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STANDING COMMITTEE ON INFRASTRUCTURE AND COMMUNICATIONS
18/04/2011
Role and potential of the National Broadband Network

CHAIR —I welcome the representative of Smartnet to today’s hearing. 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 have a written submission from you. Would you like to make some opening comments on that submission? I am conscious that we have people who listen in to the broadcast, so you might want to highlight the issues from your submission.

Mr Kelaher —We are a supporter of the NBN and want to offer our support and some comments today to guide the process. So there are people listening?

CHAIR —We hope so, yes.

Mr Kelaher —Whereabouts?

CHAIR —All over the nation we hope.

Mrs PRENTICE —They can hook into the parliament on a computer. Anyone in Australia can hear us. So you can say, ‘Hi, Mum, and hi, Dad’!

CHAIR —Mr Kelaher, we like to invite people, even though we have a chance to read their submissions, to highlight some issues before we have a question-and-answer session.

Mr Kelaher —So giving you maybe five minutes or so would be appropriate?

CHAIR —That would be tremendous. That would be a very good amount of time. Please proceed.

Mr Kelaher —Thank you for inviting us to come along and talk. Our company was formed about six years ago and our focus in all of those six years has been on the digital economy. The reason that we founded the company six years ago was that in a previous life I worked for the public service and spent quite a lot of time overseas looking at other nations and what they were doing to improve service delivery in areas such as health, government services, engagement with industry and so forth. We could see various aspects of the digital economy emerging and we thought that Australia would be a significant beneficiary of that. I had the opportunity with a colleague to form a company based on that premise and for the last six years we have been working in that field here in Australia and overseas. I am on the advisory panel of a couple of governments overseas and on some advisory panels here in Australia in matters related to the digital economy, as are other of my colleagues at Smartnet.

One of the things our company does is provide services to small businesses. We are under contract to the Department of Innovation to provide digital economy advice to SMEs around Australia in terms of leveraging the internet and offering services that really take small businesses beyond their local area, their garage, and backroom to really try and go global. The businesses we advise have turnovers between $2 million and $80 million. We provide advice that ranges from new software developments, new technology developments, to how to leverage the internet, how to use search engines and so forth.

We also do work in the field of e-health. We have recently been appointed by the Queensland government to provide advice on the rollout of their e-health agenda in terms of privacy and adoption and so forth. Last week we were advised that we are going to be working with one of the state governments on the rollout of electronic records and a kind of social networking approach to e-health in Indigenous communities. So we operate on the industry side, the government side and in terms of content such as e-health.

When I worked for the government before we founded Smartnet, one of the projects I was involved in was the development of a kind of mini-NBN for the health sector which was called Broadband for Health. We developed a model for incentivising doctors to sign up to high-speed broadband in order to be at the early stage of using the internet to access information and distribute information. That program was extended to pharmacies and so on. The reason I mention that is that at the time the market for broadband was very patchy and the business model that we developed was one based on regional service providers and creating competition at the retail level in order to give doctors choice and also to promote ongoing price competition.

A few of the points that we make in our submission are that we wholeheartedly support investment in a wholesale broadband network for the nation. We think it is an investment that will pay dividends 50 or 60 years out. Historically Australia is a country that has underinvested in technology, and for a large country with a small population which is patchily distributed technology is one of the things that is going to enable us to punch at or above our weight internationally. There are a number of hints that Australia gets from organisations like the OECD that we are squandering the revenues we are generating from extractive industries by not putting them back into long-term investments. For those reasons we support the NBN.

We have got a few question marks about whether or not the correct approach is one that is so strongly based on generating a return on investment and setting it up to generate attractive rates of interest for debt raising. We think that an investment like this, which has got so many potential returns in so many areas, makes it very difficult if you prioritise short-term returns on investment. If you structure the investment in this particular way to generate short-term investment attractiveness, you may well go about the project in the wrong sort of way. For a country with only six per cent debt with a future that extends many centuries into the future, we think that that the emphasis on ROI and debt financing has already started to skew the project. We would like to see less focus on attractive rates of short-term return and more consideration given to how you could get the best return for the nation over decades to come. A couple of examples of that are that we think Australia is underserved by submarine cables. There were only about seven active submarine cables coming into Australia. Most of our internet traffic, even if it goes to the place next door, generally goes overseas before it comes back here, and if we are to generate much higher performance broadband it is going to be very much dependent on the capacity of those submarine cables. Those are out of scope of the NBN program. We think that for a relatively small amount of additional money, or money reallocated by not doing something else, that generates additional submarine cable capacity would make a big difference to the speed of our internet.

We also think that the focus on fibre has the potential to take the NBN program in a direction which is not consistent with likely long-term technology developments. As people become more mobile they use more mobile devices. We think that the concept of tethering the internet connection at the retail level to the home forces the NBN Co. to run arguments that are kind of counter to likely technology developments. The more that you do that, the more that you skew the project. If you are running a project that is focusing on fibre to 93 per cent of homes and you are trying to generate returns and attract debt to do that, then you need to ensure that the revenue flows generated by that project are attractive to debt financiers. That means that you need to set your pricing parameters at such a rate that will attract debt financiers. You also need to ensure that there are no cherry pickers that will undermine that price, which takes you down a route of stipulating a base price, which we already think is too high and which will in the long term be a barrier to adoption by a large number of the population. We think that the focus on trying to prevent other people from coming into the market at the wholesale broadband level will impede innovation. There are things that can be done to counter that, but we think that the rush to protect the returns on the investment to support the kind of concept that has been put into the market about debt financing has already started to skew the project away from the long-term, best model. We think that the long-term, best model would not put such an emphasis on justifying 93 per cent fibre. We would like to see more focus on how to get runs on the road as quickly as possible for those areas that historically have been underserved by broadband and how to ensure that we are stimulating and responding to the developments that are occurring internationally around mobile devices.

My final comment in that area is that, although NBN Co. has acquired some wireless spectrum, which is going to be very important for mobile service delivery, the amount of spectrum acquired is probably not going to be sufficient. We are seeing that the Telcos, probably because of the way the project has been structured, have very quickly run to the next generation of wireless communications, the so-called 4G and LTE communications, for which there is also not enough spectrum. So what we can see happening is, in addition to NBN Co. striking a relatively high base price for backhaul, we can now see a very high level of competition around wireless spectrum, which will drive up the price and as a result make access to all kinds of broadband less accessible than would otherwise be the case. So we think that it would be better to be thinking about how to access as much wireless spectrum as possible. There are other parts of the spectrum other than the 1.9 and 1.5 gigaherz bands, such as the 3.5 and 3.6 gigahertz bands, which should be part of this model. We think that if a bit more strategy is applied to ensuring that we do not inject pricing pressures then there is more likely to be a higher rate of adoption.

There is already overseas evidence to indicate that price is a significant barrier to adoption, even where high speed is being offered in other countries. We are all kind of learning as we go here, but I have even got some reservations about the quality of the analysis that was done when we moved from 14 points of interconnection to 120. I think at 14 points of interconnection, the feeling was that perhaps it would impede competition and opportunity but, in many ways, if there are only 14 points of interconnection I think that it would be possible to have a lower priced access model. We have already had some decisions made for all the best reasons in the world but in a rush, which I think has locked us into a path that is going to add to costs unnecessarily. Those are my opening comments. I covered a fair bit of the field pretty quickly, but that is my territory and I am happy to take any questions.

CHAIR —Thank you. I just want to take you back to some of the comments you made right at the beginning. Before we go down this track, I would point out that this committee is not looking at the construction or pricing regime, although I take your point that, if we are looking at what people will utilise it for, the cost access points are an issue. You talked in the beginning about work that you are doing with small businesses. One thing that we noticed as we went between regions is the stark differences between regions. It would seem that if a region has someone who is a so-called digital champion—somebody who really gets it, who is driving an agenda in the region—then they are very proactive in the business community behind it. Then you will go somewhere else where that is missing. People just do not get it and they are not planning for it.

There is a concern amongst all the committee members, I think, that a bit of a digital divide will develop in the business sector around those issues. Indeed, there is some stark evidence in the tourism sector about places that do not even have a website, let alone anything else. I am interested to know, from what you have done so far in terms of getting into the small business sector: have you got some observations you would like us to look at about what might be missing there—models you may have seen internationally that are really good at leveraging up those small businesses and making them more competitive and productive?

Mr Kelaher —There is another process going on at the moment that I was giving some comments on only last week. It is to do with COAG’s investigation of regulatory reform of the economy and the next wave of regulatory reform. The people I was talking with were reflecting on whether or not the kind of traditional approach to thinking about engaging with business, which tends to be skewed towards big business, has actually started to develop some shortcomings. The fact is that 97 per cent of business in Australia is small business, and too often we see that issues which potentially could impact all business are sort of hijacked by big business. The example I was talking about last week was workers compensation reforms, which historically all businesses have thought should be standardised across the nation. I was saying that, in our company’s case, we pay something like 25 times the premium in the ACT than we do in Queensland. For a small business, that kind of fragmentation is something that impedes growth, even from one state to another.

So I was very disappointed when I heard over the last couple of weeks that what I thought was previously a business-wide agenda—the harmonisation of workers compensation—now has started to be backed away from by big business, which is starting to be concerned that the costs might be inconvenient. That seems to be colouring the debate about next steps. I would have thought that, in terms of Australia’s future, the 97 per cent of businesses that are SMEs—a significant proportion of the nation’s future growth, employment and so forth—there should be more care to ensure that debate is played out fully and that we consider how small business would be affected.

I was reflecting last week that in many cases the model of treating all businesses the same does not necessarily work. I certainly think that, in the area of the digital economy, where big businesses already have high-speed internet—they have already factored it into their prices; they operate globally—the challenge is to make sure that small businesses get that opportunity. The department of innovation runs a very good program—in fact several programs—designed to help businesses that have probably reached first base and are looking to grow. It is called Enterprise Connect, and it is a program we are connected to. It is a nationwide program providing business advisers and technology support. We see the same thing. We see a kind of patchiness in the marketplace. I think that some businesses do not realise the potential of accessing the internet and larger markets. But of course it is costly. Historically to do that kind of thing you need more servers, you need an IT person, you need security and it goes on and on and on and they think, ‘Oh, we’ll just put an ad in the Yellow Pages.’

But technology is changing. There is a new generation of solutions out there called cloud services, which means that I do not need to run my own version of most types of software these days. For any of you who use Outlook, that is a cloud service. If your computer goes down, you know that all your emails are sitting out there somewhere and you do not get overly exercised about security and all those sorts of things. If you change computers, you can still use it. We are starting to see those kinds of applications being used much more broadly. Where I am going with that is that I think part of the issue for SMEs is education—roadshows, champions and so forth. One of the difficulties with the way the NBN model is set up is that NBN’s exclusive focus is a kind of a narrow provisioning of the infrastructure and you are left with other people having to do the job of making it work. In some cases, the other people, who are really on the same payroll as the NBN—people like NICTA and CSIRO and so forth—are kind of running their own agendas rather than necessarily being put into a governance structure where everyone is pushing in the same direction. When you consider the taxpayer investment in those other large organisations, I think that, if they had the opportunity to be aligned to all of this, you would get the leverage of those resources and you could do a lot more for the collective amount of money that is available than if it is parcelled out and everyone is not really working in a well-coordinated way.

CHAIR —You mentioned Enterprise Connect. One of the things that has been put to us is that a useful thing for government to do would be in some way to build capacity into Regional Development Australia organisations because they are much closer to the ground, as you say, than these big national organisations. Have you a view on what model might be effective for government to look at? We have heard exactly this: the NBN Co. goes through but it is basically an engineering construction model that is not really there to provide or, as we have seen, does not provide the sort of information that people need to know. In Tasmania we heard of people running businesses in buildings where their landlord did not even bother to connect up, because it was not something they cared terribly much about, and the businesses now feel they are at a disadvantage. Do you have a view on what might be a good way to do that?

Mr Kelaher —I have got some views. The interesting and exciting thing about Australia’s national broadband program is that the market structure will change to create a whole new layer of service providers, if we successfully pursue the concept of wholesale high-speed broadband, I would particularly endorse the backhaul dimensions of that. I have a few reservations about trying to get retail fibre services to 93 per cent of premises and the problems that might result from that kind of distraction, but high-speed fibre backhaul would be outstanding. Doing that creates a whole new layer of service providers. At the moment the broadband service provider is typically a telco; they are not really focused about content. If the provision of broadband at the wholesale level is taken care of then the opportunity to offer content and services is a whole new market for Australia. I expect we will see people coming into that market offering very sophisticated middleware services for businesses—business locators, solutions for customer management, billing solutions and all that sort of thing.

Where I think the government can stimulate that is that there is a lot of opportunity for R&D and investment in those kinds of areas but that only tends to happen if there is a reason for people to shift away from investing in some of the things they are doing now and into these new areas. If we are trying to be congruent with a major policy direction into which a lot of money is being put, we should try and make sure that the framework for all of those other things that government supports and incentivises is aligned to that. I am quite interested in maybe some more thought being given to the governance that sits over the top of NBN Co. that brings in CSIRO, R&D, the department of innovation and so forth so that we try to get as much congruence as we can around what would probably be as much money, with all of those other things that government does, as the NBN investment itself.

The initiatives that are taking place in schools are very important. I was reading on the weekend about the young Daniel Tzvetkoff, who has recently been enjoying some interesting accommodation arrangements with the FBI in the States. But he got started at 13, I think, building digital websites for people and at 16 he was building content for the New York Times. I think we should be thinking more about the next generation of people and stimulating and educating them. Already, when most of us need something fixed with our computer, the person who does it is probably in their 20s. We should be thinking about those kinds of things. If we just focus on the business owners and business managers, trying to skill them up, I think we will spend a lot of money going through the motions but the people who will actually do the work are not going to be those people anyway. We need to switch them on to the opportunity and then find other ways of getting people to help them.

CHAIR —I am interested in your perspective on something that came up when we had some evidence from Rising Sun Pictures in Adelaide, who won a technical Academy Award for their real-time collaborative editing program. It struck me as they were talking that there is a lot of the creative sector in Australia, although I understand that the GFC threw it a bit off the track for a while. I am wondering if you have a perspective on how well and how timely government responds in innovation, research and development in supporting some of these emerging sectors and whether we could do that better as well.

Mr Kelaher —This is an apolitical comment, but I think you should start from the position that we are hopeless!

CHAIR —Yes.

Mr Kelaher —Only to kind of justify what we do now. It is a way of saying, ‘Well, we shouldn’t really be trying very hard.’ That is especially for the next generation of innovation, versus the people who have historically worked in that area—and we are talking about motor vehicle innovation and farming innovation, all very important. But, if there is a tussle going on between the future and those areas, what tends to happen is that the future is discounted because of the short-term need to keep—

CHAIR —And it is moving overseas.

Mr Kelaher —That is right. So, with the best of intentions, I would say we are not really good enough in that area, and you see other governments that find ways of forcing themselves to put a significant amount of resources into the future and explaining that to their populations.

CHAIR —It was quite clear to us that this company, without a particular South Australian government program of support for that sector—quite an aggressive investment program—would not have achieved what it did. Is that of the sort of thing you are talking about?

Mr Kelaher —Yes. I think the Department of Broadband, Communications and the Digital Economy have been working away over the last couple of years at things to start seeding all of that. They do not have portfolio responsibility for R&D and so on, so once again I come back to governance and making the best use of the money. But they did a very good project last year which was to create a website with services and infrastructure for not just SMEs but also the not-for-profit sector to switch people on to the online tools that are available to them, ways of running donation programs and various other infrastructure activities that would enable them to be more successful using the internet rather than using a carbon-paper accounts book or something like that.

I think you could find good examples all over the place, as well as bad examples. Having made a big decision, which is a very important decision, so much of the focus has been on the fibre to the home stuff that I think in many ways the challenge of finding a governance mechanism that is designed to see this project through has been pushed to the side. Speaking to you as parliamentarians, I think one of the things we should be trying to find is a governance mechanism that gives sufficient confidence to the market and the community that it is not going to flip-flop all over the place according to the election cycle and that certain core things which are seen as national objectives will continue. There will always be a need to challenge the direction we are taking and to expose that to discussion and so on, but I think too much of a jump in the—

CHAIR —Are you talking about something similar to what Infrastructure Australia does—and it does have a broader role than infrastructure—but around broadband?

Mr Kelaher —I am not familiar enough with Infrastructure Australia.

CHAIR —Okay.

Mr Kelaher —When I was doing something similar for the government 10 years ago, I travelled all through Europe and the States looking at how governments could do things online. At the time, in California—the home of Silicon Valley—the governor had set up what they called a digital council, and that was really dominated by people from Silicon Valley. There are obviously some challenges in trying to manage high-profile people who sometimes have vested interests, but what the government were trying to do there was make sure that, while they had the resources and infrastructure to engineer delivery, they also had knowledgeable users to influence it all.

I am not saying that is the ideal model for Australia. But I do think that a model like the Reserve Bank, say—where, over time, the credibility of the bank has risen in offering a commentary on the economy which is designed to go well into the future and to be seen as constructive—is a good thing, and I would like to think that in terms of our digital economy we could find a model there which is designed to provide a guiding hand for the future that does not crowd out politics or any of those other things. But, at the moment, there is just not enough certainty. One of the lessons that you do not have to look too far to find is that these big programs that are politically contentious are rarely successful and they generally die, and then there is a high level of disappointment because money was wasted.

CHAIR —Okay. I will go to the deputy chair.

Mr NEVILLE —I picked up a sort of ambivalence in your presentation. You spoke of being a very strong supporter of the NBN and then you went to say that you do not think we have given nearly enough credence to wireless technology, 4G and the like. Then you said just more recently that you are not all that enamoured with fibre to the home. There may be connectors.

Mr Kelaher —I can connect that for you.

Mr NEVILLE —It seems to me that you have another vision that is quite different from the accepted wisdom. How do you mesh those three things together?

Mr Kelaher —I do not think I am all that unique in that either.

Mr NEVILLE —I think you are. From what we have heard in this inquiry so far, you are quite unique.

Mr Kelaher —Having been around a while—and this is an area we focus on a lot—I think it is very important for a government to be ambitious in this area and to realise that Australia has underinvested in technology. I applaud that.

Mr NEVILLE —Sure.

Mr Kelaher —The area of the internet in which we are significantly underinvested is at the wholesale level, and I applaud the focus on high-speed broadband backhaul, and that has to be by fibre. The area where I think NBN Co. is on the verge of going off the reservation is the emphasis on 93 per cent of premises being fibre connected. The business plan opens up a whole lot of supporting models and calculations—the volume of mobile internet usage and the number of premises that will need a fibre connection—and it makes assumptions about how utilities are going to operate. I think some of those things are so far into the future and so open to other technological influences—

Mr NEVILLE —What is the immediate alternative?

Mr Kelaher —The most important thing for Australia is getting on top of high-speed backhaul and making sure for the future the cost of internet usage is as low as possible so we can be internationally competitive. The reason this whole project started was that people were unhappy with the level of ADSL access they had and they still have. If they are forced to wait for a kind of complicated process of laying fibre all the way to their home or find out that they are in the unlucky seven per cent, we will disenfranchise a lot of the people we set out to help. That is not to say that in the CBD and city areas the correct solution because of the level of built-up infrastructure should be more biased towards fibre, but I think the driving focus on 93 per cent getting fibre, the need to justify that because of the connection to raising debt and the need to set prices that support that takes you down a direction that means it is very difficult to have a discussion about alternative technologies. You can see that all the telcos are lining up to go 4G and LTE. They are going to be serving up maybe not 100 megabits per second but close to it on devices like this smartphone in my hand. Many of us are more and more mobile and that is what we are going to use.

Mr NEVILLE —Do you think that will take a significant part of the market?

Mr Kelaher —The mobile?

Mr NEVILLE —No, wireless.

Mr Kelaher —Sorry, for me ‘mobile’ and ‘wireless’ are the same. For me it is not so much about competing technologies; it is about the way people operate. If I think about the usage of high-speed broadband in the future it is going to be to support the activities we are involved in—shopping and being on the move and in cars. These are all mobile applications. We are not going to be plugged into something on the wall. I think that projections that do not sufficiently acknowledge the growth that is going to occur in mobile usage are kind of asking for a significant correction down the track. If a lot of the investment has gone into fibre towards homes and then the correction takes place, that will be a missed opportunity for the nation.

Mr NEVILLE —I am not trying to be partisan in this question; I am just trying to get a feeling of where you are coming from. Would we have been better to adopt the OPEL model earlier?

Mr Kelaher —I am not really an expert. There were so many versions of what the OPEL model was or was not.

Mr NEVILLE —Should we be adopting something in parallel with the fibre along the lines of OPEL?

Mr Kelaher —I want to be careful with my comments. I do not want to be a contributor to a dialogue that causes people to stop or lose confidence in supporting high-speed broadband for the nation. I am a bit edgy about a kind of conventional wisdom that, in order to support that, you have to support 93 per cent of fibre. That is what I am trying to step carefully through.

Mr NEVILLE —I see your point.

Mr Kelaher —We just should all be careful not to support high-speed backhaul and find that we have given oxygen to 93 per cent fibre and for the seven per cent of people who are not getting it to be thinking, ‘I missed out again; I’m only going to get that second-rate wireless stuff,’ when in fact down the track more of us are going to want wireless than fibre, I think.

CHAIR —Following that thought through, you made the point about what young people will be using. The complementary versus the competitive interests me. I look at my own household, with a 27-year-old and a 22-year-old. They do not just have mobile; they have high-speed ADSL too—and, believe me, if I tried to take that away I would be shot. I understand that you are concerned that we are talking about only one where they are complementary. I want to clarify what exactly—

Mr Kelaher —I think in some areas like, say, e-health, where you have physical infrastructure connected up, absolutely.

CHAIR —Gaming?

Mr Kelaher —But, at the moment, I see that too much of the narrative is de-legitimating wireless because it is a challenge to the economic et cetera model of fibre, whereas a much better position for the nation to be taking is, ‘What can we do to make sure that as many people as possible are connected as quickly as possible at the lowest possible cost?’

Mr NEVILLE —You have stressed the importance of backhaul in your opinion, and I think we all appreciate that. In saying that we are going to create backhaul have we created a similar problem in that we may have abandoned some of the seven per cent that may have been incorporated if we could have pushed the backhauled fibre networks further out into remote Australia? I am not talking about it going to 98 or 99 per cent; but why is 93 the magic figure?

Mr Kelaher —To my mind, it is just a number that—

Mr NEVILLE —Yes, but you would have to accept that a lot of rural Australia is going to be in that seven per cent.

Mr Kelaher —I have seen the models of where the seven per cent is, and certainly geographically a lot of Australia is in that seven per cent. In terms of population, it is not so many. I think the reality is that, if you imagine a country town, fibre will come into the town and it will kind of radiate out partially and not to some places. There will be all these grey areas which will be filled in by non-fibre technologies. Exactly what is the boundary of that grey area? Why is the house two doors down the road getting wireless rather than fibre? At the moment the message out there is that they are just the unlucky ones. I do not think that is a good message and I do not think it is an accurate message. I think the message probably should have been that fibre has certain attractive uses and costs and so forth, but we are trying to make sure that as many people as possible have access to high-speed broadband, and there are other technologies that we are on to and we are moving on it quickly—not that you will have to wait and you might still miss out.

Mr HUSIC —I want to put a quote to you:

The important point with this technology is that “the capacity of FTTP is virtually unlimited. In fact, the capacity of a single optical fibre is more than 10,000 times the capacity of the entire wireless electromagnetic spectrum.”

That was put by Professor Rod Tucker—the laureate professor at the University of Melbourne, who is a director of the Institute for a Broadband Enabled Society—and contained within the Information Technology Industry Innovation Council submission that was given to us, of which I understand one of your directors is a member.

I just want to get a sense of when you think 4G or LTE will get to a capacity where it might be able to overcome—or whether it is even remotely possible that it will ever overcome—the capacity of the single optical fibre. I know there is a view that the capacity or the benefit of optical fibre is oversold and wireless is undersold, but given that we have people such as Professor Tucker putting those fairly strong positions forward, at what point will wireless actually get to that capacity where it matches or rivals FTTP?

Mr Kelaher —I do not think it theoretically can. I think wireless will always be a suboptimal technology compared to fibre. My point is that, with that virtually galactic capacity of a single piece of fibre, it does not make sense in the year 2011 or 2012 to try and get that capacity to the houses of the nation over the next few years. You do not have to go too far even from here to find that people do not have decent mobile phone coverage, much less internet access. High speed fibre is theoretically outstanding and in the longer term represents enormous capacity, but there is a trade-off that should be played out. At the moment I think that, for some of those technical reasons, the trade-off has been weighted so strongly towards fibre that we may find that we do not actually get there. The people who might have benefited from something that will have enormous value over the next 10 or 20 years might not get much at all.

Mr HUSIC —So you do not think there is much benefit? I have heard this argument before: why build the network the way it is when we can suffice with a lower capacity? But a lot of the evidence we have received today, particularly from the innovation council, talked about what could be done if we were unchained from the current network constraints. That came from a productivity, economic and industry perspective. Wouldn’t it be wiser for us to invest in a network that will have little need for further upgrade or catch-up in the years to come?

Mr Kelaher —Because of my business, I really should not be arguing anything other than what you are saying. If you try and put all the pieces of the puzzle together, the capacity is one thing, the adoption level is another and the content is another. I guess what I was trying to communicate is that, if we were designing a program to bring high-speed internet access to all Australians for the next 50 years or so, there would not be many of us who would go and find the highest performance delivery mechanism and then say, ‘All the other stuff we’ll do later.’ If we are going to invest in the highest performance delivery mechanism that is available now, we should make sure that we are also investing in all the other things that are going to get us maximum value from that and not only focus on one thing. For me, that is governance, making sure that all of those other parts of government—education, CSIRO, innovation et cetera—are pulling in the same direction and focusing on getting the most out of this. We should also be careful that we do not cause people who would benefit quite a lot in the short term from something not so galactic to have to wait until it has all been done and we get to their part of Australia.

CHAIR —I think the people on the pair gain system and copper cables are already used to waiting. I take your point.

Mr Kelaher —I feel a bit uncomfortable. If I thought I was just us talking about this with the committee, I would not be quite so self-conscious, but now I am ‘speaking to the nation’.

CHAIR —That is why I am always conscious.

Mr Kelaher —I am not looking to pick apart what is a very important initiative, but this is also an important opportunity to think about governance and the other support structures that support that investment. That is really what my focus is.

Mr HUSIC —I guess I have a different focus. IBM and Hewlett-Packard are announcing significant investments in the country, some of which are based in parts of Sydney that I represent, and they do it on the basis that they believe in what is coming with the NBN. And this is quoted—I am not misrepresenting their position. Based on the network configuration, they figure that that is the way to go. But I take your comment on board. I think the benefit of your submission is that it is very even-handed.

Mr FLETCHER —James, I just want to make sure I understand what you are saying. I think one of the things you are arguing is that there are some trade-offs if the strategy is to pursue what might be called a ‘Rolls-Royce solution’—in other words, fibre, which everybody agrees is the best and highest capacity technology, all other things being equal—and to get that to a very high percentage of the population. When you get to the 93rd percentile you are getting to some pretty far-flung and remote places, and that is a very big project which takes a long time.

Mr Kelaher —To do it well and completely, absolutely.

Mr FLETCHER —And that, for example, an alternative strategy might be to say, ‘Could we achieve quicker results by using alternative technologies such as a mix of fibre-to-the-node and wireless?’ Is that a fair interpretation of what you are saying?

Mr Kelaher —My reason for appearing and offering comment is that so much of the focus has been on fibre—and, implicitly, retail fibre—that I think the difference between the benefits of fibre for wholesale backhaul and the challenges of meeting all retail needs has become a bit muddied. So yes—I think you could take what I am saying as advocating changes, but I am not advocating a different model; it is just that I think that, in a way, the pressure to get legislation passed, the negotiations with Telstra and the politics of the election over the NBN has meant so much focus has been placed on fibre and regulatory reform that the inevitable need to get adoption, which means price and content, has kind of been pushed for later. Yet I think that the value of the investment will be judged on whether those two things are achieved.

CHAIR —That is exactly what this committee’s terms of reference are about.

Mr FLETCHER —Is there any risk that the organisational structure under which all of the fibre backhaul as well as the access networks will be owned by NBN Co. might lead NBN management to, for example, be less forthcoming in selling services on that fibre to operators who are downstream competitors of NBN Co.?

Mr Kelaher —There is a lot of work to be done in that area. I think there is anticipation from all different sectors of industry about how that is going to play out. My assessment at the moment is that NBN Co. is in a very strong position to support wholesale broadband access, whether it is for a retail service providers with fibre or wireless or even telcos. Most of the telcos that are talking 4G and LTE are probably anticipating using the backhaul network that NBN Co. is putting in place. I think that does—

Mr FLETCHER —In a sense that leaves them, does it not, exposed to the particular approach that the NBN management chooses to take on that as opposed to an alternative model that might be conceived in which there was a stand-alone entity that only owned backhaul and did not own an access network?

Mr Kelaher —I think that is right. I had not really thought about it in those terms, although—and maybe you can see some of my government heritage in all of this—the thing that I have some questions about it is that that notion of raising debt to finance NBN Co. and then selling the organisation, which of course needs to recover the investment, means that you push it down a route which is designed to generate the kind of economies that will be attractive to investors. With what we are dealing with here, which has a very long term future and the returns are quite diffuse, I think it would be better to be focusing on doing the best possible job with NBN Co. now than worrying about whether or not there was a sale for NBN Co. later. If that meant that the governance around it was a bit different and more accountable, as it would be because it would require a whole-of-government focus, I do not think that would be a bad thing.

Mr FLETCHER —So you feel that this commitment—that is, that it will be an investment which generates a commercial return—is driving a lot of the decisions that are made about how the network is structured and rolled out?

Mr Kelaher —I do.

Mr FLETCHER —There is another implication I want to ask you about in terms of the organisational structure. You have effectively three networks—fibre, wireless and satellite—all now to be owned and operated by the same organisation. Just thinking about the behaviour and psychology of organisations, which one of those networks is likely to get the highest priority and the most attention, energy and enthusiasm from the management team?

Mr Kelaher —If you just follow the line of discussion we are having, it is the one that underpins the return calculation based on the prospect of future sales.

CHAIR —I am conscious that we are 10 minutes over already—I will give other colleagues a chance to ask questions. Our next witness is here, too.

Mr STEPHEN JONES —At subheading 4 of your submission, you address item (d) of our terms of reference on how the NBN can assist in contributing to ‘the management of Australia’s built and natural resources and environmental sustainability’. Do you have that part of your submission in front of you?

Mr Kelaher —I do.

Mr STEPHEN JONES —I will ask you to elaborate on it further. You say:

Smartnet—

your organisation—

has seen at first-hand how smart, internet-enabled devices can help with water and energy management, ensuring that home and business appliances—

et cetera. Could you elaborate on what you have seen firsthand?

Mr Kelaher —Yes. The Japanese have been really working away at this for about 20 years and have now got smart buildings that do everything, smart supermarkets and so forth. The line of thought in that part of our submission was that, for those homes that are connected to fibre, one of the things that you can anticipate in the future—in addition to, say, video content—that warrants a physical connection is the utilities that go to that home, and there is going to be a fair bit crossover between those too. So, in countries like Japan, which is the one I know best of all, there has been a long history of R&D associated with smart buildings and smart streets, working out how those kinds of usages can leverage internet access.

Here in Australia we run a little bit of a risk that the utility providers—which in another circumstance might see themselves as potential deliverers of internet capability and which would definitely derive some benefit and provide some services around smart devices and so forth—are not necessarily part of that current model. They will now need to come up with their own business models to be able to participate in that. So we are really foreshadowing, I guess, if the debate were a little bit different about how to really leverage the investment we are going to make in broadband: how can you get all those people onside and pushing in the same direction rather than running arguments about different kinds of technologies to deliver smart services or even different approaches to delivering high-speed broadband, which I have heard from a couple of the research organisations? How can you get all them pushing in the same direction? Australia has various research organisations that are working in exactly this area, but I really have not seen a lot of accessing of how to leverage that and how, whether it is R&D incentives or building codes and all of those sorts of things, we can make sure in a constructive way that we are getting the best use out of this infrastructure now—and not have to come along in 10 years’ time and do things differently or put layers over the top or another box into the house because we left out one of the obvious future demands based on what we can see overseas.

Mr STEPHEN JONES —What role do you see for government in ensuring that we can have a greater leverage off that investment, particularly in the area of utilities access through households?

Mr Kelaher —At the moment when I open my papers, almost daily I am seeing projected rises in utility costs. I would like to think that someone is working away in the background there to think about what we can do to take costs out of utilities. I would have thought that making sure that we are delivering smart services and that we are putting in place the infrastructure would give those of us who are facing short-term increases in utility costs some hope that in the longer term technology is going to be working for us. That would be an area, in terms of maybe incentives in relation to a carbon tax or setting prices. Like all of these things, I think many people accept the need to reduce our energy footprint in Australia, but using technology cleverly is another part of that. Maybe there are things in that area, both at the federal and the state level, if everyone is pushing in the same direction, that we can do more to make sure that those things come about more quickly and in a more planned way than just leaving it to the market.

Mr STEPHEN JONES —It is entirely reasonable, isn’t it, to assume that over the next few decades more and more households will have the capacity to reduce the cost of utilities through smart based infrastructure?

Mr Kelaher —And I do not think it is that far away; I really do not. We are already starting to see that in some states the legislation permits selling energy back onto the grid. The more the price rises bite, the more keen we are going to be to do that kind of thing.

Mr STEPHEN JONES —It makes more acute, then, doesn’t it, the importance of ensuring that we do not create an additional divide between those households who can take control of their utility costs and those who cannot because of their access to broadband?

Mr Kelaher —I am pro broadband, absolutely.

Mrs PRENTICE —One of our terms of reference is the optimal capacity of the network to deliver, so I was obviously concerned about your comments about the limitation of the submarine cables into Australia. Is it a matter of just lighting up more of those cables—because I understand there has been a new one recently—or are we really going to have to lay more?

Mr Kelaher —The advice I have is that not only more but connecting to places other than Sydney and Melbourne is inevitable. The rate at which our internet traffic is growing—and that is with the current limitations—is so rapid that more are going to have to be brought into the market. That typically is a commercial decision at the moment. In terms of Australia’s position internationally, there are many things that Australia could do to improve its attractiveness as a regional location if it had certain high-speed internet capabilities and infrastructure. I think that, for those kinds of reasons, thinking about where there might be common interests between, say, Australia and Singapore or a couple of the Asian countries which have much better submarine cable connectivity—it is not a big hop to come to Australia—is a thing that government should interest itself in.

Mrs PRENTICE —I am told that Sydney is actually more economic because of little things like the Great Barrier Reef. Is there someone who could provide more detailed information on that? Who would you recommend to give us that?

Mr Kelaher —I think the Department of Broadband, Communications and the Digital Economy are probably the best placed to provide that advice. I think they not only understand which cables are being bought but have a sense of the kinds of risk issues associated with the number that we have at the moment. But I can tell you that, even though they probably would not be prepared to appear and say so, a number of the very big technology and service provider companies would already quietly say that they have services which can be accessed in other countries because of those countries’ capacity that in the present circumstances they do not see being brought to Australia.

Mr SYMON —I would just like to ask a question in relation to government services. In your submission you used an example of parts of Europe and North America where there is almost a one-stop shop for citizens, constituents or whoever they may be to type in a few details online and get a response back as to what government services are available to them across all arms of government. To give you an example, people quite often ring up my federal office to ask about state education schemes—education maintenance allowance, for instance, which is just money to support families sending their kids to school. That is just one example. It is not my area. We direct them to the right people. But it does take up a lot of MPs’ time and governments’ time too when you are dealing with issues that reside at other levels of government. I get people ringing me up about council issues, for instance, and again we refer them on. But if there were such a thing as a one-stop shop here, as you mentioned there is in other countries, I think it would be of great benefit to all concerned, not only from the government side of things but obviously also from the consumer side. What type of bandwidth services are used on that in both the North American and European examples that you have raised?

Mr Kelaher —I could not tell you, Mike. I do not think that those services are particularly bandwidth hungry. The kind of services that are bandwidth hungry typically involve dense amounts of information, so large volumes of calculations, geospatial mining types of processing where you have got lots of parameters, or video.

Mr SYMON —Could you have video on demand for a particular service you want to know more about?

Mr Kelaher —Yes. But the more video you put into the service, the more capacity you use. The sorts of examples we were thinking of are not particularly broadband hungry; they more need a clever use of technology and a coordinator-general type of approach to make sure that across the levels of government, local, state and federal, there is an online point of coordination. You always will need to create physical access arrangements for people who for various reasons will not find internet access acceptable. But I think that getting on top of single points of service using the internet will cut down demand on physical points of access and it will provide people with a much more responsive sort of government. A lot of people do not really care which level of government that service is going to come from as long as they can find out where it is. We should all be trying to make it possible.

Mr SYMON —Is it fair to say that that service is delivered at a better speed with a better take-up from the consumer? Having to wait, as I am using my computer here, for the screens to come up is definitely not consumer friendly.

Mr Kelaher —No. I think in many of those cases mobile phone friendly is very important, having a service configured to work on the screen of a 3G phone and stuff like that. Sometimes people will search at home but oftentimes the kind of service they want is when they have got some sort of difficulty and want to find something out. The capacity of the net and how those services are delivered is very important.

Mr SYMON —Finally, could you give the committee an example of one of the sites to look at? It does not have to be now, it could be later on.

Mr Kelaher —I am quite a big fan of the Australian Taxation Office. I will mention some overseas examples—

Mr SYMON —You are in a small group of people!

Mr Kelaher —I realise that.

CHAIR —You just discredited yourself!

Mr Kelaher —I think that the Australian Taxation Office has done some very clever things for many people who do their own tax. For example, if you have got private health insurance and a couple of other things of a similar ilk, when you do your online tax return you just have to click on a button and give a bit of identity detail and the tax office will populate your tax return with that information from another place. If you needed a bit of paper you might not have it or it might not have arrived. I think they are heading down a path which is a little bit like some of the things we have seen overseas, where for a large number of people I think Australia is just about ready to say to those people, ‘Would you like the tax office to generate your tax return for your consideration and approval?’ and do so using the resources available. The only resources the tax office presently uses are those to catch us out. Why not work for us? That line of thinking is what we see in Europe. The Europeans have got a kind of philosophy which is to do with a slightly more caring approach. They do have compliance to make sure that people do not defraud, but they have somehow or other built a philosophy which is designed to make the citizen feel that they are valued.

CHAIR —The US might be freaked out by the office offering to fill out their forms.

Mr Kelaher —But the US is such an open economy that you get commercial service providers coming up with those sorts of services anyway. So the two I would mention are in places like Belgium, the smaller states that have populations and service difficulties where they need to be economical, where they have very good citizen services, finder services and so forth. It is not always easy with examples as they tend to be in a foreign language and stuff like that. Even in New York there are some very good service locators. Imagine trying to deal with the bureaucracy in New York even if you could find them and the sorts of issues that people have got with housing and benefits. They have got some very clever and low-cost ways where you just type in a few of those details we mentioned in our submission and the service locator tells you where you need to go and all that sort of stuff.

The thing that we are starting to see a little bit of is that, if you choose to do so, you can leave some information with that service locator which will identify when the next area of interest to you pops up and let you know. Some governments are starting to make it less of a maze to get services and to help you get those services that are important to the policy outcomes that they had in mind when they passed regulations or legislations to improve health or educational outcomes. At the moment, so much of our legislation is about inputs rather than outcomes. These are examples of how technology is being used to try and get the output.

CHAIR —We are going to have to move along. I am conscious that we have taken more of your time than we had indicated to you that we would, and also eaten into the time of the next witness as well. Thank you very much for your attendance today. You can see from the interest of the committee that it was a very useful submission to us. If you have been asked to provid any additional information, just 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. Again, thank you very much.

[2.46 pm]