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Environment and Communications Legislation Committee
(Senate-Tuesday, 25 February 2014)
Department of Communications
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CHAIR: Welcome, Dr Switkowski. Would you like to make an opening statement? I am sure you would.
Dr Switkowski : I would. Thank you, Chair, for the opportunity to make an opening statement. It gives me the chance to update the committee on the transition process within NBN and on some recent and upcoming events and detailing some of the milestones in the company's progress.
Last Friday, as has been reported in the media, we released NBN Co's first six-month report which outlined our financial and operational performance for the period up to 31 December. This, of course, was a period in which there was a change of government and a change of management and strategy.
Our half-year report was evidence of the government's call for greater transparency and timeliness of information and we aim to continue this reporting on a quarterly basis. The half year will have a full presentation and the interim quarters will give a progress report on network statistics and rollout data.
The report is now on the public record so I do not propose to go through these details here today. I will summarise by saying there remains a lot to be done but the company is making progress in some important areas. There is one example. The transit network program is running on schedule and within budget. This is a critical bit of infrastructure that links towns and cities to all the major network components and underpins the fixed wireless network, the satellites and any fixed-line technology deployed in the future. Thirty-eight thousand kilometres of transit fibre has been deployed and 94, out of a planned 121, points of interconnect are complete, representing 80 per cent of the points of interconnect program.
In addition, and relating to other questions that have occurred earlier today, preparations for the launch of two satellites next year, in 2015, remain on track for key milestones, including earth station construction around the continent. There is a separate review of our fixed and wireless satellite strategy under way. We expect to have those findings in a few weeks time.
These are positive, encouraging signs that elements of the build are going well, but we are still some distance from getting the entire project on track. As we do this NBN Co is in a period of transition and this will also continue for some time.
The strategic review found that the fastest and most affordable way to deliver the NBN is to apply a mix of technologies based on their best fit with the infrastructure already in place. NBN Co is now making preparations to implement the strategy under the government's direction. To manage and to drive the transition a transformation management office has been established within NBN Co under the leadership of Mr Rousselot. This office is engaging widely with staff, with our delivery partners, our customers, our suppliers and the community to ensure that the findings of the review, once agreed and endorsed by the government, are understood and that the next steps are successfully implemented.
The transformation office is looking at all of our current inflight projects, of which there are a great many, to assist their alignment with the new strategic direction and to map the existing set of business relationships and governance structures. The aim is to build a whole-of-business strategy with which all business units are aligned.
As part of that an employee engagement survey is about to be initiated with our nearly 3,000 employees to give us a cultural baseline to assist the incoming CEO, Bill Morrow, in his review of the organisation and its strengths and against which the efficacy of future changes can be measured.
Meanwhile, the fibre to the premise rollout continues, and our aim is to stabilise the process and give contractors, suppliers and customers more visibility of forward plans and greater certainty. NBN Co is working with our delivery partners to address planning and construction issues that led to the delays in the past. I will give you an example of how this is going. We have talked about this in part in the past.
NBN Co's reporting and our contracts for delivery partners in previous times had a strong focus on premises past. That was the subject of some inquiry a few minutes ago. Look, it is axiomatic that you get the outcomes. You incentivise whether they are desired or not. The focus on premises past led to a situation where running fibre up and down streets was prioritised over actually connecting it to buildings. The result was that a high number of premises that simply could not connect to the network existed, despite being counted as having been passed, a correct count but meaningless.
We are now working productively with our delivery partners to ensure the incentives go to serviceable premises and retail service providers are able to connect end-users quickly and efficiently.
NBN Co is also working as quickly as possible on the required commercial negotiations product development policy arrangements and technology testing that will underpin the new direction and the future rollout. We have some trials under way. Technology testing is being carried out through a series of programs that will help the company incorporate a broader mix of technologies and move the rollout to scale.
A fibre to the building pilot will test delivery of VDSL broadband to end-users in 10 buildings in Carlton, Brunswick and Parkville in Melbourne. Fibre optic cables are being delivered to a telecommunications connection box in the building which is then connected to the existing in-building wiring, copper wiring. Retail service providers will then be able to deliver fast broadband to each premises, particularly as they are part of the design of the whole process.
A technology trial in December last year produced very fast download speeds, in excess of 100 megabits per second, and upload speeds approaching 50 megabits per second in the one trial that we had completed by then.
A fibre to the node build pilot is set for two locations near Woy Woy on the New South Wales Central Coast and Epping in Melbourne's northern suburbs. We will construct two small-scale copper serving area modules and erect kerbside cabinets. NBN Co will then invite RSPs to participate in the fibre to the node end-user trial to test the delivery of high speed broadband to about 100 premises in each location and then to design the deployment processes together so that we can upscale to the level we need.
Just finally on disconnection, because that is looming on the horizon, let me emphasise what this means. On 23 May we will reach the copper disconnection date for the first 15 fibre serving areas. This means nearly all existing landline, phone and internet services in these areas will be disconnected from the copper network. If residents and business owners want to continue these services they need to switch across to NBN.
Disconnection is not only an operational issue. It is also a very complex communications project which NBN Co has been working on collaboratively with retail service providers, with government application providers, industry and consumer groups for some time. We are working to ensure that the disconnection process is as smooth as possible and that everyone in these areas knows what to expect and what to do. This includes being very sensitive to the requirements of the more vulnerable people in our communities.
We continue to communicate through a range of measures, including through direct mail, local advertising, information kiosks, doorknocking and engagement through community groups and local advocates. Importantly, RSPs and application providers are also directly engaging their customers to assist them in this process.
Chairman, I conclude that, along with our continuing construction work, the trials, pilots and reviews all form a vital part of the forward direction of NBN Co. Our focus for 2014 will be to learn from our past experiences, to transform the company in line with the advice we receive from government and to deliver the NBN to more Australians sooner and at lower cost.
I have a part of my team from the NBN Co executive here. You will see John Simon, Kevin Brown and Robin Payne. Between us we will endeavour to answer all your questions. Thank you.
CHAIR: Thank you, Dr Switkowski. Please note the presence of media here. I am sure you are aware of that. I am sure no-one has any objections to that. The call goes to Senator Conroy.
Senator CONROY: Thank you. I appreciate that you had a comprehensive opening statement. I was just wondering whether we could get a copy because you were reading very fast to try to get it done as quickly as you could. We have to officially table it as a formal process. Have you got a copy? It will be circulated. Thank you.
I noted you made some commentary on past versus connected. Can I just clarify that the HFC network, which you have identified of 2.3 million or 2.5 million homes as a footprint?
Dr Switkowski : Closer to three million.
Senator CONROY: Is that connected to three million homes?
Dr Switkowski : Sorry?
Senator CONROY: Is that connected to three million homes?
Dr Switkowski : No.
Senator CONROY: So that would be a meaningless number then?
Dr Switkowski : It depends on the question.
Senator CONROY: You define passing a premise with a cable as a meaningless number. I am pointing out to you that the number you are claiming that is passed by HFC is equally meaningless. The take-up of Telstra and Optus of HFC is roughly 33 per cent after 15 years. I am just trying to understand: are you counting, for the purposes of your deployment model, the roughly 65 per cent of Australian homes that are not connected to the HFC model?
Dr Switkowski : I am not sure that the analogy is valid but let us assume—
Senator CONROY: You used to own it. You rolled one out.
Dr Switkowski : In the case of the HFC footprint, if you are in the footprint and unconnected you can call up Optus and Telstra and be connected and probably within a number of days.
Senator CONROY: You actually have no idea what you are talking about?
Dr Switkowski : No.
Senator CONROY: You know that, don't you?
Dr Switkowski : Let me finish the answer.
CHAIR: Senator Conroy, order! Senator Conroy, will you let Dr Switkowski answer.
Senator CONROY: That is the danger of being 10 years out of date.
Dr Switkowski : We have had this debate in previous forums. In the case of the figure that was used to measure the network rollout, which was premises past, it passed a number of premises which at the time could not be connected no matter how—
Senator CONROY: Have any of them been connected since then?
Dr Switkowski : Some have been.
Senator CONROY: They could be connected—
Dr Switkowski : The technical solution for connecting multi-dwelling units has only been recently developed and deployed.
Senator CONROY: No, that is the one you are talking about for VDSL, which I have no problem with as a technology. But you have continued, since 7 September, to connect units that were classified service class 0 with the original fibre to the apartment. Your continued representation that they could not be connected is at a point in time a mislead of the Senate, because they could be connected once their design was completed. It was taking longer than was originally hoped but to continually make the point that they could not be connected is just to mislead the Senate.
Dr Switkowski : No. In the context of what is the correct or the better metric both to inform users as to the size of the footprint and to give the people doing the rollout the incentive to do the right thing, simply to roll cable down a street is not the right metric.
Senator CONROY: Like Optus and Telstra did? To simply roll cable down the street?
Dr Switkowski : And right behind that you could place an order and be connected to the cable network.
Senator CONROY: And 65 per cent of Australian homes are not connected to the HFC cable where they are in the footprint?
Dr Switkowski : Actually on that one you are probably not right, with respect, because the 30-odd per cent of the cable footprint that has a cable subscription television service are not the same 30 per cent that was there last year or the year before. I suspect we will find, and here I am guessing, more than half the footprint has a lead-in and is connected.
Senator CONROY: No. When I moved house, to be fair, and I changed my subscription to my new house, I did not pull them out of the wall.
Dr Switkowski : That is right.
Senator CONROY: Your semantics—
Dr Switkowski : But that is—
Senator CONROY: That still leaves 50 per cent.
Dr Switkowski : Whatever the number is.
Senator CONROY: Fifty per cent of your three million is a meaningless number.
Dr Switkowski : No, because they can order a service.
Senator CONROY: You can order a service from NBN Co.
Dr Switkowski : I have not done it recently but I am asserting that they could call Telstra or Optus and get a service.
Senator CONROY: Not an MDU from Optus.
Dr Switkowski : You will not have that company saying—
Senator CONROY: His name is Renai LeMay. I suggest you read about his travails in trying to get himself connected to HFC in his footprint. They will not do it. He lives in an MDU and they will not do it. How can that be the case in your world, Dr Switkowski?
Dr Switkowski : It may have something to do with Optus's diminishing interest in that network, which is not the case with NBN Co.
Senator CONROY: I think he has been doing it for a lot longer than NBN has been on the table. I think he has had that problem. Maybe he is just a one-off Australian citizen.
Dr Switkowski : Your line of interrogation goes to the relevance of a measure that measures simply linear kilometres of cable strung against a number of premises that can order a service and get it. I would say the latter measure is more relevant.
Senator CONROY: You are misrepresenting Optus's rollout because you actually do not know anything about it.
Dr Switkowski : I am not actually interested.
Senator Fifield: Chair, I was hesitating to interrupt Senator Conroy's line of questioning. Both in this bracket and previously with the secretary of the department, Senator Conroy has developed a pattern of accusing witnesses of misleading in various ways. Misleading is a very serious charge and I am sure that Senator Conroy does not really mean that. I would just draw to your attention that it is important that colleagues do not reflect on witnesses. It is not the way that these proceedings are appropriately conducted.
CHAIR: Certainly, minister.
Senator CONROY: So is he chairing it or you?
CHAIR: I am chairing it.
Senator CONROY: Good.
CHAIR: Senator Conroy, you have got the call.
Senator CONROY: Could I also just indicate that because the chair and the majority of the committee refuse to allocate sufficient time for us to complete all of our questions we will be calling you to a Senate select committee. Originally you could not make the date because you were chairing Suncorp. It has been moved to the 12th, I am guessing. I wanted to indicate to you, so you have got it on the record, we will expect all of your direct reports, Mr Rousselot and others included, on that date to complete our questioning of you on this and a range of other questions we will not get to today. I wanted to put that on the record upfront so that we all know that one of the reasons you will be forced to come back is the filibustering taking place from the Chair and the deliberate reduction of the amount of time available for senators from the opposition to ask questions. I just wanted to give you the heads-up on that one.
CHAIR: Senator Conroy, can I just add we have over three hours here. You have been—
Senator CONROY: Of which you are allocating an hour and a half for your team to ask questions.
CHAIR: No, that is simply wrong. You have been allocated two hours.
Senator CONROY: How kind of you!
CHAIR: Listen to me. You have been allocated two hours, the Greens 40 minutes, and the coalition just 35 minutes.
Senator CONROY: How kind of you!
CHAIR: If those people do not use that time we will come back to you.
Senator CONROY: How kind of you!
CHAIR: But you have been issued the lion's share.
Senator CONROY: How kind of you to say we can only have, as a committee of the parliament of Australia, three hours to question a $40 billion investment! That is what I call increased transparency under the Turnbull portfolio! How kind of you to allow us to have—
CHAIR: Senator Conroy, we could argue it but you might want to go on with your questions, perhaps, and use the time.
Senator CONROY: I will. I noted from an article in ZDNet on 17 February that some 7,800 premises from the TransACT fibre deal will be added to NBN Co's premises passed for March. Is that correct?
Dr Switkowski : Yes, having acquired those. Now that they are customers they will be added.
Senator CONROY: My understanding, when the original deal was announced, was that Mr Turnbull and Senator Birmingham expressed outrage that they could possibly be included in a premise count. Have they indicated that to you at all?
Dr Switkowski : I have not had that conversation.
Senator CONROY: Absolute outrage; it was a rort to include those numbers towards your target. That is what they expressed previously. I am just checking to see whether they have done it again.
Dr Switkowski : What I can say, because it has been the subject of our own internal executive conversations, is that we will flag any additional customers that have been included because they have been acquired in that way, just to make it transparent.
Senator CONROY: No. To be clear, I indicated they would not be included for the purposes of that, to avoid that exact same thing. I just wanted to know whether the minister or Senator Birmingham, Parliamentary Secretary Birmingham, had been in touch with you to express their outrage at your decision.
Dr Switkowski : No.
Senator CONROY: Thanks. I am shocked! But more importantly, is this 7,800 premises that you do not need to build to reach your low-ball target of 357,000?
Dr Switkowski : No.
Senator CONROY: You are expecting to make 350,000 plus the 7,000?
Dr Switkowski : If you want to add it in that way, yes.
Senator CONROY: Thanks. Do you recall the graphs of the various rollout trajectories for NBN Co that I showed you at the December hearing of the Senate select committee?
Dr Switkowski : Generally.
Senator CONROY: During that discussion I noted that NBN Co was passing, on average, about 5,000 premises per week. I also noted that if NBN Co plateaued at its current level of activity NBN Co would easily pass more than 400,000 premises by 30 June 2014. I do recall, Dr Switkowski, you took a very dim view of this 5,000 average, given that it included downtime over the Christmas break. What is NBN Co's current weekly average?
Dr Switkowski : Somewhere between 4,500 and 5,000 premises passed.
Senator CONROY: I also note that Mr Adcock said last night that NBN Co expects to be doing 6,000 premises by 30 June. Is that correct?
Dr Switkowski : That was the statement that was made, yes.
Senator CONROY: I have been doing some maths of my own. NBN Co's weekly average for brownfield premises—and I think you are roughly indicating this—passed over the past 17 weeks is about the 4,500. If you exclude the two weeks Christmas shutdown where contractors appear to have downloaded tools, it comes to 5,078, between, as you said, 4,500 and 5,000.
If you extrapolate 5,000 premises, which is less than your own chief operating officer is indicating, to 30 June, and there is no Christmas shut down between now and 30 June—that is right, isn't it?
Dr Switkowski : Just Easter.
Senator CONROY: You are having an Easter shutdown as well?
Dr Switkowski : I am just reflecting how the industry operates.
Senator CONROY: Fantastic. NBN Co gets to slightly more than 400,000 premises. Even if you take the 4,500 weekly average and assume a steady linear growth to Mr Adcock's 6,000 per week by 30 June, NBN Co will still pass more than 400,000 brownfield premises by 30 June. Without you having done the maths and hoping that I am not seriously misleading you at the desk, does that sound about right?
Dr Switkowski : Your algebra is certainly right.
Senator CONROY: To meet the strategic review target of 357,000, NBN Co now only has to pass 45,295. I probably included the TransACT deal in your target there.
Dr Switkowski : Yes.
Senator CONROY: I appreciate that point. Allow a little movement because of that. So you only have to pass 45,000 premises in 19 weeks from the week ending 16 February? That is only 2,300 roughly a week, which is about half your weekly average over the past four months. Even without the TransACT deal, you will need to pass 2,794 premises a week to meet the 357,000? So you only need to pass 2,700 homes to meet your own target each week, which is basically half your own forecast rate today?
Dr Switkowski : I think you are generally right. Just to make it easy, from today's level of homes passed, with the 357,000 number, a weekly run rate of about 3,000 homes passed will get us there.
Senator CONROY: You are planning on being at 6,000. I am agreeing with you but you are planning on being at 6,000.
Dr Switkowski : We are. I hope to be in front of the committee after June explaining how we did better than the early forecasts.
Senator CONROY: If you set the bar as high as a pencil on the floor you can get over it. But well done. Seriously, you actually set a target so low that it is lower than when Malcolm Turnbull accused NBN Co of doing an arthritic snail. You actually in your strategic review set a target that is an arthritic snail.
CHAIR: Senator Conroy!
Senator CONROY: Slower than an arthritic snail.
CHAIR: Senator Conroy, address the minister by his correct title, please.
Senator CONROY: Sorry, Minister Turnbull.
Dr Switkowski : Recall the strategic review made the forecast based upon their analyses last October and November of the history of the NBN and the then run rate, and they put out a number that was 357,000 homes passed which, at the time, looked consistent with what we might be able to deliver if we managed to straighten out the whole production line. Now that we are three months further in and three months out from the end of the year and we have got a more reliable fix on the run rate, can I say a little more than 357,000 homes by year end, while happily will be a reasonable result in the context of expectations, is still not an acceptable number. It is too low.
Senator CONROY: I am intrigued because you do remember you went to Blacktown. There was a YouTube video of it. I know you love YouTube videos. On 8 November you went to Blacktown with Minister Turnbull. Do you remember that?
Dr Switkowski : I remember the experience, yes.
Senator CONROY: The experience, yes. You stood next to the minister when he said they would pass 450,000 premises by 30 June 2014. You did not correct him at the time. I am just intrigued. It was 8 November. It was after the date when you just suggested you were doing all of your calculations. You did not turn to him in the video and say, 'Minister, no, we are only going to pass 357,000.' Why was that?
Dr Switkowski : 8 November was five to six weeks before the end of the strategic review. I did not have any numbers at that point.
Senator CONROY: On what basis did Minister Turnbull pick 450,000?
Dr Switkowski : I think we had that discussion last time. I cannot explain Minister Turnbull's reasoning for that number but I can kind of reconcile it with the numbers that were being floated around at that stage, which had started at 600-plus thousand and were edging their way down, and they had probably moved through the 450,000 mark at that point. They got to 350,000 on 12 December.
Senator CONROY: Minister Turnbull, on 8 November, with you standing next to him, said 450,000 premises and you said nothing.
Dr Switkowski : I had no basis for saying anything at that point.
Senator CONROY: Because I know you are always interested in accuracy, we have someone online who has been listening to the debate and they live with an Optus cable going past their house. They have actually just phoned Optus and asked to be connected but were told that even though the cable runs past their place it is not available to them. I just wanted you to know that there are two Australians now that you are aware of. His tag is scottatron. He has just tried; that is two. Perhaps we will discover three or four before the end of the hearing. But don't worry. In your world, Optus can connect everybody. And this is long before the NBN came on the—
Dr Switkowski : Senator Conroy, you are misrepresenting the discussion.
Senator CONROY: I think Hansard will accurately record the discussion.
Dr Switkowski : The relevant point was that when the cable rollout went out for subscription television, people could order a service and get it. There was not a category—
Senator CONROY: What year was that? Was it 1995 that you were involved in that?
Dr Switkowski : It was.
Senator CONROY: And in the year 2014—
Dr Switkowski : Excuse me. There was not a category that said 30 per cent of the premises that we pass with the cable rollout cannot be connected. That is what is happening.
Senator CONROY: And NBN Co—
Dr Switkowski : That is what was happening with NBN Co.
Senator CONROY: I am sorry; I have accused people of misleading but you are simply lying to the committee now and misrepresenting service class zero.
Senator CONROY: You should be ashamed of yourself.
CHAIR: Order, Senator Conroy!
Senator CONROY: That is a straight lie about—
CHAIR: Senator Conroy!
Senator CONROY: connecting Service Class 0—
CHAIR: Senator Conroy!
Senator CONROY: since the election, and you know it.
CHAIR: Senator Conroy, I ask you to retract what you just said.
Senator CONROY: No, absolutely not.
CHAIR: The committee will be adjourned while we have a private meeting.
Proceedings suspended from 12:03 to 12:05
CHAIR: The committee will resume. Senator Conroy, I ask you to retract what you said earlier on.
Senator CONROY: I retract.
CHAIR: Thank you. Continue your questioning.
Senator CONROY: Dr Switkowski, as we have discussed, the strategic review assumes a very slow fibre rollout in the revised outlook, even slower than the minister was forecasting in November. Because of the slowness of that rollout, the completion date in the strategic review gets to be pushed out to 2024; is that correct?
Dr Switkowski : Of the original plan, that is correct.
Senator CONROY: The strategic review's plan. Its forecast of the completion date for the purposes of its forecasting of the costs and everything—
Dr Switkowski : For the multi-technology mix model?
Senator CONROY: No. This is for the—
Dr Switkowski : For the fibre to the premises model?
Senator CONROY: Yes, fibre to the premises.
Dr Switkowski : That was extended to 2024.
Senator CONROY: Given that NBN Co is currently tracking at about twice the rate assumed in the revised outlook just to 30 June, what will be the effect of this faster rollout on the completion date assumed in the strategic review?
Dr Switkowski : This is symptomatic of the forecasting methodology that used to be used, and that is—
Senator CONROY: We are talking about yours.
Dr Switkowski : No. That is, you take the run rate in the early months of a rollout and then attempt to extrapolate 10 years on the basis of variations. If the run rate was twice as fast for a month, you would then increase the outlook proportionately. That does not make any sense at all. So whether we pass 5,000 homes a week at the moment, 4,000 or 6,000 is immaterial to our judgement as to what is going to happen in 2020.
Senator CONROY: No, I am actually asking you about what is happening right now, in that you are exceeding your own forecast.
Dr Switkowski : At very low numbers.
Senator CONROY: And you are exceeding your own forecast and forecasting to increase—
Dr Switkowski : While we re-engineer the processes those numbers are going to vary. Hopefully, they are going to vary—
Senator CONROY: They are not varying at all. They have been consistent now for 17 weeks in a row.
Dr Switkowski : At a very low level. Hopefully, they will increase—
Senator CONROY: No, you are actually increasing them.
Dr Switkowski : As we must.
Senator CONROY: You have actually increased them. The point I am making is that, with the number you have forecast, you are already easily surpassing the number.
Dr Switkowski : I would never, with three per cent of the task done, revise my estimates 10 years out on the basis of that experience.
Senator CONROY: You have made a forecast, on the basis of no information whatsoever, to do an entire rollout of—whatever you call it.
Dr Switkowski : We have devised a strategy in terms of the technology choices and how we will go about the rollout; that is true.
Senator CONROY: You have done an eight-year rollout plan and a business model based on the exact same type of assumptions.
Dr Switkowski : But these are not—
Senator CONROY: So it is not credible for one set but credible for the ones you want to put your name to.
Dr Switkowski : In any business, in an early stage, as you gain experience and as you make the sharp revisions that we are making, changes in the performance are not going to be reflected in a changed estimate 10 years out.
Senator CONROY: But you are prepared to put your name to forecasts eight years out?
Dr Switkowski : The strategic review laid out expectation and scenarios. The forecasts—
Senator CONROY: It is yours, isn't it? It is yours.
Dr Switkowski : The forecasts that we will be accountable for will be published when we produce our 2014-15 budget and then the 2014-17 corporate plan. We foreshadow that the next step in the strategic review process is to take the strategy, subject of course to government feedback, and then reduce it to practical, measurable milestones over the next one to three years.
Senator CONROY: I am very confused by your evidence, Dr Switkowski. You are prepared to stand behind your own forecasts done by Mr Turnbull's mate. You are prepared to sit there and say that, with just three per cent done, you can extrapolate a figure, but you are not prepared to take any other extrapolation. You are absolutely changing your story to suit the facts.
Dr Switkowski : No, I am acting in a very commercially normal way.
Senator CONROY: You are absolutely changing your story to suit your own facts.
Dr Switkowski : Let me give you another example, Senator Conroy. As we revealed on Friday of last week, the total investment so far in NBN Co approaches $7 billion for three per cent of the build. If you—
Senator CONROY: Dr Switkowski—
Dr Switkowski : Excuse me. If you extrapolate that by a factor of 30, you get $210 billion.
Senator CONROY: What an absurd—
Dr Switkowski : Is that a sensible thing to do?
Senator CONROY: Did you say you were applying business principles?
Dr Switkowski : Hang on a minute. I am giving you a kind of reasoning that I think is closer to the way you are coursing this conversation. You cannot just take numbers without understanding exactly where you are in the history of a particular project and then make a judgement 10 years out. As your reaction suggests, that would be foolish.
Senator CONROY: It would be dishonest of anybody to sit there and say that the capex cost of the transit network can be divided into the number of connections. That would be seriously dishonest. So to talk about $7 billion, of which a couple of billion is the transit network to make every single home in the country work, is just a dishonest representation.
Dr Switkowski : Senator Conroy, you are contriving again; you complain of this allegation of dishonesty. What I am saying is that you cannot take one figure and then say therefore the end result is going to be a multiple of that figure at this stage of a project of this magnitude and this complexity. Our forecasts are much more nuanced than that and, I hope, rooted in experience and actual performance than simply a linear extrapolation on the trend over a couple of months.
Senator CONROY: We established at the December hearing that one result of this slower rollout that the strategic review artificially places is that some $11.6 billion in revenue is lost and pushed out beyond 2021. So $11 billion of revenue because of your decision to go slower is pushed out into the never-never for the purposes of your calculations.
Dr Switkowski : But Senator Conroy—
Senator CONROY: Could I ask my question? Dr Switkowski, what would be the effect of a faster rollout on NBN Co's revenue in the revised outlook for the years 2014 to 2021 relative to the strategic review's forecast?
Dr Switkowski : Two things. Firstly, you have just accused me of not slowing the rollout because the figures are higher. Second point—
Senator CONROY: There are two very separate points.
Dr Switkowski : The second point is that, if we can accelerate the rollout, that will be good for NBN and it will be good for Australians. That is what we are trying to do.
Senator CONROY: What would be the result for the faster rollout for revenue?
Dr Switkowski : I cannot do that calculation in my head.
Senator CONROY: Would it be fair to say you would lose revenue by rolling out faster?
Dr Switkowski : No, I just said it is good; it is positive.
Senator CONROY: So you would gain revenue by rolling out faster?
Dr Switkowski : Yes.
Senator CONROY: Magnificent. And you are exceeding your forecast at the moment?
Dr Switkowski : To the extent that that is a relevant observation, yes.
Senator CONROY: To the extent that it is a fact, yes. Another effect of the slower rollout that you forecast miraculously in the revised outlook is that operating expenditure is increased. Page 38 of the strategic review states:
Cumulative Operating Expenditure to network completion increases by $5.4 billion in the Revised Outlook. This is as a consequence of the delay in premises being passed, the consequential increase in license and migration payments, and the addition of three more years of Operating Expenditure.
Dr Switkowski, what would be the effect of a faster rollout on NBN Co's operating expenditure assumed in the revised outlook for the years 2021 to 2024?
Dr Switkowski : What is the question? What will our expenses in the aggregate be?
Senator CONROY: No. What would your expenses be if there is a faster rollout in those three years? The answer is 'lower'. But I could offer you the option. Is it going to be higher? No. The answer is?
Dr Switkowski : The reason I hesitate is that by then operating expenses are tied to the revenue generation of the network.
Senator CONROY: Correct. So if you are getting more revenue your operating expenses are lower.
Dr Switkowski : No. I think the point that you are trying to get to, which is correct, is that by then the capital spending will be done and our operating expenses will be in line with whatever marketing successes we have at that time.
Senator CONROY: It's algebra, Dr Switkowski, and the algebra says that if your revenue increases here then your operating expenses in that 2021-24 are down.
Dr Switkowski : No, no; I am sorry. You misunderstand the way the accounting works.
Senator CONROY: We can agree to disagree and we will come back to argue this at considerable length on the 12th. Another effect of the slower rollout assumed in the strategic review is that NBN Co will need to borrow more from debt markets and pay more interest. We also established that in the December hearing. You had $7.5 billion in interest payment—that is page 38 of the December transcript. The overall effect, in combination with the deployment, revenue and opex factors that we have discussed, is that the strategic review assumes a peak funding blow-out of $13 billion based on one core assumption about the speed of your rollout. What would be the effect of a faster rollout on NBN Co's peak funding assumed in the Revised Outlook?
Dr Switkowski : Did you want to have a go at that, Robin?
Senator CONROY: I am not sure he did any work on the strategic review. It is your strategic review--
Dr Switkowski : It is.
Senator CONROY: I would appreciate your answer. You are responsible for it.
Dr Switkowski : And I am.
Senator CONROY: He was put in a room and you had the wonder boy, Mr Rousselot, who is not here unfortunately; there is no explanation for why—
Dr Switkowski : The explanation, Senator, is somebody has to be doing some work back at NBN Co.
Senator CONROY: This is the Parliament of Australia. It is the Senate Estimates.
Dr Switkowski : This is the fifth time we have appeared in three months—
Senator CONROY: And it will not be the last.
Dr Switkowski : and we are traversing the same sort of ground.
Senator CONROY: If you continue to not present witnesses and the government members continue to waste time and limit time, unfortunately you will get to keep coming back. I do not particularly want to be here any more than you do, but the opportunities are continuing to be truncated by Senator Williams and the Liberal members of both committees, unfortunately. Dr Switkowski, just say to them, 'I can handle Conroy; let me deal with him.' Just tell them that!
Senator Fifield: Senator Conroy, the reason we are here—and I guess the reason we are traversing these areas—is that this government and NBN Co's new management are endeavouring to fix up your errors. I have been stunned, I have to say, by the focus you have had on forecast, given that there was not a single forecast that you met during your tenure as minister, and that you are focusing on the speed of rollout—
Senator CONROY: Does he have a question? Does the minister have a question?
Senator Fifield: given your disastrous—
Senator CONROY: Does the minister have a question?
Senator Fifield: rollout program.
Senator LUDLAM: I do not understand what this is going to achieve.
Senator CONROY: Neither do I.
Senator Fifield: I am just trying to explain to Senator Conroy why things might seem to be taking time.
Senator CONROY: I'm sorry that you do not understand anything we are talking about, but I cannot help you.
Senator Fifield: Clearly, you are learning as we go here, given your results when you were minister.
Senator CONROY: Dr Switkowski is doing fine. He does not need your help—honest! Ask him.
CHAIR: Senator Conroy, continue the question.
Senator CONROY: Thank you. I will ask him a question. So the key here is that you are going faster already—in just a few short months—than your strategic review forecast you would. That is unambiguously true.
Dr Switkowski : That is true.
Senator CONROY: As much as you try to dismiss it, it is unambiguously true.
Dr Switkowski : But it is not going faster than we were tracking up until the strategic review, or indeed the change of government. So the reference is the number that the strategic review put out there for the end of June—
Senator CONROY: which was an incredibly low-ball number.
Dr Switkowski : Relative to that number, we are tracking better at this stage.
Senator CONROY: Your forecasts all through for the fibre-to-the-premise rollout are just outrageously, outrageously low.
Dr Switkowski : I do not accept that.
Senator CONROY: You can accept it or not accept it; it is just a statement of fact.
Dr Switkowski : Senator Conroy, the revised strategy under the multi-technology mode anticipates that the rollout will be finished around about 2020, with the expenditure of $40 billion plus. I think that is a very, very demanding outlook. In support of that, I would remind you of the following: NBN, as I recall, was announced in April of 2009 and construction began a couple of months later.
Senator CONROY: In Tasmania.
Dr Switkowski : It is now five years—
Senator CONROY: It is the only place it started.
Dr Switkowski : The announcement, as I recall—and I stand to be corrected—
foreshadowed an eight-year rollout plan in 2009. Five years into that period, we are at three per cent.
Senator CONROY: No—there is where you are being dishonest again.
Dr Switkowski : Excuse me. No. No. Excuse me.
Senator CONROY: There is where you are being unqualifiedly dishonest.
CHAIR: Senator Conroy!
Senator CONROY: If you qualify it I will happily—
Dr Switkowski : I am qualifying it because I am going from memory. My point here is not to criticise you or the then government, but to point out how hard this is. And to suggest that, after a change of government and a change of personnel, we happen to be doing a bit better than one line in the sand from the strategic review, therefore the outlook is all of a sudden so much easier and brighter is, I think, misguided.
Senator CONROY: I am not suggesting for a moment it is easy at any stage. I lived it for the entire period, so I know how hard it was to get the machine cranked up and keep it cranked up, just like you are successfully doing. I know what goes into it. But where I disagree is with your overtly political statements, which you continue to make to pad out your case; statements like 'five years later'. The Tasmanian build commenced a few months after, in 2009. Then there were trial sites. The actual volume build was only projected to commence from about 2011. Just so you know in the future, any time you try to pretend that we have done three per cent in five years you are misleading Australians.
Dr Switkowski : Well maybe—
Senator CONROY: Just misleading them. I accept this on the basis that you have not followed it as closely as others. But you now have no excuse for misleading Australians.
Dr Switkowski : Indeed. Again, in the spirit of my further education, at which stage did you say that the rollout would take eight years?
Senator CONROY: When the first corporate plan came out, which was 2010-11 I think. I would have to go back; it is a long time since then. Then the Telstra negotiations—you would be familiar with them, not as in participating, but familiar with them—took 18 months. The plan accepted the reality that we had 18 months before we got access to the ducts. Then the forecast was made from 2012.
Dr Switkowski : Okay.
Senator CONROY: It would be from this point forward dishonest of anybody, yourself included, to suggest we built three per cent in five years. That would just be dishonest.
Dr Switkowski : But acknowledging the formidable challenges which characterise a project like that in its early stages, and which quite reasonably can be used to explain where the rollout is at the moment, I should also state that many of those challenges are still in front of us, including any renegotiation with Telstra.
Senator CONROY: The minister said it will be completed by June.
Dr Switkowski : That is why I am careful in cautioning you about taking a few months trend data and saying that as a result, this rollout is going to be faster, less expensive, much easier than what we are commentating about. It is not.
Senator CONROY: I am not disagreeing with you about the challenge. I have lived it longer than you, but you have inherited the challenge and so far, in terms of getting the contract and the rolling out, you are doing as good a job as anyone could in the short time that you have had.
Dr Switkowski : Is that on record somewhere, please?
Senator CONROY: Put that on the record. But what I will not let you do is continually misrepresent what actually happened, mainly due to your having just followed the political discourse, as opposed to the facts—
Senator Fifield: 'What actually happened'? Very little happened under you; that is the whole point, Senator Conroy. That is the whole point.
Senator CONROY: A point in case.
Senator Fifield: No, Senator Conroy; it is not a political point. It is a statement of fact. Very little happened under your watch. Very few houses, very few premises in Australia were connected to the NBN under your watch. That is a fact. That is not a political point, regardless of who makes it.
Senator CONROY: Thank you. Dr Switkowski, an article in The Examiner on 17 August, 2013 quoted Mr Turnbull as saying:
Mr Turnbull confirmed a previous pledge honouring all existing contracts signed by NBN Co to roll out fibre-to-the-premise in Tasmania.
Are you aware of this article?
Dr Switkowski : I am aware of the statement.
Senator CONROY: Are you aware of the same article, which stated that Tasmanian Senator David Bushby 'also dismissed Ms Collins by saying the Liberals had costed their policy on Labor's full Tasmanian rollout'?
Dr Switkowski : I am not aware of that.
Senator CONROY: A Tasmanian senator stated that. Do you agree that it was reasonable for Tasmanians to conclude, particularly from Senator Bushby but also from Minister Turnbull's statement, that the coalition was promising to complete the fibre-to-the-premise rollout of Tasmania, as committed to by Labor and NBN's contract?
Dr Switkowski : My inference was that the coalition was committed to honouring contracts.
Senator CONROY: No. I am not asking for your opinion yet. We will get to that. I am asking about what Senator Bushby said.
Dr Switkowski : I am not aware of the article. I would hate to have to interpret the intent.
Senator CONROY: 'The Liberals had costed their policy on Labor's full Tasmanian rollout' included in their costings—that is fairly clear, but I will let you slide by, by not embarrassing Senator Bushby. Are you aware of any effort made by Mr Turnbull or Senator Bushby to explain that what they really meant was that they would change how their rollout would be constructed, and claim that it was honouring the contract?
Dr Switkowski : Firstly, I am not familiar with Senator Bushby or those comments so I am not sure how to respond to the question.
Senator CONROY: A couple of days ago, on 13 February, you said on Radio ABC in Tasmania, 'There is a contract with Visionstream to connect 225,000 Tasmanian homes to high-speed broadband. It doesn't specify the technology, but obviously, in the previous model the infrastructure was going to be an all-fibre infrastructure. We've now agreed on a multi-technology mode, where we will seek to use existing copper network where we can.' That was you?
Dr Switkowski : That was me.
Senator CONROY: I have not misquoted you at any stage?
Dr Switkowski : That sounds right.
Senator CONROY: Am I right in saying, Dr Switkowski, that you were very explicit in saying that your MTM—that is how you refer to it—would be used in Tasmania, just as it is proposed to be used on the mainland?
Dr Switkowski : My message was that we would run all-fibre in Tasmania until such time as the alternative rollout strategy could be analysed and applied to Tasmania, which I expected to be at the end of this calendar year.
Senator CONROY: Sorry, could you say that again?
Dr Switkowski : I do not think so.
Senator CONROY: Could you paraphrase it for me?
Dr Switkowski : My message was: the fibre rollout would continue in Tasmania—and elsewhere, frankly—for the remainder of this calendar year. It will take us that long to determine how to execute the multi-technology model. At that point we will have business rules in place to determine how the rollout will progress, as explained elsewhere.
Senator CONROY: I did not bother to quote the other part, but I think you also said that you would be going to roll out fibre to the end of the year and then after that it was whatever?
Dr Switkowski : Yes—that is the consistent message.
Senator CONROY: Following your comments, The Examiner on 17 February in its editorial wrote:
In other words, after this year some residences, some businesses, some schools and even some regions would enjoy super fast connection but others wouldn't or would have to wait. That is not what Mr Turnbull said in last year's federal election campaign.
That is their editorial—I am not adding anything to it. Given that your comments have been interpreted by Tasmanians as not being the same as what Mr Turnbull promised last year, have you had any conversations with Mr Turnbull about the inconsistencies between his comments and your statements on radio?
Dr Switkowski : I continue to have conversations with the minister, mainly in the context of Tasmania and what the Tasmanian rollout outlook is.
Senator CONROY: On 18 February the ABC recorded Tasmanian opposition leader Will Hodgman as saying that the NBN could cost him the election. On 20 February The Examiner and the Australian followed reports on television that Mr Hodgman had travelled to Sydney to see Bruce Springsteen and also to petition Mr Turnbull to claim to an all-fibre rollout. Finally, Mr Turnbull said on radio on Friday that NBN Co is looking very seriously at aerial fibre trials in Tasmania but these trials would not be completed before the state election. So did Mr Turnbull or his office or his department have any conversations with NBN Co about the rollout in Tasmania before or after Mr Hodgman's visit?
Dr Switkowski : I cannot reference Mr Hodgman's visit because I was not part of that, but in the lead-up to my visit to Tasmania, and certainly thereafter, there has been continuing dialogue between the minister, his office and NBN about how we might expand the range of options for Tasmania.
Senator CONROY: Mr Turnbull said on Friday—I am sure someone has drawn it to your attention—that these aerial rollout trials will start very soon.
Dr Switkowski : There are discussions to do that.
Senator CONROY: No. He said they would start very soon—not that you had discussions to start them. He said they would start very soon. So how soon before you commence an aerial fibre trial in Tasmania?
Mr Switkowski : Here is where we are. We have our chief operating officer, Greg Adcock, in communication with Visionstream and Aurora in Tasmania. You are aware that Aurora put a proposal to NBN in October 2013 to encourage an all-aerial build. We have maintained that conversation, but we are at the point now where we would like to find two or three communities where we can run a controlled trial of a Visionstream-Aurora aerial build-out of an all-fibre network and compare it with what fibre to the node might cost as well as the current fibre-to-the-premises cost base. That may take us some time to do. I do not have a start date, but I imagine it will start in the weeks ahead, and we will have some information that will guide our decision some time thereafter.
Senator CONROY: Mr Turnbull said very soon. This is very germane to the Tasmanian public. Is Mr Turnbull misleading them? Can you give us any rough indication of when you will start? Certainly not before the election, which is a couple of weeks away.
Senator Fifield: Is that the Leon Compton interview that you are citing?
Senator CONROY: I think it is. There is a transcript on Mr Turnbull's own website. That is where we are drawing it from.
Senator Fifield: To assist the committee I will read the full quote. It says
Well, the NBN is working through the feasibility of that and we're - if we agree to go down that route, and we're looking at it very seriously, but we're not going to be - I know there's an election on, but we've got to - NBN Co is a business and it's got to look at these things carefully and in a considered way, but they would start very soon, yeah, sure.
Senator CONROY: 'Soon, yeah'. That is what he says.
Senator Fifield: That is right. It is premised on working through these issues carefully.
Senator CONROY: I am asking Dr Switkowski to give us an indication of what 'soon' is. He is gun shy, what can I say? That is the only time I have ever seen Dr Switkowski gun shy. We have Mr Brown, who is in charge of all this area, with us. Perhaps he can. He is busily scribbling you notes. Mr Brown, don't be gun shy. Come on down.
CHAIR: Senator Conroy, order.
Senator Fifield: I am simply making the point from Minister Turnbull's own words that NBN is working through the feasibility.
Senator CONROY: And I am asking Dr Switkowski for a definition of 'soon'.
Mr Switkowski : Can I ask Mr Brown if he can add to this?
Senator CONROY: We would love to hear from Mr Brown. You know the informal rule we have always had: if you don't get your name on Hansard, you don't get paid! You should enforce that as well, Dr Switkowski; it stops them hiding.
Mr Brown : I am looking forward to being paid! We are in discussions with Visionstream and Aurora. We need to find the right design. We need to pick the right place and then get the design done to enable us to string the cables up. I would expect that to be finalised within the next month. Whether it commences in the next month is a question of which place and Aurora's resource availability, but Aurora certainly are committed to doing this. We want to do it and we want to see the real cost of actually building and running it. Until we do that, we are not in a position to know those numbers.
Senator CONROY: How many premises were you planning on doing? Dr Switkowski said a control of a couple hundred, was it?
Mr Brown : We expect it to be smaller than an FSAM; but, if you think of an FSAM of about 2,800, it is probably likely to be between 2,000 and 2,800. But, until Aurora and Visionstream agree, we have not nailed that up yet. It needs to be big enough that we can actually have a good, clear view of the participants.
Senator CONROY: I am not disagreeing. I have some experience with overhead rollouts in Tasmania, as do you.
Mr Brown : Indeed.
Senator CONROY: Okay, so about a month. You can understand people would be sceptical; it was promised to them before an election once before that they were going to get a fibre rollout, so I want to make sure we have something we can hold you to. The Tasmanian public were told by Senator Bushby it was going to be a full-fibre rollout before the last election.
Moving on. I understand the Visionstream contract renegotiation has been settled. Is that correct?
Mr Switkowski : Not quite. We have agreed with Visionstream on terms under which their work would continue and we have agreed that there are areas of dispute that will be subject to a more formal process of resolution. So good progress restored good working relationships, and we are seeing evidence of that in the field.
Senator CONROY: I think you or Mr Turnbull said the original contract was 225,000 homes with fibre to the premises. It was known as work package 4. Does that sound familiar, Mr Brown? I do not expect Dr Switkowski to be able to reel off old work packages.
Mr Brown : Yes, it was.
Senator CONROY: And that was a physical design, the fibre build and the ongoing maintenance of the network. Is that correct?
Mr Brown : That is correct.
Senator CONROY: What was the term of the work package for?
Mr Brown : For four years, commending March 2012.
Senator CONROY: Two plus one plus one?
Mr Brown : Yes.
Senator CONROY: What is the term of the new contract?
Mr Brown : What we have effectively done is amended the previous contract to cover 16 FSAMs, which is about 36,000 premises. That amended agreement specifies dates for delivery.
Senator CONROY: When do they have to be completed by?
Mr Brown : That is a subset of the original contract. We have nominated specific FSAM locations for start and finish dates as part of that agreement.
Senator CONROY: Okay. So they have a contract to complete 36,000 by the end of the year?
Mr Brown : There is a sunset date as to when they are going to be finished. That is December—effectively 12 months from when we made this amendment to our existing contract.
Senator CONROY: So this was an amendment back in December.
Mr Brown : Yes. Last December we signed the amending agreement to take a subset of the work that was part of the original contract and commit to dates and deliveries. The onus is on them to complete that. At this point in time there are two of the 16 FSAMs close to final completion. Nine have commenced work and five are yet to start. We would expect at this stage—
Senator CONROY: Sorry, can I clarify? There is a completed set of FSAMs right now?
Mr Brown : Yes.
Senator CONROY: There are some that were underway prior to 16 December, and there was construction work underway—depending on if we can avoid the argument about what construction is, because I think Dr Switkowski accepted what construction was at the last Senate hearings—in more than 16 FSAMs.
Mr Brown : That is correct.
Senator CONROY: In how many FSAMs was work underway?
Mr Brown : I would have to take that on notice. It was more than FSAMs.
Senator CONROY: Because 90-odd thousand homes were covered. I can get a copy of the map that was up on the website and that has been removed, but my rough understanding was it was 90,000.
Mr Brown : That would be approximately correct for the design phase. When I talk about 16 FSAMs, this is the construction phase.
Senator CONROY: You may not have caught up with the news flash that Dr Switkowski accepted that the design and construction phase included what you are now trying to define as just the design phase. I said I was trying to avoid that particular argument because Dr Switkowski has stated on the public record he accepts that having people walking down the streets in uniforms with traffic management and hats on is construction work. He has accepted that, so you do not need to keep that pretence anymore. It may not have made its way to Minister Turnbull yet, but Dr Switkowski has accepted the real world.
Mr Brown : In clarifying: I referred to 16 FSAMs that are in the actual construction phase as against the design phase, and some of those are completely new start work.
Senator CONROY: Okay. I accept that. That is what I am trying to clarify. What is new work that you have picked out and told them to go to on top of the 90,000 that were under construction and design—I am trying to avoid getting into an argument. So this 36,000 is a complete subset of that 90,000 or has some from outside that 90,000?
Mr Brown : I will take it on notice to confirm, but I understand it is a subset of the 90,000 that were captured in the design phase; but, again, many of those had had no work actually commenced in the street.
Senator CONROY: Depending on your definition of 'design' and 'construction'—but, as we have said, Dr Switkowski has accepted. But also Visionstream obviously had some difficulties, so it is possible that they, as you suggest, had done no work at all, not even the trundling down the street. Will Visionstream be paid in full for their original contract? Will they receive the same amount of money?
Mr Brown : Will they be paid in full when they finish the work?
Senator CONROY: Will they receive the same amount of money as they were forecast and announced on the stock exchange that they were going to receive for the 36,000 premises?
Mr Brown : The amending agreement included new commercial terms, which are commercially sensitive and in confidence and we are not going to—
Senator CONROY: I am just asking whether they are going to be paid the amount of money announced on the stock exchange and that you—not you, but the NBN has previously acknowledged. The question I am asking is: are they going to be paid the same amount of money for 225,000 premises or are they going to get paid for whatever they have already done, plus the 36,000? This is a very germane question that you will ultimately have to answer. It is not about the sensitivity about per FSAM; this is about a quantum, and quantums you have to tell us. So what is the quantum of the new contract?
Mr Brown : As I have attempted to point out, the 36,000 premises that are covered by the 16 FSAMs under the amending agreement is a subset of the original contract. They will be paid consistent with the terms of the original contract and any amendments we make as part of that—
Senator CONROY: Are you getting any money back from the—was the original contract $350 million?
Mr Brown : I would need to take that on notice. That is approximately correct.
Senator CONROY: Approximately? I have to get it—
CHAIR: Senator Conroy, Senator Ruston cannot be here after lunch.
Senator CONROY: That is cool. I am happy to pause.
CHAIR: I have actually got you some more time.
Senator CONROY: Thank you. I am happy to pause. If I could just finish this question, I am happy to pass to you to facilitate.
Senator CONROY: With respect to the $350 million that Visionstream had originally allocated in the original contract, have you got any of that money back?
Mr Brown : No.
Senator CONROY: Are they going to receive $350 million for completing the remaining 36,000 premises or have you added in for next year's work that they will be doing—the fibre-to-the-node rollouts?
Mr Brown : The contracts are not structured that way. The contracts are structured such that there is a nominal value attached to them that is the design finish as we get a price on building each FSAM. At the end of that we will know whether we achieved the number that was nominally set up at the start. And there are a number of variation clauses in the contracts as well.
Senator CONROY: So they were contracted to received $350 million for 225,000 completed homes and they are going to deliver in total 36,000, plus what have we got completed already today?
Mr Brown : About 34,000, but they did not build all of those.
Senator CONROY: So there will be 66,000 homes completed against a target of 225,000 and they will still get the $350 million?
Mr Brown : No. That is not what I said.
Senator CONROY: How much money are you getting back?
Mr Brown : I said we would be paying them consistent with the contract and the contracts are set up where if they do certain work—quote us for the build of an FSAM—we pay for that. We will pay them for the work they do under the contract. We are not paying the contract.
CHAIR: Senator Conroy, I will now—
Senator CONROY: So how much of the $350 million will you get back? You know. I am asking for that information.
CHAIR: Senator Conroy. You can come back after lunch. Senator Ruston, you have the call.
Senator RUSTON: With respect to the NBN satellites that you referred to that are coming into operation, do we have a reasonably definitive time of when they are likely to be operational?
Mr Switkowski : We do, although I might invite John Simon to contribute to this conversation.
Mr Simon : The long-term satellites are planned to be in operation in 2015 with the launch and then an operation migration period, which takes us into September.
Senator RUSTON: I think Senator Smith discussed it earlier with the department, but probably without question the biggest issue that I face as a senator who lives in rural and regional Australia has been this issue of access to any real service at all. What I am trying to work out is when I can go back and tell the people that knock on my office door every single day or who ring me or email me, if they can, when they are likely to be able to see an improved service over what they have got now? These are people who are not necessarily going to ever be able to go on to a fibre or a network. They are people who are going to always have to rely on satellite.
Mr Simon : Just to clarify the question, is your question as to when we will see an improvement on the interim satellite?
Senator RUSTON: No, I will come back to that. What I would like to know is when can I say to them, 'Look, guys, I know it has been a horrible road, but by such and such a date you should be able to get access to reasonable speeds in relation to'—
Mr Simon : So long-term satellite availability commencing September 2015.
Senator RUSTON: I was just being really careful. So if I say to these people that, from September 2015 it is reasonable for them to expect to be able to access this—
Mr Simon : Just to be clear, though, we also then have to migrate the users who currently sit on the interim satellite, the 45,000 or so, and also take on new customers as well. So there is a migration period and in parallel a period where we add new customers in addition to the 45,000.
Senator RUSTON: So what sort of migration period are we looking at?
Mr Simon : The migration period at this point is about 12 months.
Senator RUSTON: So, to be safe, we are still probably saying that they are likely to, at worst, be the end of 2016.
Mr Simon : No, if they are not on interim satellite we will also be able to take additional customers during that migration period.
Senator RUSTON: Is there any prioritisation being given to them if they choose to migrate to the permanent satellite? Would they get any preference over new customers?
Mr Simon : For economic reasons we have to migrate them off the interim satellite because of the cost: We have better economics on our long-term satellite than we do on our interim satellite. It is important that we take the availability of that. That is why we have the migration and existing as an important criterion.
Senator RUSTON: Okay. I have one of these services myself, but I have been lucky enough that I can now get ADSL because it has been extended, but over for the last couple of years people have been anecdotally telling me that the deterioration in the service has been quite marked. We are looking at potentially another 18 months or so. What can the users of the interim satellite expect to happen over that next period? Is it going to get worse or just stay as bad as it is now?
Mr Simon : It cannot get any worse, because there is a cap on the number of users that can be connected. Apart from a couple of beams where there is a bit of capacity left, in essence we have reached the capacity on all of the major beams that are the popular beams—the eastern seaboard and the Western Australian side.
Senator RUSTON: So there is no further capacity for the providers to sell larger packages than currently exist—
Mr Simon : We have actually had cease-sales—we have stopped the process of adding new customers. In addition we are looking to see whether there is any optimisation that we can do on the interim satellite. We are working through that at the moment; we have not closed a solution on that. So we are seeing what we can do to improve the service, recognising the cost of the service—we are sensitive to incurring more costs than the current $7,000-odd per user that is already there. But we recognise the need to try and lift service performance and we are working through that process. We hope to close off on whether we can have a solution to that over the next few weeks.
CHAIR: Mr Simon, just adding to Senator Ruston's question, going back to the two satellites launched next year and hopefully operating in September 2015: do you have any idea how much the wholesale price for NBN will be for a no-satellite service? I think it is out to cover about 400,000 people in the outskirts and remote areas. Is that correct?
Mr Simon : That is right. In terms of wholesale pricing, we do have a strategic review going on as we speak, on both satellite and fixed wireless. Part of the scope of that strategic review is to look at a range of topics, including the way we price it.
Senator CONROY: You are not considering putting the price up?
Mr Simon : We are looking at how we manage the tools to manage the capacity effectively.
Senator CONROY: Are you considering increasing the price of the NBN?
Mr Simon : We have not closed on any items at this point.
Senator CONROY: So you are not ruling out an increase.
CHAIR: Senator Conroy, I have the call.
Mr Simon : That is not what I said; you are putting words in my mouth.
Senator CONROY: You have just said it is on the table. I am asking you to rule it out.
Mr Simon : I am saying we have a strategic review to look at the best ways of optimising capacity and making sure we can meet the demands.
Senator CONROY: As part of the review are you considering increasing the price of NBN Co?
CHAIR: Disregard the question, Mr Simon—Senator Conroy does not have the call. I will go back to Senator Ruston.
Senator RUSTON: Going back to the people in rural and remote areas who have not been able to get access to the interim satellite, when did the 48,000 cap get reached?
Mr Simon : We are not technically right at it—there are a couple of beams that still have some capacity. But, effectively, we got there, more or less, by the end of December last year.
Senator RUSTON: So if I rang up tomorrow, and I was in a remote community and I wanted to be able to get access to this satellite, would I or would I not be able to get access?
Mr Simon : Not. There are some people who are leaving the service, because they may be moving home et cetera, and if a slot becomes available other people can take that slot. We are also looking, as we build our fixed wireless service, at potential overlap there—we may be able to migrate 1,000 or so users off the satellite onto fixed wireless, which would free up some additional capacity. But those are the numbers we are talking about.
Senator RUSTON: Sure. Because the original number of people who I understand were told they were eligible for this service was—165,000 or 265,000?
Mr Simon : I think you are referring to the eligibility and coverage discussion.
Senator RUSTON: Yes.
Mr Simon : I think we need to take a step back. NBN does not sell directly to end users; we do that for RSPs.
Senator RUSTON: I understand that, yes.
Mr Simon : All our RSPs are aware of the 48,000 capacity cap—we clearly communicated that. I am not aware of any specific communications. The market talked about 165,000 or 265,000, but clearly one could read the corporate plan and potentially interpret coverage to imply that we would connect all those users. In hindsight, a bit more clarity around that in the corporate plan may have helped.
Senator RUSTON: If you bought a certain amount of bandwidth from the satellites, it obviously had a certain capacity. That capacity then had to translate into the number of people who may potentially seek to have that service. It just needs to be then divided out into a number that says—
Senator CONROY: And it was stated on day one that it was a 48,000 cap.
Senator RUSTON: Okay, Senator Conroy.
Senator CONROY: It never changed—the officer just told you.
Senator RUSTON: Senator Conroy, that isn't even my line of questioning—if you would perhaps let me finish you may see where I am going here. So, with that 48,000 that Senator Conroy has kindly said was always its capacity limit, you had this bandwidth capacity of 48,000 and 165,000 people thinking they could get it—I don't know what you were going to do with the other 120,000. There must have been a capacity per user.
Mr Simon : Correct. The service was dimensioned for 30 kilobits per second per user.
Mr Switkowski : Can I just intervene. You have to pause on that 30 kilobits per second and understand that there are a lot of people, remote from urban areas, where you hear the stories about children not being able to do their homework, 45,000 of whom now get 30 kilobits per second—that is 1,000 slower than what we are trying to deliver and can deliver in some areas. So the service, appreciated though it is in rural and regional Australia, is at subsistence level in a broadband world.
Senator RUSTON: Excuse my technical ignorance here but how does 30 kilobits per second equate to the promise of 6 megabits per second?
Mr Simon : The 6 megabits is a peak information rate—so, potentially, the service bursts to that level but it is not sustained at that level. So networks will burst out and it all boils back down to congestion, how many users use it per hour. When you equate the 30 kilobits to a download usage comes to about 9 gigabytes per month of data usage.
Senator RUSTON: What I am trying to work out here is: we bought this much capacity and we paid out over $351 million for that bandwidth. We then—
Mr Simon : Actually, in fairness, the $351 million is more than just bandwidth—you are also paying for the satellite, the dishes that are installed on the home, the rollout et cetera; so it is not just capacity.
Senator RUSTON: Sure. So we have bought what we have bought and we have paid $351 million for it. Because NBN Co is not the service provider, we then went to a series of a service providers and said: 'We have got this bandwidth and we are seeking for you to provide to people, who are unable to get other services, a capacity to be able to generate within this bandwidth.' Did you restrict, or was there any restriction, of how much they could sell in that? If we have the situation where we have these disgustingly almost non-existent services in rural and remote Australia at the moment, have the ISPs oversold that bandwidth in what they have sold to the customers that they are actually buying from?
Mr Simon : I understand the question. The interim satellite service does not have any monitoring tools or enforcement tools that stop a specific end-user from going beyond a particular download allowance. We do have a fair use policy, which is a policy that we ask the RSPs to stay within, which delivers a 9.7 gigabytes per month download. That is a fair policy usage. The monitoring of that is after the fact and that is a reality. In hindsight, one could argue that some tools should have been potentially put in place to jump ahead of the curve. To your second question of whether some RSPs have oversold, there are some plans in the market that one would question as to whether they are consistent with the fair use policy and would potentially allow an end-user to use more than 9.7 gigabytes. Recognising the fair use policy though is an on-average policy so it talks across the RSPs' base. Some RSPs are being far more appreciative of the issues of satellite, which it is finite capacity, and have worked their base in a more stringent and confined way than other RSPs, and some have been a bit more generous.
Senator RUSTON: Are there any people out there at the moment that are on the satellite that could and should reasonably be using alternative forms of service?
Mr Simon : Each of the users that have gone through the eligibility criteria have tested for whether they have an alternative service that they could use such as a fixed line service and maybe even a decent mobile service. Based on the eligibility criteria you should have a set of end-users that this is the best and sole service that they can get.
Senator RUSTON: Your expectation when this service was put out into the marketplace was that the service providers would seek to determine the eligibility before they were able to provide this service?
Mr Simon : No, we run the eligibility criteria that is run through the department and a service, which we call BSL, which ensures that those users meet the criteria before they are connected.
Senator RUSTON: You then advise the service provider that these people are—
Mr Simon : Correct. There is a method and process to stop, say, someone in the city being connected to it.
Senator RUSTON: There has been some speculation, which is obviously false and unjustified from your comment, that there are people that are in peri urban areas availing themselves of this service. It was put out into the marketplace at a competitive price, because we must not disadvantage those in country areas. Because it was in such a competitive price there were those, who possibly may have been able to access other services, who said: 'Well, this is a pretty good and easy deal and it is very competitive and we will pick it up.' What you are saying is there is a mechanism in place that would prevent people from taking advantage of the subsidisation of those in areas that needed subsidisation.
Senator CONROY: You have a registration process.
Mr Simon : The eligibility criteria should take care of that, but I will also argue that, compared to competitive offers in the marketplace on ADSL and other services, the interim satellite service, while the pricing is certainly fair in general pricing for our interim satellite service, does not compete with the unlimited allowances that you get on an ADSL service and the pricing you get there.
Senator RUSTON: Because of the capacity?
Mr Simon : Because of the capacity and what you would get in the usage allowance. They are not comparable.
Mr Switkowski : Part of the current review of the satellite and fixed wireless strategy is to see whether, in the broader scheme of this multi-technology model, we can stretch out the fixed footprint with cable and copper and also implement fixed wireless. So we are seeking to make people less dependent upon satellite and make the satellite available to those that are in truly remote areas, and then provide a substantial lift up in performance for those communities, premises et cetera that might be in that fixed wireless area and on the edges of an extended copper and fibre footprint. That will play out over the next month or so.
Senator RUSTON: You do not have to answer this question if you do not want to. Prior to this satellite service being put into the marketplace, there was obviously the old service that—
Senator CONROY: ABG.
Senator RUSTON: Yes, which was not great—we all accept that. In a sense, we have now spent $351 million on satellite and we have delivered a service which is today really no better than we had. Was the $351 million well spent or was the $351 million perhaps not managed as well as it should have been?
Mr Switkowski : I think we have partly addressed this in the past. There is no debate about the importance of serving the needs of all Australians, no matter where they live, work or, indeed, play. So, in Australia you are always going to have to go to solutions that include some form of satellite delivery to give coverage over these remote areas. An investment in satellites was a necessary part of the plan and will continue on into the future. The program until recently could be criticised for not having been thought through in terms of some of the details, and we are in this difficult period where we can add no further customers, although the demand exists out there. Whether technically you could have made a better decision is open for discussion. I do not think that is clear one way or the other.
CHAIR: The committee will break for lunch.
Proceedings suspend ed from 13 : 01 to 14 : 00
CHAIR: Welcome back, gentlemen. We will continue. Senator Conroy.
Senator CONROY: Mr Brown, we were talking about Visionstream's renegotiated contract. I was trying to understand how much in total the contract is now worth to Visionstream, as at 30 December.
Mr Brown : To correct our discussion, the four-year contracts are worth $300 million approximately.
Senator CONROY: Thank you.
Mr Brown : For clarity, the way the contracts actually work is we pay when work is finished. If we do not actually commission the work with them, then we do not have to pay for it. So it is not paid upfront.
Senator CONROY: Absolutely. A wise practice. So, if all 16 FSAMs and 36,000 homes are completed, what is the projected total cost?
Mr Brown : We have not revalued the contract. We have changed the commercial terms for the 16 FSAMs I referred to before.
Senator CONROY: I am assuming that is code for you have increased the amount of money you are giving Visionstream but you are not allowed to not tell us what the quantum is.
Mr Brown : Well, the commercial terms are quite sensitive issues for us. What we have agreed with them is that at the end of the 16—
Senator CONROY: They have to declare it to the stock market, Mr Brown. It is not a commercially sensitive number. They put out a press release when they got the first one saying, 'We've got a contract worth this.' They will do so again when you let them. More importantly, it is a total contract cost I am asking for and you cannot withhold the information.
Mr Brown : I am not withholding the information. Visionstream valued the contract at $300 million when we made the original announcement. They released that to the Stock Exchange. They have not chosen to restate anything to the Stock Exchange, so clearly, in their view, it is not material in terms of any—
Senator CONROY: So they are still receiving the $300 million. 'Not material' is an important commercial term. To complete the 30,000, you said, that—
Mr Brown : Thirty-six thousand premises.
Senator CONROY: Thirty-six thousand. Does that include the ones that were done by Aurora the first time? I am just trying to not double-count on you.
Mr Brown : Sure.
Senator CONROY: So is that 36,000 of the 225,000 that were contracted to do? That is just so I am not unfair in the characterisation I will ultimately get to.
Mr Brown : The 36,000 is a subset of work package for contract we provide.
Senator CONROY: Okay. How many have Visionstream already completed—in other words, not the work that was done by Aurora in those first three sites in Tassie?
Mr Brown : Bear with me as I calculate that number for you. Within scope, the contract is approximately 20—
Senator CONROY: They have done 20?
Mr Brown : We have passed 33,000 premises in Tasmania, of which approximately 27,000 are part of the contract with VPL.
Senator CONROY: Okay—27,000?
Mr Brown : Approximately. We can reconfirm those numbers.
Senator CONROY: I will not hold you to that. That is a rough approximation. If you are able to identify it more clearly, that would be great. So 27,000 have been passed. Was it 225,000? Mr Turnbull keeps changing the number on me. Mr Turnbull moved it down to 195,000, I think, yesterday in parliament. What was the original number of premises on that Visionstream contract?
Mr Brown : In the original contract it was approximately 190,000 premises.
Senator CONROY: One hundred and ninety thousand.
Mr Brown : There is a mechanism in the contract to adjust that, which is always one of the issues.
Senator CONROY: So it could have been 225,000 at the beginning?
Mr Brown : There are mechanisms to adjust the actual premises that you finally pass. But when we did the original contract and struck it, in March 2012, it was 190,000 premises that were in scope for that contract.
Senator CONROY: Thank you for that. So there are 27,000 that they have passed of the original 195,000. You have now contracted them to complete by December, and there are no plans to go past December with fibre to the home. They are not contracted to do the future fibre to the node, given there is no HFC in Tasmania, unless you are planning on building some. No plans?
Mr Brown : I think we have been quite clear on that. When we are clear about where we are going to deploy which of the multiple technologies—
Senator CONROY: But my point is there is no other technology in Tasmania. I am not trying to be cute. I am just trying to be succinct. You have not employed Visionstream to do your fibre-to-the-node deployment or any other technology you decide in Tasmania?
Mr Brown : Not at this point in time because we have not made those decisions, of course. The contract has capacity to accommodate those changes in the future, but for the moment—
Senator CONROY: But that would be at an extra cost? That would be on top of the $300 million, roughly?
Mr Brown : No.
Senator CONROY: This is the point I am trying to understand. You are going to have to come clean on it, so just help me here. Do they have a commitment from you to be part of the build?
Mr Brown : Do they have what, sorry?
Senator CONROY: Do they have a commitment—a verbal or whatever arrangement—that they are the preferred contractor, subject to reasonable price, or have you set a price, for the post-2014 build?
Mr Brown : They have entered into a contract with us on a schedule agreement with certain price escalations built into that contract for four years. We have taken some of that work and agreed to an amending agreement as to exactly how that will work between now and December of this year. We expect that work to be finished somewhere between September and December, at which stage we will be very clear about what FSAMs get built next. We have a mechanism in the contract that enables us to change either where we go or what we build—and, in fact, to exit the contract. All our contracts have that capacity, to create flexibility for future government policy.
Senator CONROY: Maybe I am just not being clear enough. I was hoping I was, but I am obviously not because you are not understanding my question yet. Visionstream, you have just advised us, have not notified the Stock Exchange of any change to their projected $300 million, which leaves me scratching my head because they are doing 27,000 plus 36,000, which is 63,000, of the original 195,000, yet they are not advising the stock Exchange that they are getting any less money. I am hoping that you can clear this up for me. I am assuming that they are now only going to be paid—albeit at perhaps an increased rate; I think you are indicating that; you have not confirmed that. I am trying to understand what you are paying for the 63,000 homes to be completed. You have no choice but to answer that.
Dr Switkowski : It is $100 million, plus or minus.
Senator CONROY: One hundred million.
Dr Switkowski : And why do I say that? Sixty-three thousand is one-third of 195,000 to within rounding errors. The contract was $300 million. It is going to be about one-third of the contract value, plus or minus one of the variations.
Senator CONROY: Thank you. It would have been much quicker, Mr Brown, to toss to Dr Switkowski.
Dr Switkowski : The Stock Exchange and investors will have made that calculation.
Senator CONROY: I am following it very closely and it has been unclear to me.
Dr Switkowski : But no advice is required until such time as the contract is materially altered. That has not happened.
Senator CONROY: Well, you have materially told them you are not supplying them any more work after 2014.
Dr Switkowski : No. As Kevin has described, we are releasing work. We are trying to do that in a way that is efficient for our construction partners. What will happen post the end of this year is—
Senator CONROY: You can understand that I am not going to be critical if you say it is because you are going to have a gap between the ramp-up and the ramp-up according to the strategic review. Its peak build is around 2018; that is what it says. The ramp-up is going to be not on 1 January 2015. So I am not really critical if you say, 'No, look, we actually have to release another 50,000 homes'—
Dr Switkowski : And that will not be the case.
Senator CONROY: 'on 1 January. '
Dr Switkowski : Or earlier.
Senator CONROY: But I am sure the Tasmanian community, as well as those contractors, including the ones that have publicly raised this issue, would like to know that they have got that certainty.
Dr Switkowski : Absolutely. That is a key priority of ours. That is what Greg Adcock is focussing his attention on, and that is how we can deliver, to our construction partners, work in a way that maximises their and our productivity and gives them a reasonable chance to make an economic return. We certainly have not flagged to Visionstream that the numbers that they have been given thus far are the end of the story, because it is not.
Senator CONROY: The end of the story on fibre to the home or the end of the story on deploying the MTN, or whatever it is called?
Dr Switkowski : Both. I think, Senator, we have made this comment consistently: the strategic review painted a picture at the nominal end of the build which saw 100 per cent of the premises passed—12 million or so—and about a quarter would be an all-fibre connection under scenario 6.
Senator CONROY: That is basically just greenfields built. It is about five or six per cent. I am happy for you to jump in and correct me. I think five or six per cent is just the continuation of 2014 and maybe a little into 2015. The growth to 22 per cent is essentially greenfields. That is why you do not actually start issuing any more contract instructions.
Dr Switkowski : I think, for greenfields—and here I am guessing—on an annual basis, new developments are 100,000 homes over 10 years. That is a million. That is still two million short of the three million that I think we are going to connect. I am getting into areas I do not really—
Senator CONROY: I am awaiting some information which I am sure will help both of us stumble our way through this.
Dr Switkowski : But, from our planning point of view, we see ourselves not tailing off or tapering off in terms of our fibre-to-the-home build. It may well be redirected in terms of geographies and areas. But the volume of fibre to the home is at least steady and may well gently increase. These other technologies will be laid over that some time early next year.
Senator CONROY: Gently increased from the end of this year or gently increased from 30 June, when you are gently increasing to 6,000?
Dr Switkowski : My comment is at the end of this calendar year.
Senator CONROY: If you are hitting 6,000 by 30 June, what will you hit by the end of the year?
Dr Switkowski : Something higher.
Senator CONROY: I would have been hoping, after six months in the job as a CEO, you could be a little more precise. I am happy for someone else at the table to answer. After six months as CEO, you are able to be fairly definitive four months in advance—from 5,000 to 6,000. We are in February, and 30 June is four months away. I have asked you to extrapolate another six months. Would you like me to come back to that? Where do you think you will be on 30 July?
Dr Switkowski : Well, as we have said, a rate of 6,000 premises a week.
Senator CONROY: Now I am asking you what it is you could get up to by the end of the year on your projections—not on my projections but on your projections.
Dr Switkowski : And that will be part of the 2014-15 business plan, which we are working on at the moment.
Senator CONROY: So for 2014-15 you are saying—
Dr Switkowski : Business and budget. Business plan and budget.
Senator CONROY: So 6,000 premises per week is what I am talking about, and for 2014-15 it is 14,000 to 15,000? That is what I am saying; I am trying to work this out. That is a big jump, which I do not think is what you are saying, so help me out here. By the end of the year, what do you anticipate? You are the CEO. You have these figures in front of you. You must have an extrapolation figure, given you had one for four months in advance. I am now asking you to—
Dr Switkowski : No. In fact, we do not have a year-end run rate figure because that is being worked on for inclusion to help form the 2014-15 budget.
Senator CONROY: The last time we met, in December, we were discussing cost claims from NBN Co contractors. I believe Mr Adcock noted that claims have not yet been received from Silcar or Visionstream, but Mr Rousselot noted that the authors of the strategic review made a judgement about what these claims were likely to be. I note also that Mr Payne said at your half-yearly results that NBN Co had accrued four outstanding cost claims and disputes. What have you accrued?
Mr Payne : The cost of those claims—
Senator CONROY: Yes. What is the figure?
Dr Switkowski : It is a commercially, very sensitive number and we will not disclose it.
Senator CONROY: Have any claims been submitted yet?
Dr Switkowski : That, too, is a commercially sensitive number.
Senator CONROY: I said 'have any', not how much. Have any been submitted?
Mr Payne : The claims for variations are submitted routinely.
Senator CONROY: Sorry?
Mr Payne : Claims for variations get submitted routinely. So, yes, we have received some of them.
Senator CONROY: What were your words, Dr Switkowski, at our first encounter? 'Escalating by the day'? 'Skyrocketing by the day'? I am trying to remember what your exact colourful phrase was.
Dr Switkowski : Increasing, I think, by the day.
Senator CONROY: Increasing by the day. So how many have you had, just on numbers, not the dollars? How many? Two? Three? Four? Have all companies submitted them?
Mr Payne : I could not give you a precise number of claims.
Senator CONROY: You have four contractors. You sacked your four contractors.
Mr Payne : No. But for each package of work you might have a number of claims. It depends on each one.
Senator CONROY: So has each package of work received a variation?
Mr Payne : Not to my knowledge. No, not every single one. But a number of them have. I cannot tell you how many here today.
Senator CONROY: You are the chief financial officer.
Mr Payne : Sure.
Senator CONROY: You are not across this? It was indicated that the claims were being done by somebody else. Mr Doherty, I think, was one, and Mr Thorpe. They were in charge of this. Mr Adcock indicated, though, there was some conflict of interest possibly if one of them was dealing with their old company. I cannot remember which one now. But that is still the case? He is not handling them?
Mr Payne : Sorry, who is not handling them?
Senator CONROY: Is it Mr Doherty that worked for Silcar or Mr Thorpe that worked for Silcar?
Mr Payne : Mr Doherty did previously work for Silcar, yes.
Senator CONROY: So he is not handling the Silcar one?
Mr Payne : Not to my knowledge.
Senator CONROY: So who is handling them?
Mr Brown : There are some specific arrangements in place for somebody in his organisation to handle Silcar. Of course, there are a number of claims that would routinely be expected under the contracts. There are additional disputed claims which are expected under the contract. In a number of the contractors' cases, they have lodged detail around that. In terms of Visionstream—which proves they have been on the record, and we acknowledge that they have lodged a claim with us—as part of our amending agreement we have agreed with them as to how we handle that and we will get visibility of their cost base to try to conclude by December of this year what an appropriate sum of money is for that organisation in light of their claim. So we have got an approach to handle it, and that is reflected in the accounts. I do not think it is appropriate for a company like ours to describe the specific sums of money attached to each of them.
Senator CONROY: I have not asked you to do that. There will come a point where you will have to justify your total expenses and any percentage increase, so at some point we will be having a discussion about percentage increases at a minimum and, possibly, quantums. This is very germane to the absolute fabrication that Mr Rousselot provided as a justification to the board for not continuing with the fibre-to-the-home rollout. So you are going to have to answer questions about this. It is not going to be a question that you are just going to sweep under the carpet. I think even Dr Switkowski acknowledged that any variations from that point forward, back when we had that first discussion, were the new board's and the new management's. They were not the responsibility of the past. So there will be a lengthy discussion at some point when you roll over and pad out the costs to justify Mr Rousselot's forecasts of costs.
Dr Switkowski : Can I comment on that language?
CHAIR: Please do.
Senator CONROY: You can answer questions, which is your role at the table.
Dr Switkowski : With your indulgence, I think the use of words like 'roll over' and 'pad out'—
Senator CONROY: 'Fabricate' is probably the most provocative.
Dr Switkowski : is provocative, inappropriate and inaccurate.
Senator CONROY: Well, some time in the future, there will be an accounting.
Dr Switkowski : There will be an accounting, and I am very confident of the position and integrity of the process we are using.
Senator CONROY: That Mr Turnbull's yachting mate pulled together.
Senator Fifield: Look, if we want to talk about recreational activities, we could always talk about who might have frequented Eddie Obeid's ski lodge—if you are interested in recreational activities.
Senator CONROY: I did. Sorry, you were interrupted by the minister. I was letting you come back to it.
Dr Switkowski : I have finished my comment.
Senator CONROY: You have made no settlements yet on any of the variation claims?
Dr Switkowski : As Kevin identified, in all contracts and the execution of contracts, variations are expected in many cases. Where those variations are submitted and agreed, payments are made. That has been going on since the beginning of this rollout.
Senator CONROY: And you should not misunderstand. I think the point you make is one I would agree with you on, which is that there are absolutely legitimate variations along the way. I have no qualms at all there.
Dr Switkowski : Then there are disputed claims.
Senator CONROY: Yes.
Dr Switkowski : We have had at least one that has been acknowledged, which is with Visionstream. A process has been put in place.
Senator CONROY: This is Visionstream Tasmania's work or Visionstream mainland work?
Dr Switkowski : It is Tasmania.
Mr Brown : It is specifically to do with Tasmania.
Senator CONROY: So you have acknowledged that Visionstream's dispute was legitimate in Tasmania?
Dr Switkowski : That it is a dispute that requires us to work through a process. I do not know what 'legitimate' means.
Senator CONROY: Sorry, 'legitimate' was the wrong word.
Dr Switkowski : They have a right, as all our contractors have—
Senator CONROY: Every contractor has a right—
Dr Switkowski : to table—
Senator CONROY: A claim.
Dr Switkowski : to table some sort of a claim over and above and different to the normal variation process.
Senator CONROY: And, as has been indicated, quite a lot of them are doing so.
Dr Switkowski : We have acknowledged one.
Senator CONROY: Quite a lot are putting in claims. I am not saying you have acknowledged them. I will use 'acknowledge' as an affirmative stance towards resolving the dispute, rather than a complete try-on just because they have been incompetent in what they were contracted to do. That is probably it.
Dr Switkowski : I will accept that language. I do not know how many other of our contracting partners are in the process of lodging major claims against us, but we know Visionstream is one of them.
Senator CONROY: Well, there is almost no-one left, from the sound of it! When they see a soft touch, they know to stick in a big claim.
Dr Switkowski : Now, now. Do not go there. You keep saying that. It is inflammatory and it is wrong.
Senator CONROY: The actual numbers will prove whether I am right or you are right.
Dr Switkowski : They will prove whether we are right or you are right—exactly.
Senator CONROY: Yes. When the inflated numbers you forecast that you would be paying come to bear, you will be exposed.
Senator Fifield: Chair, I raise a point of order. Comments like 'you will be exposed' are clearly a reflection on the witness.
CHAIR: Exactly. Senator Conroy, can you stick to your—
Senator CONROY: What? I am allowed to reflect on witnesses. I cannot call them a liar, but reflecting on the witnesses—
CHAIR: Stick to your questions.
Senator CONROY: Let me be clear: I am reflecting.
CHAIR: Can you stick to your questioning and refrain from any comments, please.
Senator Fifield: It is an inappropriate reflection.
Senator CONROY: Thanks for your opinion! At the Senate Select Committee on the NBN hearings in December, I asked Dr Switkowski:
The committee will have a number of relatively detailed questions which we want to put to you in writing. We appreciate how busy you have been and how busy the company have been since the change of government. If we provide these to you by the end of the week, would it be possible to get responses by, say, 24 January?
Dr Switkowski replied:
I am sure that that is very reasonable.
It is now a month later and no answers have been provided to the committee. Why not?
Dr Switkowski : Let me—
Senator CONROY: If the answer is that you have provided them to the minister's office and they are in his office, please just indicate that and save time.
Dr Switkowski : I acknowledge your implied criticism and accept it. As I said, this is now the fifth such appearance before the Senate estimates or Senate subcommittee. I think there were more than 250 questions. We have been working our way through them. I am hopeful that we will get them out relatively quickly.
Senator CONROY: So they are actually still with NBN Co? They are not sitting on the minister's desk waiting for him to tick them off?
Dr Switkowski : They may be. I do not know where every question is in the process. Honestly, I do not.
Senator CONROY: I appreciate your candour. We will get grumpier if we have not got them returned to the committee to allow us to make use of the answers to further the questioning.
Dr Switkowski : Could we space out these supplementary hearings, perhaps?
Senator CONROY: Look, NBN Co is used to dealing with hundreds and hundreds and hundreds of questions from the Senate and other parliamentary committees, so it is no surprise to your Canberra office that we would be chasing this number of questions. It is absolutely normal for this committee and other committees to ask you this many questions. So it is nothing new. It might be, I appreciate, to you, but it is absolutely nothing new to the people sitting around you and behind you. They have managed in the past to get the questions in prior to all committee hearings and all estimates. I am just hoping that you can do the same.
CHAIR: Senator Conroy, when your time expires a bit after three, please do not go crook at the chair for the time you are wasting here in your question time.
Senator CONROY: I am trying to be generous to Dr Switkowski.
CHAIR: I do not think you are trying to be generous at all.
Senator CONROY: Possibly for the first time today, you might say.
Senator Fifield: No. The second.
Senator CONROY: The second time today?
Senator Fifield: Yes.
Senator CONROY: On Agenda on Sky News on 15 December, Minister Turnbull said:
The main promise, the most important thing we've said about the NBN was that we would tell the truth and we would liberate the management of NBN Co to tell that truth.
Are you feeling liberated?
Dr Switkowski : In terms of disclosure and regular reporting of recent data, I am happy with the progress we have made.
Senator CONROY: Perhaps you are just therefore unfamiliar with what used to be provided. But we will get to that. What directions has the minister provided you to liberate you to tell the truth? I could read the statement of intent or interim statement of intent. Have you had any other—
Dr Switkowski : I have had regular conversations with the minister about the processes by which information flows into his office and information flows to the various stakeholders—obviously, the finance minister and then external stakeholders. You have seen changes over the last few months in terms of the maps that we have released, the weekly stats on the rollout footprint and now a commitment to, on a quarterly basis, provide a fuller commentary around the financial and operational performance of NBN.
Senator CONROY: Speaking in the House of Representatives on 11 February, Minister Turnbull said:
The bottom line is that, as far as NBN projects is concerned, the government's commitment is to be completely transparent.
He also said:
Maximum transparency is going to be given to the project.
Maximum transparency—that is a big call. Have you had any instructions about increasing your transparency?
Dr Switkowski : The conversations I have had with the minister have led to events such as we just completed on Friday, which was a pretty complete disclosure of the performance of NBN.
Senator CONROY: In the same speech, Minister Turnbull said:
Instead of having to have rollout figures dragged out of the minister with great difficulty and pain—
I was actually reading them out in parliament every week—
every week the NBN Co now publishes its latest rollout figures on its website. Every week they are published there.
Are you familiar with the program summary reports that were provided to the previous government?
Dr Switkowski : No.
Senator CONROY: That would be that document.
Dr Switkowski : Well, that has continued.
Senator CONROY: I was hoping you would say that. Do you know what information was provided in those? Are you familiar with it?
Dr Switkowski : I am familiar with that particular report if from this distance it is the one I think it is.
Senator CONROY: Yes. It is entitled 'Program summary report'. It covers the date an FSAM was switched on, the number of premises connected, the take-up rate in every active FSAM in Australia, the contract instructions issued, the number of builds, bulk drops completed et cetera. Sound familiar?
Dr Switkowski : That has certainly been part of the internal management reporting because I observed that on the first day I arrived.
Senator CONROY: I am hoping you get it each week and read it.
Dr Switkowski : We get that report every week and review it, yes.
Senator CONROY: You are using the royal 'we'? I want to make sure you are part of the royal we?
Dr Switkowski : I am chief executive, so yes.
Senator CONROY: So these reports are still prepared internally with the same information? They will be expanding, because the number of—
Dr Switkowski : Yes. For all intents and purposes, yes.
Senator CONROY: Did NBN Co on its website once publish a monthly ready for service report? That would be what this looks like. It is very small. I apologise.
Dr Switkowski : I do not recognise it.
Senator CONROY: It is a monthly ready for service report. I am sure other officers at the table are very familiar with it.
Mr Simon : Yes.
Senator CONROY: Can you advise the committee of what information was provided on that report?
Mr Simon : The monthly Ready for service report?
Senator CONROY: Yes.
Mr Simon : It shows both the historical footprint and the future predicted forecast for a footprint becoming available.
Senator CONROY: So, the FSAM name and identifier?
Mr Simon : Yes.
Senator CONROY: The FSA name and identifier, the relevant point of interconnect, the date construction commenced, the date of expected ready for service and the estimated number of premises?
Mr Simon : Correct.
Senator CONROY: Are these reports still produced?
Mr Simon : Yes.
Senator CONROY: Are they still published on NBN Co's website?
Mr Simon : The website does release the footprint. It does show the footprint that is now available. The maps are different to what they were before.
Senator CONROY: No. I asked you whether this was still published, not about maps.
Mr Simon : I cannot see what you are holding up there specifically.
Senator CONROY: That is the monthly Ready for service report. You identified that you knew what it was. Are they still published on the website?
Mr Simon : Yes. We still send out—
Senator CONROY: I do not think they are.
Mr Simon : We send out a Ready for service—
Senator CONROY: No. That is not what I asked. I am going to come to that. I asked whether they are still published on the website. Could you correct your answer?
Mr Simon : I do not believe that report in that format is published on the website. We send it to our RSP partners for their planning for sales purposes.
Senator Fifield: It may assist the committee if Senator Conroy wants to table a copy.
Senator CONROY: No. The officers are very familiar with these particular documents.
Senator Fifield: Well, it may assist other members of the committee if the document to which he is referring is tabled.
Senator CONROY: I will take it on notice.
Senator Fifield: And I also guess, Chair, the point is that the real issue is the reliability of the data contained.
Senator CONROY: Thanks. Did NBN Co on its website once publish an historical footprint list detailing every premise passed?
Mr Simon : Yes. I think so, yes.
Senator CONROY: You will note that was a question about something that happened in the past. Are these reports published on NBN Co's website today?
CHAIR: Senator Conroy, just so—
Senator CONROY: I am not referring to any document I have in front of me now.
CHAIR: You have none. When you are referring to them, I am not familiar with what you are referring to. It would be handy to—
Senator CONROY: I am actually just now naming a document that used to be on the website. I am asking if the officers are familiar with it.
Senator CONROY: Did NBN Co—
Mr Simon : But the maps effectively give people where the footprint is available. That is the purpose of the maps. The premises passed.
Senator CONROY: The answer is no, if any of you actually want to know. I appreciate that these things come and go without you guys necessarily knowing they have come and gone. It happened to me a fair bit too. But the answer is no. So these things have been taken down off your website. Another document has been taken down off your website. Did NBN Co on its website once publish a monthly Points of interconnect rollout plan, the POI plan, which provided a list of 121 NBN points of interconnect; the number of premises serviced by each point of interconnect; the respective connectivity service area, or CSA; and expected commissioning dates? Did that used to be up on your website? Are these reports published on NBN Co's website today? The answer is no.
Senator Fifield: Senator, I think the objective of the current government as opposed to the previous government, and the current management of NBN, is to ensure that the information that is actually produced is meaningful. You had lots of information that was put in the public domain through NBN Co that was completely meaningless and that bore little connection to what was actually happening.
Senator CONROY: Maximum transparency. I thank you for your intervention.
Senator Fifield: Pages of data which is wrong and misleading is not transparent. I do not think you are making the case that you were transparent, Senator Conroy. Everyone knows that all your forecasts were meaningless and that you had misleading categories of information.
Senator CONROY: Did NBN Co on its website once publish a proposed footprint listing in both SX and XML file formats providing a list of addresses at least six months in advance of where services were expected to become available? Yes?
Mr Simon : Yes.
Senator CONROY: Are these reports—
Senator Fifield: Again, the reports were so unreliable that the information was useless. The question was: did those services become connected? You had all sorts of reports and all sorts of forecasts which were meaningless.
Senator CONROY: Are these reports published on NBN Co's website today?
Mr Simon : No, because they are useless.
Senator CONROY: Thank you. Did NBN Co once publish on its website rollout boundaries consisting of a zip archive of MIF files indicating the network boundaries for the brownfields fibre, greenfields fibre and fixed wireless footprints where construction had commenced? That would be the maps. So the answer is yes, and obviously they are not there now. I want to ask about some questions—
CHAIR: Have you got some follow-up questions?
Senator CONROY: I am saving time because you are staring at each other. You gave answers to questions on notice. Let us start with question No. 205 and, in particular, questions (a) and (b). Mr Payne, have you got it? I am just looking to see if someone is reaching for them. The information asked for in this question is exactly the same information that was once published in the monthly Ready for service report. It is already exactly the same information that, I think, Mr Simon acknowledged is made available to access seekers. So it is produced by the company. In fact, the monthly Ready for service spreadsheet is still publicly available. I could have saved myself some time and just looked up the information for myself. But in your answer at 205 you state:
Provision of more detailed information at the Fibre Serving Area Module (FSAM) level is not provided publicly and to report regularly at this level would require an unnecessary diversion of the company’s resources.
This is a report that you produce every week and distribute to people. What unnecessary diversion of resources would it take to publish this on your website? We have asked you for this information and you said, 'It is too costly for us to provide.' It is in your hand every week. That answer is clearly a contempt of the Senate. You actually produce this information internally every week. It used to be up on the website. I am asking why it is not, and you say it is too costly.
Mr Simon : I cannot see what you are holding up. Is this the historical footprint list?
Senator Fifield: We come back to the same point, on a point of order. Senator Conroy is waving a bit of paper around. He says, 'Don't worry. Everyone knows what it is.' It would be put beyond doubt if Senator Conroy would table that piece of paper to which he is referring, as is the usual practice in committees.
Senator CONROY: This is the monthly—
CHAIR: Senator Conroy.
Senator CONROY: You cannot make me table a document if I do not want to.
CHAIR: Senator Conroy, I am speaking. Senator Fawcett.
Senator FAWCETT: Can I move that the document be tabled?
CHAIR: He can so move.
Senator CONROY: No. He can move all he wants. I am not going to do it. So can we not waste my time? Mr Simon knows exactly what document it is, just to be clear.
Mr Simon : I do not because you are holding up a piece of paper.
Senator CONROY: It is the monthly Ready for service.
Mr Simon : So the monthly Ready for service is not—
Senator CONROY: which, as you said earlier, is distributed to your RSPs.
Mr Simon : But, Senator, by default, our monthly Ready for service report cannot be produced weekly. Otherwise it would be a weekly Ready for service report.
Senator CONROY: My apologies. A monthly report.
CHAIR: Senator Conroy, order! The committee has noted your refusal to table it. As far as I am concerned, the people need pay little or no attention to what he is waving around because we do not understand what he is waving around either.
Senator CONROY: So back to the question. You produce a monthly Ready for service report. Apologies—not weekly. You distribute it, and yet you have told the Senate, this committee, that to regularly report at this level would require an unnecessary diversion of the company's resources. Dr Switkowski, does that sound like you are being maximally transparent or misleading by saying it will cost you money just to publish something that is in your hand?
Dr Switkowski : I do not know what—
Senator CONROY: Mr Simon knows exactly what it is.
Dr Switkowski : I have not seen it.
Senator CONROY: He has even corrected me. That is how well he knows the document.
Dr Switkowski : Here is another view. We got feedback from our construction partners, analysts who follow telecom companies and fund managers as recently as last Friday saying that the level of reporting and disclosure and transparency and regular update of data is the best it has ever been. So we take that as encouragement to continue to do what we are doing.
Senator CONROY: Well, I am now going to what you have signed off and sent to this committee, Dr Switkowski, which is an answer to a question which asked for information and named the report. Your answer was, 'It's not provided publicly and to report regularly at this level would require an unnecessary diversion of the company's resources.' This is a document you produce internally every month.
Dr Switkowski : I have not seen the document.
Senator CONROY: You signed off on what is clearly a contempt of the Senate and a mislead of the Senate.
CHAIR: Senator Conroy, if you tabled the document, we would know what you are talking about.
Senator CONROY: No. Let's not play games. Mr Simon knows exactly what I am talking about.
Senator Fifield: I raise a point of order. Senators cannot just bandy around phrases like 'contempt of the Senate' like confetti.
Senator Fifield: If a senator thinks there is a contempt of the Senate, then they should pursue the appropriate avenues—
CHAIR: Exactly, Minister.
Senator Fifield: through the Senate. But, in the absence of that, they should not use those phrases.
CHAIR: I ask you, Senator Conroy, to retract it, please.
Senator CONROY: I am not retracting it. It is a contempt of the Senate. The answer that was given is a contempt of the Senate.
CHAIR: It is only a claim of that until the Senate decides, Senator Conroy. I will once again ask you to retract.
Senator CONROY: I am alleging it is a contempt of the Senate. Does that make you happy? Now we have wasted a minute.
CHAIR: No, it does not.
Senator CONROY: Dr Switkowski, you have a document which is produced internally. There is no diversion of resources necessary to publish it. It used to be published. Why would you tell this committee there is a diversion of resources? You are responsible for the answer.
Dr Switkowski : So here was the answer. I have just seen it. Maybe I have seen it before, but I have it before me now. It talks about the weekly rollout report and explains what is in the weekly rollout report. It also provides a state-by-state breakdown and is supported by monthly updates of information on the interactive maps, which is true. The provision of more detailed information at the fibre serving area module level is not provided publicly, which is true, and to report regularly at this level would require an unnecessary diversion of the company's resources, which is our view.
Senator CONROY: Your view? You simply have to press a button and it appears on a website. There is no diversion of resources. It is actually misleading the Senate. It is a contempt of the Senate to treat the Senate like that.
Senator Fifield: Is it treason as well, Senator Conroy?
Senator CONROY: No. It is a contempt of the Senate. There is no diversion of resources.
Senator Fifield: You cannot just keep talk about it being misleading, Senator Conroy.
Senator CONROY: It seems quite clear that it is a document you have in your hand or on your computer and you can press 'send' and have it appear on your website. How can that be an unnecessary diversion of resources?
Dr Switkowski : Well, without knowing the entire context of this, what we are trying to do is to make sure that what we publish is meaningful and accurate.
Senator CONROY: Which is information you meaningfully and accurately give each month to your RSPs. I am hoping it is accurate. In fact, this document is unambiguously accurate.
Dr Switkowski : Well, I would not—
Senator CONROY: No. You give it to your RSPs.
Mr Simon : That is accurate, but the document itself has been problematic in the program being able to deliver to those forecasts, so that is the issue.
Senator CONROY: This is a document you give to your RSPs. It is your customers. Are you giving inaccurate information to customers?
CHAIR: Order! Senator Conroy, once again, these allegations and inferences about wrong and false information here are totally unacceptable. I am going to call a private meeting now.
Proceedings suspended from 14:41 to 14:43
CHAIR: Continue, Senator Conroy.
Senator CONROY: I will just inform the Senate that the Chair has threatened that if I do not ask questions in a manner that he sees fit—
CHAIR: A point of order, Senator Conroy. Order! The point I made is that if you are going to treat the witnesses like that, I will remove you from the call. I am asking you to be civil to the witnesses, and that is not too much to ask. If you are not going to be civil to the witnesses, I will take the call from you.
Senator CONROY: You will gag me if I do not ask questions the way you want them asked.
CHAIR: I will move around to the other senators if you are not civil to witnesses.
Senator CONROY: We come back to the actual document that we are talking about, which is unequivocally accurate, because you give it to your RSPs. You say it is a forecast, and I am not disagreeing it is a forecast. It was a forecast before and it is a forecast now. But it is the most accurate information that you have. Otherwise you would not be giving it to your customers. So why have you withdrawn it and why will you not put it back on the website? More importantly, when we ask you for a copy of it, why do you allege that it is an unnecessary diversion of resources to print a copy of something you have and email it to the Senate?
Mr Simon : I have just looked at the questions that were asked in this Hansard, and the questions are far broader than what is addressed by that report. So I think the comment that we are saying it is a diversion of resources is not in answer to the question you are asking now.
Senator CONROY: You are now trying to interpret my question for me.
Mr Simon : No. I am just reading the questions here and the answer given.
Senator CONROY: I am fully aware of what you are trying to do, Mr Simon.
Dr Switkowski : Chair, here is an example.
CHAIR: Yes, Dr Switkowski.
Dr Switkowski : As I have just discovered, the question had eight parts and we have answered it in half a dozen lines. In the last line, it makes reference to the fact that it would require a diversion of resources. I think Senator Conroy is linking that line to a particular part of whatever one of those eight questions is. That may or may not be legitimate. We cannot tell until we take the time to have a look at it. I think Senator Conroy is being a touch mischievous.
Senator CONROY: I am not being a touch mischievous. Can you produce that report for the Senate committee now? You know exactly which report I am talking about. We have had a discussion.
Senator Fifield: I think that question will be taken on notice, Senator Conroy.
CHAIR: He said he would look at it, Senator Conroy.
Senator Fifield: Dr Switkowski indicated that he would appreciate the opportunity to study the full set of questions.
Senator CONROY: If Dr Switkowski wants to say that, that is fine, but I did not hear him say that. Let him answer for himself.
Dr Switkowski : I will take that on notice.
Senator CONROY: That is two estimates in a row you have taken it on notice, just so we are clear.
Dr Switkowski : No. We have answered—
Senator CONROY: It was put on notice last time. I am asking about the answer.
Dr Switkowski : But you have the answer in front of you.
Senator CONROY: But we do not have the document in front of us. That is the actual point. I am happy that you have taken it on notice. I will move on. I want to ask you about the answer you gave to question on notice 207. Here your answer states:
Please refer to answer to Question 205.
Does question 207 ask for any information about FSAMs?
Dr Switkowski : This asked us for data for about a dozen different dates and premises that had build instructions being issued. So it is a very detailed question about the nature of the construction build.
Senator CONROY: That is the point of putting questions on notice. They can be detailed so you can give us detailed answers.
CHAIR: Senator Conroy, please let them answer.
Senator CONROY: I will come to my question. I am just drawing your attention to it so you could have a quick look at it. The reason given for providing no additional information in relation to question 205 was that information is not provided at FSAM level. What I am confused about is how an answer to question on notice 205 can be an answer to a question that had not been asked about FSAMs. You actually refer me to a question that has nothing to do with the question I actually asked you. It is a completely different question that I ask and you say, 'Go and look at 205.'
Dr Switkowski : I will have to reflect on that and come back to you.
Senator CONROY: I do appreciate that it goes through an iteration process, Dr Switkowski, where it moves beyond your control. But it makes the organisation look silly if the questions quite literally point to a question that has nothing to do with the original question asked.
Dr Switkowski : On this one you may have a point.
Senator CONROY: Still referring to question 207, are you aware that the program summary reports contain the numbers of premises for which NDDs had been released; the number for which construction has commenced; and the number for which build instructions have been issued?
Dr Switkowski : I think that is right.
Senator CONROY: The direction you have from the government is to be more transparent. The minister has made numerous statements about this. You said you have discussed them with him. Since the change of government, you have removed virtually all the publicly available information about the rollout. You have also refused to provide this information in direct answers to questions on notice, even though you produce the information that the Senate has asked for monthly. You have provided an absolutely incorrect direction in one of your answers on why it could not be provided—that it is a costly diversion or, in other words, it is too much money, even though it is a report in front of you. Even the information that is provided in the weekly stats contains only a fraction of information that is actually available to you in the program summary reports. So while you may believe that you are providing more information by standing up and holding press conferences and just spouting the things that you want to talk about, the actual core information that was being provided by the organisation has been withdrawn.
Dr Switkowski : Because it was low-quality information.
Senator CONROY: You have become exceptionally secretive about the rollout.
Dr Switkowski : On the contrary.
Senator CONROY: Announcing a number is not providing information.
Dr Switkowski : You know that we are providing every week by state a breakdown of the progress on the rollout—brownfields, greenfields, fixed wireless and satellite. We have been doing that since shortly after the management changed.
Mr Brown : And you have added premises serviceable.
Dr Switkowski : We have added premises serviceable. In other words, we are trying to put out data that meets the needs of our retail service partners and which we think is helpful to the community at large. The previous information, probably well-intended when it was originally designed in terms of its format, increasingly contained information that had a distant connection to reality.
Senator CONROY: The monthly Ready for service, which you still produce and still provide to your RSPs, does not fall into that category at all?
Dr Switkowski : The format is fine. It is the content that is the issue.
Senator CONROY: You are still giving them it. They are your best forecasts. I am not criticising the fact that you give them to them. I am not criticising the fact that you produce information. I am criticising the fact that you keep trying to use an old excuse as to why you will not provide it to this committee. It is not commercially sensitive. It is not anything. It is just like a document you get each month. We have asked for it and you have allegedly misled the Senate about why you will not provide it to us, which is cost. I will move on.
CHAIR: You have five minutes, Senator Conroy.
Senator CONROY: I thought you said three o'clock. I was just pacing myself to three o'clock. How many FOI requests has NBN received since 8 September?
Mr Brown : We have received since the legislation was passed 132 FOI requests.
Senator CONROY: How many of these requests has NBN Co granted?
Mr Brown : Well, we have processed all of them as required.
Senator CONROY: I said granted.
Mr Brown : If by granted you mean provided the information exactly as requested in the first instance, about 20 per cent of those.
Senator CONROY: Twenty per cent.
Mr Brown : And 50 per cent of them are clarified as to exactly what the person is requiring. That usually results in a redefinition of the request that then gets processed.
Senator CONROY: I would like to ask questions to the FOI officer at the next 12 March hearing. Could you provide the FOI officer to the table, thanks?
Dr Switkowski : Noted.
Senator CONROY: Has the NBN Co discussed its approach to FOI requests with the minister's office?
Dr Switkowski : No. Not that I am aware of.
Senator CONROY: I said approach as in approach, not individual instances. Am I correct that on 30 August 2013, NBN Co released under the Freedom of Information Act elements of NBN Co board minutes relating to the achievement of NBN Co's brownfields rollout targets? You are possibly the only one that would know, Mr Brown.
Mr Brown : I am sorry, Senator. Could you just repeat the question?
Senator CONROY: On 30 August 2013, there are NBN board minutes. They are up on your website. So the answer is yes.
Dr Switkowski : It was the first of that instance where a summary of the board minutes was made available following an FOI request that I do recall. It has only ever happened once.
Senator CONROY: I think it was before the election.
Dr Switkowski : But it only happened once, right.
Senator CONROY: I think it might be two.
Dr Switkowski : That is the only instance I am aware of.
Senator CONROY: You are probably familiar with that one. I think there was one a bit earlier. It is not germane. On 16 February, TheAge newspaper reported that an application under the Freedom of Information Act had been declined. The information sought was about the directors who attended the 20 September board meeting. Is that correct?
Mr Brown : That is correct.
Senator CONROY: Rather than state that the NBN Co had declined the request because the reputation of its directors could be damaged if it revealed which of them turned up to a September board meeting. Is that correct?
Mr Brown : That is correct.
Senator CONROY: On page 49 of NBN Co's 2013 annual report, in common with all companies, NBN reports how many board meetings each director was eligible to attend and did attend. Will the 2014 annual report include this information?
Mr Brown : It will report as required under the normal governance processes.
Senator CONROY: How can information that you will producing in your annual report be used as a very specific excuse to not agree to an FOI?
Dr Switkowski : That is easily answered. A full year's roster of board meetings might be 10 to 15 meetings. It is not possible to determine from that aggregate number which meetings individual board members attended. So if there was any particular sensitivity to any one meeting, the—
Senator CONROY: On balance—and you may not even have followed this closely; you are just going for the general discussion—it is an absurd defence. Any reasonable person would say that is an absurd defence.
Dr Switkowski : But it is an accurate statement.
Senator CONROY: It is an absurd defence, okay. If you read what the FOI laws are about, it is an absurd defence. I am just drawing this to your attention on the basis that Minister Turnbull has told you to be maximally transparent. Just to give you some colour and movement, TheAge reported FOI expert Peter Timmins's view that the NBN Co's claim denying the release of this information was speculative, ridiculous and without foundation and a sign of a culture of secrecy spreading through Canberra. That is just so you are aware when you chat to a few analysts.
Dr Switkowski : I read that and I wondered what that guy was smoking.
Senator CONROY: Have you just used parliamentary privilege to reflect on somebody? Oh my goodness!
Dr Switkowski : On a decision.
Senator CONROY: No. You were reflecting on the commentary of Mr Timmins. I am sure Mr Timmins would like an opportunity to respond to you.
Dr Switkowski : And he should have one.
Senator CONROY: I do not mind. I am sure he will manage. I did not see Senator Fifield leap to the defence of Mr Timmins there.
CHAIR: You have five minutes.
Senator CONROY: At the last estimates hearing, Dr Switkowski noted that NBN Co has already started developing a fibre on demand project. How is that progressing?
Dr Switkowski : It is progressing slowly.
Senator CONROY: Could we get a slight expansion on that? You have your product manager down the end.
Mr Simon : We are working through our mixed technology mode. That is part of the assessment that we need to look at—how we form that policy, given consideration to the fibre rollout and the different technology elements and how it would be pulled together. We have not concluded on that yet. We still have to explore all the options. So we are still some ways from finalising that.
Senator CONROY: Three months, six months?
Mr Simon : I think it would be an important part that feeds into the corporate plan. So when that plan is completed.
Senator CONROY: Report it again when all the other questions are complete.
Senator RUSTON: You are not going to filibuster for 50 minutes.
CHAIR: Senator Ruston, you have the call.
Senator CONROY: You are blushing at that one, Senator.
Senator RUSTON: I will give it a go. I will definitely give it a go. Thank you very much. I have a different line of questioning. I understand that the US carrier Verizon made a comment as recently as in the last 24 hours that they have had little or no customer demand for very fast speeds, such as one gigabyte plans. I am wondering whether that is reflected in your experience to date?
Mr Simon : Yes. We do not have any services that sit above 250, which is a quarter of the speed. At the moment, I think we have one business service that is running on that.
Dr Switkowski : It is hard to imagine a residential customer having any combination of services and products that would get anywhere near that. Certainly for business customers there might be an application. But we are a long way away from that becoming a mainstream need.
Senator RUSTON: Just as an example, what sort of applications or customers would potentially seek that sort of size capacity?
Dr Switkowski : I think if you were a small business doing software development and moving large files between locations, hundreds of megabytes per second can be very useful. For example, if you were doing special effects in 3D movies, which some enterprises in Australia do in support of Hollywood studios, they would need that kind of bandwidth and usually have options for getting it, not waiting for NBN to provide a reticulated retail network to do it. There will be others where the information is very data rich. Large quantities of MRI scans et cetera that move from point to point will require lots of bandwidth. Again, those institutions, by and large, have put in place physical infrastructure that provides it today, as do universities. I think the difficulty is that there are applications and organisations that use lots of bandwidth, including big businesses. They have made their own provision, as they always do. In terms of the retail and domestic market, it really is hard in any practical sense to describe the activities of a family, even with hyperactive teenagers, that would get anywhere near 100 megabytes per second any time soon.
Senator RUSTON: I will take that one step further. Is there anything foreseeable on the horizon that might change that situation? Obviously, there are plenty of unknowns out there. Is there anything that is triggering at the moment?
Dr Switkowski : Again, in this forum, we have previously and generally agreed that you really cannot and should not look too many years ahead because few of us have the ability to anticipate correctly the applications and the demand and the technologies that will have developed over the next decade or so. But we are guided by what we are seeing in other countries and other economies, arguably some that are a little more ahead of the curve than us. We do not see that we are going to be surprised over the next two or three years.
Senator RUSTON: Mr McAdam, who is the CEO of Verizon, is quoted as having said:
Going in and digging up yards and deploying fibre in a lot of new markets is not in the cards.
Obviously, he was making those comments in relation to the US market. It seems an interesting comment for him to have made. He obviously was not picking on Senator Conroy's model. He was dealing with his own space. Why do you think he would make a comment like that?
Dr Switkowski : Senator Ruston, we have a dialogue with Verizon, AT&T and others, so we ask those questions. Verizon some years ago believed that their business was going to be well served by rolling out an all-fibre network. They are competing with cable based companies, so they felt that that was a good alternative offering. But they did find that the costs were high; the intrusiveness in terms of laying out new fibre optic cable into homes, again, was a high level of annoyance; and that the demand for the speeds promised and for which they needed to charge to make a business case work simply was not there. So they have now paused in their rollout of cable and recommitted towards staging a fibre to the node rollout, incrementally increasing the speeds that are offered to households in line with technology developments which we can see over the next five years or so, and confident that it will meet the needs of, in their case, north-eastern American customers. It has been that experience and feedback that we have received in the past from British Telecom and other European and North American carriers that has encouraged us to examine more seriously the fibre to the node model, confident that we do not need to do pioneering work—that we can benefit from the experience that has been gained by these other telcos, who appear willing to share their intellectual property with us—and reassured that the speed improvements over the next five or more years will more than keep pace with what we understand will be fast growth in both demand for bandwidth and demand for speed.
Senator RUSTON: In the strategic review, it is stated that their cost per household to per business of fibre had fallen to as low as $US1,600, which is $A1,800 or something. Is that significantly lower than what we are looking at at the moment for the Australian rollout?
Dr Switkowski : It is in the same ballpark as what we are experiencing for our fibre to the premises rollout at the moment, plus or minus.
Senator RUSTON: To date, or what you are projecting into the future?
Dr Switkowski : To date. The particular relevance to us is if companies with the critical density of the rollout, such as Verizon, are incurring costs which I think are high at that number, we have to be mindful of the rate at which our own rollout of an all-fibre network might improve and to what level. That, again, reinforces the notion that it is usually better to find ways to reuse existing infrastructure and upgrade it than to overbuild infrastructure with what looks to be a fairly costly alternative.
Senator RUSTON: Continuing on with the efficiencies of where we are at the moment, notwithstanding we are at a point in time now where we are going to go forward, hopefully. You had an independent assessment of NBN done by KordaMentha. I will quote one of the lines out of it:
The organisation is carrying a level of head count and overhead that has been predicated on the achievement of volumes of rollout and activity in the corporate plan. These volumes obviously have not been met and will not be met for some time.
I suppose the question is: given that you inherited an organisation that had overheads that were not commensurate with what they were doing, how have you been able to deal with that issue? Have you been able to deal with it? If you have, what have you done?
Dr Switkowski : We reported last week that the head count at the end of the calendar year was 2,950 people and holding. We have had an employment freeze in place now for some time. But that head count and the associated costs of all of those heads was, I think it is generally acknowledged, higher than it should be given the level of progress in terms of the rollout. Having said that, the people that NBN have recruited are by and large people with special skills and desirable skills. My approach, in the time that I have been involved in an executive role, has been to guide the organisation to better determine what skills are going to be necessary for the next phase and to protect those skills and those resources and not move too quickly to do anything at the high level head count level. In other words, I am still of the view that if we can get our activity level designed better and more productively, we can move quite quickly over the next year or two and 'grow' into that head count. But it really is going to be one of the early decisions of the incoming chief executive, Bill Morrow. He will not decide in isolation. The board and I will continue to help shape those decisions. But at this stage we acknowledge the costs are higher than they should be. We also acknowledge that we expect this company to grow rather more quickly into the future and perhaps justify the level of investment that we have made in skills and people.
Senator RUSTON: That is an interesting challenge for Mr Morrow when he gets here. One of the other things that the strategic review seemed to draw to everyone's attention was a culture, perhaps, of spending a lot. I think there were some numbers quoted: $152 million was spent on consultants, $11 million on legal fees and $30 million on travel. I am not passing any judgement on whether that was justified or not. If you are trying to instil into an existing organisation a culture that is obviously quite different to the culture of greater freedom, how are you going about trying to instil into this organisation that we really are in pretty tough economic times, there are some pretty severe budgetary constraints and we do need to be more frugal about how we are approaching things? In itself that sometimes can be a greater challenge than actually doing the physical things.
Dr Switkowski : Well, I think there are two dimensions to the response. The strategic review has emphasised how important it is that we contain the overall costs of this project. We will do that by being more, I think, rational in terms of the infrastructure that we use and leverage as well as what we build, how we can bring forward revenues so that we can have the company cash self-sufficient earlier, and how we can have an overall project which will be built in a shorter period of time but yet provide Australians with a better experience. So all of those things go to the issue of conserving cash and managing costs carefully. In terms of the culture of personnel at NBN, I think that has already come a long way. It started even before I was involved. I think the company is very attentive and mindful of the need to be frugal in the way it spends money. For me, the disconnect has been not so much the attitude of employees at NBN in terms of their management of budgets, which I think is quite disciplined, but that there has been quite a contrast in the focus on saving a dollar in terms of controllable costs versus misallocating $100 in terms of capital costs and budget costs. The review and the changed direction and the restatement of priorities et cetera will take care of the big dollars. The smaller dollars, I think, are managed by people around this table and others pretty well.
Senator RUSTON: I suppose that goes to the appointment of Mr Morrow as your CEO. How important were the skills that we have just been talking about in your decision to appoint Mr Morrow as your chief executive? Is this a fundamental part of his background and skill set?
Dr Switkowski : Yes. As you might imagine, Mr Morrow, we put through quite a forensic review process that led us to conclude that he met our requirements and did so with style—in other words, ticked all of the boxes. The boxes included experience in having rolled out networks before; experience in understanding what best practice is around the world; qualities as a leader; qualities as a communicator; qualities as a team builder; a person who put out developed plans, put out targets and then met them; and a person who had a pretty rich set of experiences in working in stressed turnaround environments, where you have to be very attentive to costs and cash flows and meeting the demands of investors and others. So Bill in many ways, without wanting to set too high a bar for him, comes to the job with excellent experiences, clarity as to what the challenges are, with some of the groundwork laid, and I think with a leadership style that will have a positive impact not only internally but in terms of all of the other stakeholders that a CEO has to have good relationships with, including the Senate subcommittees.
Senator RUSTON: Thank you.
Senator SMITH: Excuse my brief absence. Did Senator Ruston ask any questions with regard to the cost-benefit analysis?
Dr Switkowski : No.
Senator SMITH: Could you please update us in terms of the progress of that and what we can expect to see? It might be a bit premature at the moment. Where are we up to with that initiative?
Dr Switkowski : Senator Smith, the cost-benefit analysis review committee was formed, I think, just before Christmas 2013 under the chairmanship of Michael Vertigan. I understand that they have had several meetings and in the last two weeks put out an issues paper, which is fairly complete. In fact, it is very complete in terms of their ambition in the sort of issues that they hope to address and resolve. They are working against a timetable that I understand aims to produce a report in some form in June 2014. They have flagged that they will be taking submissions. Submissions, as I understand it, are being received by that committee. NBN has had meetings with the committee and will continue to have meetings initially to learn of their approach to the task. The task is pretty much captured in the shorthand of their title—cost-benefit analysis of NBN—which will go much more broadly than just economic returns but also the social benefits of having a nationwide ubiquitous broadband network. Adjacent to that they will also look at different forms of industry structure and the position of NBN in that; and the nature of competition, which may or may not be seen to be in need of review within the telecom industry. So they have a broad remit. It is very relevant. NBN has a high interest in their processes and in their findings. We have engaged at an early stage, mainly to express our willingness to be helpful. We are not yet in the position of having made any formal submissions.
Senator SMITH: How would you characterise the industry response to that discussion paper?
Dr Switkowski : I would say the industry has been very welcoming of the review. Without being needlessly provocative, it is the sort of analysis that should have been done much earlier in order to form a view not just of the coldly commercial economic returns of a $40 billion plus investment but also to get a better appreciation of the knock-on effects of providing high bandwidth connectivity to Australians over a larger part of our continent. So I would say the financially oriented community welcomes that dimension to their review. Industry participants are watching with interest and welcome an opportunity to express their views as to what the right kind of industry structure should be and whether NBN as a government owned monopoly provider is the best long-term structure for NBN. Obviously we have an interest in that. I have read the response from Telstra, which has welcomed the initiation of the review. I expect that they will put in a submission as well. Of course, there is the normal rich assortment of experts and commentators that see this as a forum in which they will get rationally engaged on difficult issues and help lay out a scenario into the future that might have more structure to it than what we have at the moment.
Senator SMITH: In the previous evidence, there was an accusation that NBN was being secretive. You did respond to that briefly, I thought. Could you perhaps respond to that accusation that NBN is being secretive.
Dr Switkowski : I find that an astonishing accusation. Everything that we have done upon the change of government, board and management has been in the direction of, firstly, ensuring that the information and the data we have is accurate and meaningful and then, secondly, in a timely fashion, with just in time statistics, releasing it to all of our stakeholders in a form that they can relate to, so that you do not have to employ an analyst to divine the meaning of the numbers. That has certainly been a direction of the minister. He has found in NBN a very cooperative executive that wants to have that kind of disclosure. Many of us come from the private sector where that disclosure is compulsory, so we are hardwired to think along those lines. That certainly has been the approach that we have taken. I think it came together pretty well last Friday, when we invited industry participants, our partners, media, financial analysts and fund managers as well as normal consulting firms and accounting firms to not only listen to our side of the commentary but to interrogate us for as long as they wanted—we went to the end of the questions—on issues that they felt they needed clarification on. We have promised to do that every quarter. From my base—I would claim to be experienced in the way of industry and listed companies—we are not quite there yet, but we are moving in the direction of best practice. That has been our intent. I would say this is evidence of both sincerity in our approach and, I think, transparency in our dealings with NBN.
Senator SMITH: In the previous evidence—I might have been part absent from this—there might have been some discussions about some maps having been available and no longer being available. I think the comment from the witnesses might have been that they were useless. Can you just elaborate on the issue around maps?
Dr Switkowski : I think this followed a line of questioning that suggested that there was a lot of data being published routinely by NBN in the past and that that data is now of a different form and less voluminous than it used to be. That, broadly stated, is correct. But as we have said in this forum and in the subcommittee forums, what was very, very clear as it changed over in the September-October period was that within NBN there was this culture of acquiescing or even supporting quite unreasonable forecasts—unreasonably optimistic—and not recognising that the actual performance and the trend was moving sufficiently far away from those forecasts as to make the gap unable to be closed under any set of reasonable interventions. The information that was out there, aside from the headlines that generated it in the media, in business and in households as to the imminence of access to the NBN was uneven in its accuracy. There were colours on maps that said NBN is in your area and you will be able to connect within whatever the number was—12 months. Twelve months later, that was still the case and it was still 12 months out. I do not for a moment criticise the original intent—I think the intent was good; it was to be complete in the disclosure of the information—but it was not kept accurate or current. Then as the pressure increased on NBN, in terms of our failure to hit targets, those maps were not adjusted and those forecasts were not adjusted finely enough. In the end, I thought—others did too—that they were misleading. So we have cut back on the maps, indicating only those areas where we know construction has commenced and where we are confident that a person reading those maps can reasonably conclude that they will be connected in a reasonable period of time.
There is just one other point. Last Friday, we also conceded that as we got the process better organised and as our whole supply chain from design to the end of construction and activation is smoother and more consistent and more reliable, we will continue to evolve the way we report. We may well report at an earlier time in our process only if we are completely confident that what that foreshadows is something that we will actually deliver.
Senator SMITH: I got the impression from some of the other questioning that targets that are unachievable are more important than targets that are achievable. From your evidence, I am getting the impression that people should prepare themselves for the fact that there might be a more honest and open discussion about where the rollout of the NBN is. They should prepare themselves for the fact that things might go very, very well for a while and they might hit a bumpy road and that that is part of recalibrating, if you like, the organisation and bringing expectations not just from NBN but the community back to a more achievable position.
Dr Switkowski : I quite agree with that. I will give you an example that I am aware of. As we reviewed our weekly rollout statistics, it was noted that the forward orders being placed by developers of greenfield estates had begun to fall. The reaction was that this was a worrying sign. We went in behind that to get an understanding from the developers what was happening. Because they are building more confidence in our forecasts, they are not placing orders very, very early in the expectation that some time later they will be fulfilled. In other words, preliminarily it is a sign of growing confidence in our forecasting numbers and in our disclosure of data as to areas. We are getting that kind of reinforcement quite regularly. That is why I am distressed a little about Senator Conroy's very critical attitude to this level of transparency. At an operating and commercial level, most of the feedback that we are getting from retail service providers, construction partners and vendors is that this quality, quantity timeliness of information is very welcome.
Senator SMITH: I want to go to your opening statement. Given the discussions around the suitability of the copper network that have dominated the Senate select inquiries et cetera, not much has been asked of your opening statement, where you talk about the construction of two small-scale copper serving area modules and NBN Co inviting retail service providers to participate in a fibre to the node end user trial. Can you elaborate on that a bit more and perhaps with some timeframes?
Mr Simon : The trial is currently for fibre to the basement. So we have worked with RSPs to select some buildings. We are also selecting some fibre to the node trials in which we are building out, as I say, in those areas. Fibre to the basement is ahead of fibre to node. As we roll out those trials in the next couple of months, we will be connecting end users and working with our RSP customers. We will work with both of them.
Dr Switkowski : Again—and I think we have made this point before—these trials are not trials to convince us the technology works. We know it works. We have calibrated and benchmarked against overseas experience and we have had experts come and advise us. These are trials to design a process, in partnership with our retail service providers and our current and future construction partners, so that we can take the kinks out of a process in design to construction to activation and make it as repeatable and simple as we can so that we can scale up to numbers. Today we are arguing the difference between 3,000, 4,000 and 5,000 homes passed a week. We know we have to get to 25,000 homes passed per week. At any stage of this rollout, that will have to be sustained for a five-year period without break. So, on the one hand, it is unimportant what happens month to month at this early stage, but it is very important if it helps shape the design of a process that will then be scaled up to this level of deployment over the remainder of this decade.
Senator SMITH: If I could put that back to you in layman's terms—
Dr Switkowski : Was that not in layman's terms?
Senator SMITH: I am the layman. I will send it as a layman back to you. So designing the process and getting the process design correct early means that when we upscale to larger numbers of rollout, the system operates much more efficiently, there are fewer kinks in the chain and then we are able to get those very, very big rollout figures that people are expecting?
Mr Brown : Exactly. I might just add to that a real live example. As we said, we are in MDUs at the moment. We have struggled with MDUs from a fibring up the building perspective. We have eight MDUs where we are trialling the methodology about how you actually install the VDSL box to the basement. One of the things we have come across is how you get authority to hook in the power. That is something that only real world experience will teach you—how you can negotiate with a body corporate about whether they pay, we pay and how they charge the houses. It is that sort of experience that we are getting to the bottom of. As we go to scale, we have fixed all that before we start to go to hundreds of MDUs.
CHAIR: Thank you, Mr Brown. We will now move on to Senator Ludlam.
Senator LUDLAM: I have a fairly disparate set of questions. I want to bring you first to a piece that you are no doubt aware of that ran in TheFinancial Review this morning by James Hutchinson. It reflects on some remarks you made, Dr Switkowski, around private funding and the risks attendant on private funding, particularly in the later stages of the build. It was assumed under the previous business plan that the company would be profitable enough to raise its own debt without needing any kind of government guarantee. That is the basic outline of the argument, is it not?
Dr Switkowski : Yes.
Senator LUDLAM: To take it a step further, you have acknowledged—we covered this ground a bit in the select committee hearings—the company is likely to make a lower rate of return partly because of the technology mix that has been chosen and the fact that you cannot sell the high-end products on some parts of the network or some parts of your customer base. Is that also a reasonable contention?
Dr Switkowski : Firstly, I think the rates of returns in the original plan are easily subjected to challenge. I do not think anybody should be confident to use them as a reference point.
Senator LUDLAM: We could have a whole separate argument about that. I am interested in your assumptions for your part.
Dr Switkowski : Okay. Park that. We have quite different assumptions in terms of, for example, average revenue per user trends.
Senator LUDLAM: Yes.
Dr Switkowski : And as a result of that and other things, you get an economic return at five plus per cent under the scenario that we are currently contemplating.
Senator LUDLAM: Part of the point that I am making, though, is that your average revenue per user is sensitive to the kind of technology that you can put them on. If you have a much larger fraction of your customer base parked in perpetuity on copper, you cannot offer them the high-end products that you can offer customers in the fibre footprint, to whom you will be charging more money.
Dr Switkowski : This is a topic that may take us into next week.
Senator LUDLAM: It is fairly simple.
Dr Switkowski : No, it is not, because we have quite different views on this, as we have had in the past. You can assume, as I think an earlier plan assumed, that as you layer on higher-speed products, that will drive your RPU up at an attractive rate, or you can say that consumer behaviour is such that, for a relatively similar amount of dollars per month, users of broadband connectivity expect to get constantly improving speeds.
Senator LUDLAM: Which you cannot offer them because they are going to be stuck on fibre to the node.
Dr Switkowski : In a way, our assumption is insensitive to assumptions around speed mix. What we say is consumers are going to pay whatever the wholesale price is in our model—$40 or thereabouts. It will move up—we have different scenarios—at CPI. Underneath it, you will have a set of assumptions as to speed. I will have a different set of assumptions. At the end of the day, the residential consumer will still only pay $40 plus CPI. That is quite a critical assumption. I acknowledge that other people can have an argument that says, 'No. There will be a large market that is going to pay twice as much as that.' My response would be that I am yet to see it anywhere in the world.
Senator LUDLAM: We are already seeing it here in data provided to this committee and to the previous iteration of the joint committee into the NBN. Your customer base and the fibre footprint will be taking up top tier products at a much higher rate than was predicted. This is admittedly going back four or five years.
Dr Switkowski : It is now asymptoting towards closer to prediction. Again, I caution anybody from extrapolating, as there is an inclination to, from the experience for the first 100,000 customers.
Senator LUDLAM: Why? You were not just building the network into areas likely to have a high uptake. You are building it into rural and regional Tasmania and all over the place.
Dr Switkowski : I acknowledge that the geographic and demographic spread was typical, but the uptake in terms of early adopters was probably not. So if I have had to wave my hands around, which I know cannot be captured, I would not be at all surprised.
Senator LUDLAM: The video broadcast will get it.
Dr Switkowski : I would not be surprised to find that the initial uptake was by bandwidth hungry early adopters. As we add more customers, that will come down to the assumed levels. With the passage of another year or two, as bandwidth hungry applications become more popular, the bandwidth demand will increase but the price will not. That is a critical assumption. You may well want to debate that, but you would be debating it against a panel not just here but experts that take a different view.
Senator LUDLAM: So you think that the rate of return that you are going to be able to provide back to the taxpayer or whoever owns the company is insensitive to the technology mix that you are going to be stranding people on?
Dr Switkowski : At the revenue level, that is probably true. If there are sharp changes in technology, that may change the costs.
Senator LUDLAM: I cannot imagine these sharp changes in technology. I am trying to compare people on the fibre footprint, to whom you can effectively offer an open-ended upgrade path as technology improves, to the two-thirds of the population that will be stuck inside your copper footprint, who will have a ceiling imposed over their heads and you will not be able to offer those top-tier services to.
Dr Switkowski : I will go back to the strategic review conclusions. If we take 100 per cent of the 12 million points of connection that will constitute the end of the rollout, of the 12 million, one million will be within a satellite and fixed wireless footprint. Rounding out, 11 million are left. Of the 11 million, about three million will be in a HFC footprint. Another three million will be in an all-fibre footprint, and five million will be in an FTTN construct. So it is five out of the 12.
Senator LUDLAM: And you are submitting that that is likely to have no impact at all on your average revenue per user?
Dr Switkowski : That is the assumption because of the conviction that fibre to the node, the path that we are on in terms of speed, which will go from 25 to 50 in 2019 to 100 beyond that, will stay—
Senator LUDLAM: How are you going to go to 100 in the fibre-to-the-node footprint? How are you going to do that without ripping these nodes out and just cabling people up? How are you going to go to 100 meg service for fibre to the node?
Dr Switkowski : Let us just look at it. Beyond 2020, these technologies that are currently being test-bedded in a laboratory—G.fast et cetera—will get us into that triple digit megabyte per second bracket.
Senator LUDLAM: To the whole population, netting out those on lines and satellite?
Dr Switkowski : No. Again, it will be progressive initially. Again, the execution of this remains ahead of us. It is dependent upon distance from a node. Initially it will be available to 300 metres from the node and eventually 600 or 700. Once we get to 600 metres away, we have 90 per cent of the population in the copper footprint that are capable of getting these higher speeds. These are the sorts of details that I may actually be getting wrong but which were part of the strategic review spreadsheet and model that underpin the conclusions that we drew.
Senator LUDLAM: I will forgive you the details. I guess we will have to agree to disagree that it is going to have no impact. But our time is a bit limited, so I will need to move us on. Could you just confirm for us your understanding of voices inside the coalition party who will be proposing that you be flogged off and privatised along with Australia Post, SBS and all the other stuff? Can you just confirm for me your understanding of your legal obligations in terms of the part or whole sale of NBN Corporation?
Dr Switkowski : I am not even sure that I understand the question.
Senator LUDLAM: There are legislative preconditions for the sale of NBN Co.
I am just wondering if you are aware of what they are?
Dr Switkowski : Firstly, at NBN, and that includes me, there is no conversation about any path to privatisation.
Senator LUDLAM: Inside the company. What about inside the coalition party room?
Dr Switkowski : I have no insights into the coalition.
Senator SMITH: And neither do you, Senator Ludlam.
Senator LUDLAM: No. That is why I am asking. Feel free to enlighten us, if you will.
Senator SMITH: There is nothing.
CHAIR: So you are saying, Dr Switkowski, that under new technology, the copper will deliver 100 megs or so?
Dr Switkowski : We are on a path to get to 100 megabytes per second on copper within several hundred metres of the node in the 2020s.
CHAIR: Is that what they are getting in the UK similar?
Dr Switkowski : They are not reporting that technology at the moment. In the UK, the best they have done is, I think, 80. But they are getting close. This was a 2013 stat.
Senator LUDLAM: That is all right. It is useful to clarify. While we are on that subject, how many people did you acknowledge were outside that 600-metre catchment?
Dr Switkowski : I think in the copper footprint it is 15 per cent or thereabouts.
Senator LUDLAM: Of the overall 12 million?
Dr Switkowski : No. The copper network.
Senator LUDLAM: I see.
Dr Switkowski : Fifteen per cent of the households getting copper are 600 or more metres away from the node.
Senator LUDLAM: Thanks.
CHAIR: Is that just five million, that figure you said? Is it about five and a half?
Dr Switkowski : At the moment, the number of households inside the Telstra copper footprint is probably seven million—of that order. That number is falling away as people do other things. I was asked a question about future funding. Evidently, the original plan, which goes back a little way, anticipated tapping into the debt market in 2015. I think the context of the question was whether we will be in a position to raise debt in a year's time. The answer is no.
Senator LUDLAM: What about two years?
Dr Switkowski : No.
Senator LUDLAM: What about ever?
Dr Switkowski : Yes.
Senator LUDLAM: At what point do you think you are going to have the sort of financial metrics that would allow you to do that?
Dr Switkowski : There are two elements to that. One is the government has made clear thus far that the total amount of government equity would be $29.5 billion. We know that the revised plan is going to cost more than that. So in order to complete the rollout, we are going to have to find alternative financing structures. We do not need to do that for some years. If nothing else changes, we will have to find another $10 billion to $14 billion of financing. Towards the end of the rollout, as the business model is proved out—whether your assumptions are right or mine, we will know by then—
Senator LUDLAM: If I am right, you will find that job a bit easier.
Dr Switkowski : Much easier. And I hope you are right. I really, really do. There will be any number of financing bodies that will want to partner up with NBN in terms of providing debt or other forms of financing to complete the rollout. The other dimension here is that the cost-benefit analysis that is under the chair of Mike Vertigan may well reflect upon industry structure and government ownership of NBN and form other views. So we stand alert to what they might be.
Senator LUDLAM: I am not sure whether I have put to you before this question. Have you been approached to provide some financial metrics for benefits apart from the costs, which are presumably a lot easier to model, of building a network like the one you are building?
Dr Switkowski : Not yet. I would hope we will be. We will certainly volunteer them.
Senator LUDLAM: Very good. I come back to your obligations as far as the part or total privatisation of NBN Co. Are you familiar with how the act is drafted?
Dr Switkowski : Not in detail. I would say the first step would be a discussion with the minister. I doubt that he is familiar with it.
Senator LUDLAM: I suspect he probably would be. This was hashed out in depth when the enabling legislation was put through. But, just for your information, it is actually not legally possible for the company to be privatised until the network is complete. So I am just wondering what your metrics for completion are as far as the terms of your act are concerned?
Dr Switkowski : At this stage, Senator, I am in the midst of strategic review scenario six that puts completion around 2020.
Senator LUDLAM: We took evidence in Perth a couple of weeks ago in the select committee, including from a company that has been engaged, I believe, by some of your subcontractors to make much greater use of Telstra's existing network of pits and ducts. It is a technology that effectively involves just blowing pressurised water through the ducts so that they can be more easily reused. Are you familiar with that company or that technology?
Dr Switkowski : Only in having read the media reports.
Senator LUDLAM: Was your interest piqued by the media reports and the degree to which the costs and the time and the rollout was radically improved by using much more of Telstra's infrastructure?
Dr Switkowski : I think that was labelled as a microtrenching technology. Look, we welcome every idea and every innovation.
Senator LUDLAM: What did you do when you saw those press reports?
Dr Switkowski : I had a chat with people in the technology group.
Senator LUDLAM: What did they tell you?
Dr Switkowski : They were, firstly, familiar with the technology and were curious but not moved to immediately trial it.
Senator LUDLAM: Why is that? I find that a bit inconceivable. The committee was impressed. We cannot name the company for commercial-in-confidence reasons. We said we would keep their identity confidential. But your pointy heads in the accounting department did not think it was worth—
Dr Switkowski : No. I did not say the accounting department. Engineers. We have quite a number of projects and many, many ideas of ways in which we can reduce costs and accelerate the rollout. We welcome all those ideas. Where we feel that there is a reasonable chance that they could be put into practice, we will follow up.
Senator LUDLAM: Can I commend that one to you and maybe pass it to your financial people. Maybe they will be impressed in ways that others will not.
Dr Switkowski : Well, it is more to our operating people to see how we actually play it.
Senator LUDLAM: Well, I certainly commend it to you.
Dr Switkowski : Can you give me more information?
Senator LUDLAM: Maybe not at the table. We were asked to keep their material confidential. My colleagues in Melbourne have approached us about a residents association, which has informed us that NBN has been rolled out in a whole neighbouring area around a particular public housing estate in Carlton. Because of technical issues around MDUs, this estate has been left behind. I can be as specific as you like. They are now quite worried that they will not be connected. Can you give us any comfort? Maybe you addressed this in passing in your opening statement. They have had a philanthropic offer for a wireless system for the whole estate if it can be connected to NBN Co's hardware. It is the Carlton public housing estate across six buildings. I presume you are familiar with the area. It is just immediately north of Melbourne.
Dr Switkowski : I am.
Senator LUDLAM: The estate is listed as build commenced on the maps on your website. I am just wondering whether the rollout is flowing around those estates or whether you can give them some comfort tonight.
Dr Switkowski : I guess we will take that one on notice and get more information. I am familiar with the area. It is adjacent to the university and the cemetery. I do not know what the build out is.
Senator LUDLAM: The boundary is between Lygon Street, Drummond, Elgin and Nicholson streets. So it is that block immediately north of town.
Dr Switkowski : We shall follow up.
Senator LUDLAM: If you could. I guess they are very concerned that the rollout is effectively going to flow around them. What is your policy on public housing as a whole? Is there anything there that might affect them? There is no policy to exclude?
Mr Brown : Public housing is included in our footprint.
Senator LUDLAM: I would have thought so.
Mr Brown : There are some process issues which we have tackled in most of the states now, but not all, in terms of getting approval from the actual state governments, who are officially the owners of those premises. There is a lot of approval process steps that they actually have to positively wade us through. That has resulted in some delays in some areas. But most of that is now dealt with.
Senator LUDLAM: Are you aware of whether this area is—
Mr Brown : No. Specifically, I will have to take it on notice. We will get you an answer on the specifics of that.
Senator LUDLAM: I will just run through what I was going to put on notice, given these gentlemen at the table cannot help me. This is so you have a bit of structure around what I am asking. Is each apartment intended to be connected, or are you going to try one of these units in the basement, which I know your minister is very interested in? Will you be cabling up each apartment? Where can we find some confirmation about the status of when it will eventually be connected? Will private homes around the public housing be connected before the public housing estates? If so, why is that the case? So anything at all you can provide us to give them some confidence would be greatly appreciated.
Dr Switkowski : We shall certainly do that.
Senator LUDLAM: If I am out of time, I will leave it there. Thank you, Chair.
CHAIR: Thank you, Senator Ludlam. Senator O'Neill, you have about five minutes.
Senator O'NEILL: I am sure that you had a very nice time coming to the Central Coast at some point. It was a very excited community when we got the very early rollout of the NBN fibre to the premises. Roughly, one-third of the Central Coast has been committed to that technology. It is of some concern to the residents that they would have had fibre to the premises right across by 2016. The maps that have been in discussion here this afternoon were in fact very accurate on the Central Coast. People made plans with regard to their work et cetera about the rollout, which was on time and was being delivered. Given we are not in government any more, it is hard to get the statistics. Could you possibly provide the committee with details of the number of places that have access to the NBN—proper fibre to the premises—on the Central Coast? How many of those are signed up and active? If community representations to me are any indication, it is a very high take-up rate. Could we also get an indication of people who signed up in good faith in anticipation of the rollout continuing to them who now no longer have the opportunity to have fibre to the premises because of a change in government and a change in government policy? In fact, I would like some figures on those who are happy and those who are disappointed. With regard to transparency and stakeholder disclosure, could you take me through the decision making and the evidence base that has led you to select Epping in Victoria and particularly Umina-Woy Woy on the Central Coast as the trial sites for the fibre-to-the-node testing?
Mr Brown : The basis of the selection of the two locations was predominantly the availability of spare copper lines. We are effectively putting down about 10 FTTN cabinets. Again, the trial is about the construction process or, just as importantly, the migration process of how you would connect a customer and, indeed, what product can be sustained. There is no doubt the technology works. The question is how you commercialise the product. Remember that that is the focus. The real issue was whether we could pick places that were least disruptive that actually have sufficient copper pairs where we are not interfering with the existing Telstra network. In discussions with Telstra, they were the two places that made best sense. That was a decision made by NBN but with discussions with Telstra about what is the easiest place to start with relative availability of copper.
Senator O'NEILL: Could you provide us with some documentation about the processes that were undertaken? Could you confirm or clarify whether community consultation was undertaken? Were local businesses, local councils and local representatives of the Central Coast involved in that decision making?
Mr Brown : We will confirm that. As far as I am aware, we have not consulted with local businesses. This is a very small, very specific purpose trial. It is to do with how we build things and how we connect people. We are not offering commercial services. This is an opportunity to, if you like, iron out the bugs without disrupting the residents.
Senator O'NEILL: I hope you are already aware of a submission by over 250 businesses from the Central Coast, which articulated the case for a trial of the whole of the Central Coast as a fibre-to-the-premises rollout to do proper demographic and research studies about the impact of a regional rollout in terms of telehealth, economic development, social benefits, education and all of those modes of improvement that we are already beginning to see the edge of with the rollout thus far. To put this issue of fibre to the node in the Central Coast in context, we are already concerned about a digitally divided community where fibre to the node is rolling out, particularly in the area of Umina. There is considerable concern expressed by the chamber of commerce locally not only that they are going to be receiving an inferior grade of access to the digital world by comparison with their competitors in the same region but that there will be an impact on the streetscape of a tourist destination with these new fibre to the node fridge type things on the streets. In the footprint, is it 100 premises that you are going to service with this fibre to the node? Is that correct?
Mr Brown : It is in that range.
CHAIR: Senator O'Neill, this is your last question.
Mr Brown : It is quite small in number. Obviously, our intent is not to create an impact in the local community. Our intent is to test how to do this job and what products and services you can run over the network and what not.
Senator O'NEILL: How do you intend to respond to the community concern about this, though, that it will have this visual impact in a highly sought after tourist destination and that there will be a differentiation of access to technology for the business sector? I have a number of questions on this that I will have to put on notice.
CHAIR: You will have to put them on notice, Senator O'Neill, because we are frankly out of time. We have been two hours and 50 minutes with this mob.
Mr Brown : I will add that we will have quite an extensive community consultation process around those communities so it is not a surprise to them. The cabinets, as we envisage them, will not be significantly larger than the FTTP cabinets that we are already putting in. Again, we will talk to the local community so there are no surprises.
CHAIR: Time has expired. Senator O'Neill, you will have to put further questions on notice. Dr Switkowski and your group, thank you for your presence today. Thank you for answering questions. I apologise for the behaviour of some.
Proceedings suspended from 15:51 to 16:04