the copper so it gets that last bit of juice out of the copper by using that last 200 metres of copper to the household. But what then? AT&T are already seeing limitations of FTTN in the US. They went for fibre to the node and they can support up to something like 50 megabits per second, whereas Verizon went for fibre to the premise, FTTP, as we are doing in Australia.

There are question marks now about AT&T’s strategy. Was that the best thing to do? As services become more videocentric and we get IPTV, what is their next step? So there are short-term and long-term issues in there. Having spent well over 12 months of my life with the guys over a number of red wines, the patchwork quilt issue has come to an end, and the problem is that we live in an environment where telcos, unlike 50 or 60 years ago, are seen as commercial entities: the terms of investment just cannot continue. That is putting the pressure on government to intervene in some way, and I think that Australia has shown that this is a definite case of market failure.

CHAIR —I just want to draw on your expertise about voice-over-internet. We did hear earlier, when Internode were talking to us, evidence about bundling packages that include voice as well. It was interesting that, when we spoke to the chemist in Scottsdale in Tasmania who is one of the classic examples that has been used by NBN Co., he said to us that he had kept his old phone connection because his experience of voice-over-internet was very bad but that with the fibre connection he was just blown away by how much better the quality was—he really could not tell the difference. As a local MP I still get, though perhaps not as frequently, ‘Why are we on STD?’ I am in Wollongong, so Sydney is close; yet we are STD to Sydney, and it is a big issue with local businesses and things like that. I am just interested in your perspective on the efficiency gains and capacities on the voice side of what we are talking about. That has not been covered greatly.

Prof. Coutts —You are probably aware that NBN Co. are proposing to offer two forms of voice access. With one, you essentially have complete replacement from the user point of view of their standard phone, but then that same infrastructure offers what we call a class of service so that you can have VoIP delivery which to all intents and purposes is exactly the same. The only problem, as I say to people, is that it would be a proprietary handset, so you could not use your ‘Mickey Mouse phone’ that you picked up at Kmart, for example, in the same way as you could your standard phone. Then there is the third alternative, which is what people often refer to as VoIP over the internet. You have to distinguish between a VoIP per se and VoIP over the internet because VoIP has matured so much that, if you have the management of the class of service, then from the user’s point of view they cannot tell the difference. The problem is that, because the handsets are proprietary, you do not get the same choice. We have all had the experience of Skype, for example, which works really well when you do not absolutely need it to work well.

CHAIR —But do you generally see an opportunity for it to drive efficiencies for businesses if it is done properly?

Prof. Coutts —Yes, and the use of VoIP is increasing even prior to the NBN but very slowly. There are many factors involved; it is not just a VoIP aspect but also the numbering issues and if you are talking about how they are interconnecting internationally.

CHAIR —So there is much more work to be done in that sphere. That would be your summary?

Prof. Coutts —Yes. It is not a technical problem per se; it is an interoperability issue.

Mr NEVILLE —You have a unique role, as you were part of the evaluation of all this. Did that go beyond the technical side and into the economic side?

Prof. Coutts —Most definitely, yes. The role of the overall committee, yes.

Mr NEVILLE —In the last 10 days we have heard the proposal that NBN should be able to sell direct to certain entities, like government departments and the like, rather than go through a retail ISP. In other words, they become their own ISP. Could that corrupt the whole system if it were overdone?

Prof. Coutts —If it were overdone. I think one of the central planks of the policy is that NBN Co. be constrained to being a wholesaler of service.

Mr NEVILLE —That was everyone’s original belief. I am just interested to hear your views on what has been proposed thus far and how that beds down with your original understanding of the economics of it.

Prof. Coutts —Obviously carriers like Optus are concerned about that, and if I were them I would be too and I think that we have to be very watchful of the scope-creep issue. However, I do not share that concern to that degree. To move from a wholesale provider to providing retail is a very different business. You do not have a meeting and decide you are going to go into retail and on Monday have the ads going out. I am talking at a conference tomorrow on what is involved in a retail business. It is a very different business from the wholesale business of the NBN Co.

Mr NEVILLE —Let me make a theoretical case in point. Cinenet appeared before the committee this morning. It has connections to many technology companies and it has subsidiary head offices in Brisbane, Sydney, Melbourne and so on. Under this proposal, what would stop them from being their own ISP?

Prof. Coutts —I could take the view that it is pretty easy for them to become a carriage service provider.

Mr NEVILLE —Under your model, would that give them automatic entitlement to their own retailing profile?

Prof. Coutts —If they became a carriage service provider then certainly they could provide services. But I take people back to the 1980s, when you had various state governments and utilities all saying they were going to provide telecommunications. It was, shall we say, a history of destroyed company value. In some ways, while I can understand the concerns, I think they are overstated.

Mr NEVILLE —Thank you.

CHAIR —Thank you very much; that was very interesting evidence for the committee. Thank you for your attendance here today. If you have been asked to provide any additional information, could you forward it to the secretary. You will be sent a copy of the transcript of your evidence, to which you can make corrections of grammar and fact.

Proceedings suspended from 3.03 pm to 3.18 pm