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Conroy, Turnbull clash over NBN cost -

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Conroy, Turnbull clash over NBN cost

Broadcast: 29/09/2010

Reporter: Tony Jones

Senator Stephen Conroy and Malcolm Turnbull debate the National Broadband Network in the Lateline


TONY JONES, PRESENTER: The world's richest man Carlos Slim Helu, who's currently in Australia, says
the NBN is too expensive.

The telecommunications mogul, who's worth about $60 billion himself, has also questioned the
Government's reliance on fibre-optic cabling today.

So is he right or wrong? Well, two politicians with diametrically-opposed positions on the issue
are the Minister for Broadband, Communications and the Digital Economy, Senator Stephen Conroy, and
the Shadow Minister for Communications and Broadband, Malcolm Turnbull.

Both are in our Parliament House studio.

Thanks to both of you for being there.



TONY JONES: Malcolm Turnbull, let's start with you. You've demanded a cost/benefit analysis, so
let's start with the cost side of this equation. You claim the Government is proposing to spend $43
billion of taxpayers' money on the NBN. Is this literally true or are you fudging the figures?

MALCOLM TURNBULL: Well, no, of course it's all taxpayers' money and even if the NBN company, which
is a wholly-owned subsidiary of the Federal Government, can raise some debt, that debt will be debt
of the Federal Government's, so there's no - this is a wholly-owned subsidiary, this is a
re-nationalised Telecom, this is a nationalised broadcasting network, a monopoly.

Think about this, Tony: this monopoly is so repugnant to the provisions, the competition laws of
the Trade Practices Act it could never get approved by the Australian - by the ACCC - could never
get approved, so Senator Conroy has to pass special legislation to effectively take it out of the
competition laws in the Trade Practices Act. This is a remarkable act of government - you know, of
direct government intervention.

TONY JONES: OK. I'm gonna stick with the cost question for a minute. Stephen Conroy, how much
taxpayers' money is the Government planning to spend on the NBN - taxpayers' money?

STEPHEN CONROY: Well, notwithstanding Malcolm avoiding answering your question directly, Tony, both
McKinsey's and now Mike Quigley have indicated that the figure is between $26 and 27 billion, not
43, as Malcolm just tried to claim incorrectly yet again. And we spent $25 million on a McKinsey's
report into the business case which went through all of this information. It provided a business
case that said the NBN is financially viable and affordable for Australians.

TONY JONES: So where does the balance that takes it up to $43 billion exactly come from?

STEPHEN CONROY: Well just like Telstra when it was a wholly-owned company, it issued its own bonds;
just like Australia Post, still a wholly-owned government company, and it issues bonds itself and
raises funds itself. And those are not direct taxpayers' dollars, as Malcolm is trying to play the
game with.

TONY JONES: OK, Malcolm Turnbull, well, just let me put it to you as a question.


TONY JONES: If private investors put up $16 billion of the total cost of $43 billion, that's their
risk, isn't it?

MALCOLM TURNBULL: Well, it's actually the taxpayers' risk because their loans will be secured on
the assets and undertaking of the NBN co.; the taxpayer, the Federal Government, will be the equity
owner, it will have $26 billion ranking behind the debt, so that if the company gets into trouble,
it will be the Federal Government, the taxpayers, that will lose money.

I mean, I think everybody understands this. What Stephen is saying is that he believes the company
can attract some private borrowing. Now, I'm happy to discuss the McKinsey work. He paid $27
million for one of the most fanciful pieces of financial analysis you could imagine. It is a
laughing stock right around the industry.

TONY JONES: Alright, we will come to that.

MALCOLM TURNBULL: But can I just say, the reality is the taxpayer is the one that is on the hook,
and just because he's putting $26 billion of taxpayers' equity in, putting it - ranking behind $16
or $17 billion of debt doesn't make it any less reckless.

TONY JONES: Stephen Conroy, first of all, you can answer that, but add to this, if you will, in
your answer - add this question: what if those private investors fail to materialise? Will the
Government stump up the additional $16 billion?

STEPHEN CONROY: Well, the McKinsey's report clearly demonstrates that there is a financially viable
business case, that it will start earning positive income streams after about the seventh or eighth
year in a way that will allow it to issue bonds. It's quite simple, it's straightforward and it's
in the McKinsey's report. The Government will only need to put in $27 billion at most ...

MALCOLM TURNBULL: A mere bagatelle, Stephen - only $27 billion.

STEPHEN CONROY: That's the Mike Quigley number; the McKinsey's number is 26, so it's in that
vicinity. And Malcolm may scoff, but what this government is committed to doing is ensuring that
the digital divide in this country is closed, not widened, that we deliver a world-class broadband
network for Australians.

We deserve to have a world-class system, not be locked into a two-tier system, and Malcolm's
fantasy from Potts Point where he thinks, "Well I can get everything I need. I can get everything,
all the speeds I want." He is living in a fantasy world about the state of broadband in this
country and the state of broadband particularly in metropolitan Australia.

TONY JONES: Alright, we have two fantasies going on now; apparently the McKinsey report is a
fantasy and you're living in a fantasy as well, Malcolm Turnbull.

MALCOLM TURNBULL: Well let me just address the digital divide issue. The fact is most Australians
are connected to exchanges that are ADSL2-enabled, so they can get - if they want to take it up,
they can get pretty fast broadband now.

Now there are areas in our cities where there are - where there is black spots for various reasons
of historic decisions made in designing the network where they're not able to get that. Those black
spots should be dealt with. They can be fixed up.

We can get the same broadband speeds that are available in Potts Point - Stephen's mentioning my
electorate. It's always kind of him to do that, but you can get those speeds right through
metropolitan Australia, right through the regional cities and towns in Australia and of course in
the more remote parts of Australia - everyone acknowledges, both sides of politics, the answer
there is wireless and satellite.

But the point - but here is the key point: we can do that without spending $43 billion.

Now Stephen Conroy knows that what he is doing is trashing our existing telecommunications network,
paying Telstra to shut it down, to overbuild it, when it would be much more cost-effective to build
it out, to improve it, to give people the broadband that they need and they're prepared to pay for,
and let us have a telecommunications system - network - that is technology agnostic, that is not
hooked into one particular technology and above all is the most cost effective use of funds.

TONY JONES: Alright. OK.

STEPHEN CONROY: I've just gotta respond. There are ...

TONY JONES: I'm gonna let you respond to that. I would like to you to actually respond to this
wireless question because it's so widely used against you. More and more people access the internet
through phones and devices like iPads. How will one gig-per-second fibre-connected broadband help

STEPHEN CONROY: I'll happily come back to that, but I need to go back to Malcolm's fantasy. He said
the majority, the vast majority of Australians can access and exchanges ADSL2+ enabled. Only 500 of
5,000 exchanges are ADSL2+ enabled. And I invite Malcolm to read ...

MALCOLM TURNBULL: But what percentage of the population does that represent?

STEPHEN CONROY: I invite Malcolm ...

MALCOLM TURNBULL: Stephen, answer the ...

TONY JONES: Malcolm Turnbull, will you just let him finish here?

STEPHEN CONROY: ... to read John McCarthy in the Courier-Mail. In the last couple of days he wrote
an Op-Ed piece which said that getting broadband in inner-city Brisbane is science fiction. I
invite him to read The Drum, Max Pesch, who described Surry Hills experience in Sydney.

This fantasy that Malcolm lives in in his little bubble in Potts Point that everybody can get it.
But if you don't wanna believe just those two individual examples, Kate McKenzie, a senior Telstra
executive, says that two-thirds of Australians in metropolitan Australia can't get 12 meg - can't
get 12 meg. None of this fantasy about ADSL2+ 24 meg. That's a senior Telstra executive.

TONY JONES: Alright. OK.

STEPHEN CONROY: No, I haven't finished, Tony. To borrow from the Coalition's own policy document in
the election: 1.2 million Australians can't get access to broadband in metropolitan Australia
because of pair gains, and that doesn't even take into account the rims that Telstra have installed
around Australia that are equally broadband blocking. So Malcolm's fantasy is exactly that.

TONY JONES: OK. Alright, I think you've both addressed - I think you've addressed, both of you,
your sides of the argument there. But Stephen Conroy, come back to this wireless question: how will
- since most people - or many, many people, like 25 per cent, Malcolm Turnbull says, people access
the internet wirelessly through their telephones and iPads and other devices. How will it help them
to have this fibre connection?

STEPHEN CONROY: Well, Malcolm claims all the time he's a techhead. Malcolm, if he's a real techhead
and is gonna be honest will admit that fibre is the best future-proof technology going around. It's
not gonna run out in 10 years, otherwise Malcolm's gonna be claiming next that all those submarine
cables built of fibre, all those interstate routes built of fibre are gonna have to be dug up and
replaced by wireless.

Fibre is the best future-proof technology. It works undersea, it works in the trunk roots and it
will work to people's homes.

Yes, people want mobility. It's tragic then that what Malcolm Turnbull and the Coalition's current
policy says is, "We'll build a fixed wireless network." That's not a mobile network. Tony Abbott,
Tony Smith, continue to argue about building a fixed wireless network, not a mobile network.

TONY JONES: Well let's go to Malcolm Turnbull and see whether that is - OK, is that still - is that
gonna be the policy when you've finished reviewing it?

MALCOLM TURNBULL: Well, Tony, the - let's get back to the - the real issue here is using taxpayers'
money. I mean, we're talking about ...

STEPHEN CONROY: Let's avoid all those technical questions, Tony. Let's just avoid them completely.
Forget the policy.

MALCOLM TURNBULL: We're talking about $43 billion to build a fibre-to-the-home network in Australia
on a scale that has not been built anywhere in the world. We are spending - the Government is
proposing to spend on a per capita basis 100 times more on this broadband venture than the United
States Government is spending on its broadband ...

STEPHEN CONROY: And thank goodness for that! Thank goodness for that!

MALCOLM TURNBULL: ... in the United States. But just let me make this point: if Stephen Conroy was
serious about protecting the interests of taxpayers and if he genuinely believed this was the best
option for Australia, why didn't he hire McKinsey to do a cost/benefit analysis, or somebody else?

TONY JONES: OK - Malcolm Turnbull - well, no, I'm actually running this discussion, so, if you
don't mind.

MALCOLM TURNBULL: Alright, well you're not interested in the taxpayers either, is that right?

TONY JONES: Well, you'll have to wait.

MALCOLM TURNBULL: No, but seriously, that's the big issue.

TONY JONES: We will come to the cost/benefit question.

MALCOLM TURNBULL: Good. Well I think we should.

STEPHEN CONROY: Well what's their policy? Tony Abbott said they're not rethinking their policy.

TONY JONES: Well, hang on a sec! Hold on, hold on, hold on. You've raised the question of the costs
per household, Malcolm Turnbull. Now, I think you've written it'll be $4,000 per household. Tony
Abbott say it'll be $5,000 per household. The visiting Mexican billionaire Carlos Slim Helu say
it'll be $7,000 per household. Who's right?

MALCOLM TURNBULL: Well, I mean, you can just work it out. You can divide through the number of
households by 40 - divide the number of households into $43 billion and you get the answer.

TONY JONES: Well, no, you don't. We actually did that. Your figure, your $4,000 figure multiplied
by 8.57 million households comes out at $34 billion, so I'm wondering how you came up with your
figure to start with.

MALCOLM TURNBULL: Well, I'm not sure whether that - where that figure came from, but it's $43
billion over around - over around nine million households and businesses. So ...

STEPHEN CONROY: But that's a completely false representation. This is investing in an asset that
will last up to 40 years. If you take even Malcolm's $4,000 and stretch that across 40 years, it's
about 13 cents a day.

So, you can't say that you add up the whole total cost for asset that lasts up to 40 years and
suddenly try and bemuse and trick ordinary Australians that that's the actual cost. This is an
asset over 40 years, Tony! 13 cents a day!

TONY JONES: Yeah, Malcolm Turnbull, do you want to address that question, because when you do a
cost/benefit analysis, you do have to look at the population increases and the number of households
will increase dramatically over the next 20 or 30 years while this thing is still operating?

So how do you maintain this $5,000 or $4,000 cost per household figure when you actually have to
increase the number of households over decades in order to do your calculations?

MALCOLM TURNBULL: Well, as the number of households increases obviously you'll have to expand the
network and the bulk of the cost is actually in the business, the civil engineering business of
laying out the fibre network and connecting it.

But can I just come back to this point: what Stephen Conroy should have done was first posed the
question. Now if the question is: how do we ensure that everybody in Australia gets the same speed
of broadband as the best broadband in our cities?

If that's the question, and I think that is the fair question, then what a cost/benefit analysis
would do is say: how can we most cost effectively achieve that goal? And then you would weigh up
the option of improving and remediating our existing network, which would cost a fraction of $43
billion; or you could go down the route that Stephen is proposing of trashing our existing network,
trashing that investment and building a new one.

But that cost/benefit analysis is what any rational government would do and yet that is what he has
chosen not to do, because he does not care about taxpayers' dollars.

TONY JONES: OK, but earlier Malcolm Turnbull I was asking you about a set of figures because these
figures are bandied around all over the place like the $43 billion public cost. The - equally the
cost-per-household is bandied about. As I said, there are three different figures we've heard in
the past 24 hours, from you, from Tony Abbott and now this billionaire from Mexico. So, if you
don't have an agreed set of figures to work from at the beginning, it's very hard to have a
sensible, rational argument about this, isn't it? Now you've just agreed that perhaps this
cost-per-household may be different.

MALCOLM TURNBULL: Well, honestly, Tony, I think you're being - Tony, I think you're being - you're
getting lost on a small point. This is a $43 billion government intervention. That's about US$40
billion, current exchange rates. The United States, with a population 15 times the size of
Australia, is committing $7 billion - US$7 billion.

STEPHEN CONROY: And they're building a second-rate network, and that's the key difference here,
Tony. The UK and the US are not models to take and follow. In this particular instance, if you look
into our region, in Japan, in South Korea, in Singapore, in Hong Kong, right across our region,
they're laying fibre to the home. It is the future-proof technology unless Malcolm is gonna
reinvent the laws of physics. He's gotta come clean and admit this.

TONY JONES: So Stephen Conroy, if you have all these other examples, why don't you simply do a
cost/benefit analysis and satisfy even the Opposition's arguments? I mean, are you afraid ... ?

STEPHEN CONROY: Look, this is the McKinsey's report.

TONY JONES: But that's not a cost/benefit analysis, is it?

STEPHEN CONROY: $25 million. It looks at the business case. There's been a number of cost/benefit
analyses done across the world. The most recent one, ...

MALCOLM TURNBULL: There hasn't been one done in Australia.

STEPHEN CONROY: Yes there has, Malcolm.

MALCOLM TURNBULL: No there hasn't!

STEPHEN CONROY: IBM, Access Economics ...

MALCOLM TURNBULL: Oh, give me a break!

STEPHEN CONROY: ... did a fibre-to-the-node cost/benefit analysis last year which showed for fibre
to the node, not as good an outcome as fibre to the home, and it showed there were positive
benefits. So you've got a positive business case and positive benefits. What Malcolm wants to do is
just play the game of opposition for opposition's sake.

MALCOLM TURNBULL: Well that's not the case.

TONY JONES: Malcolm Turnbull ...

STEPHEN CONROY: If can just finish this. If I can just finish this, Tony.

TONY JONES: You can, briefly.

STEPHEN CONROY: Malcolm was asked two days ago in a trade publication if a cost/benefit analysis
came back unambiguously yes, it was positive, would you still back it, and Malcolm wouldn't. This
is just opposition for opposition's sake.

TONY JONES: OK, Malcolm Turnbull - alright. Malcolm Turnbull, if they did a cost/benefit analysis
and it said pretty much what the McKinsey report says, would you then agree that it's a good idea?

MALCOLM TURNBULL: Well, the McKinsey report - if a cost/benefit analysis came back, it would not
say what McKinsey said because McKinsey is not a cost/benefit analysis. Let me just read you - read
something to you from the McKinsey report.

TONY JONES: If it's very brief.

MALCOLM TURNBULL: It says, "The purpose of this study is to advise the Government on how best to
implement its stated policy objectives, not to evaluate those objectives, given that the policies
have already been agreed by the Government." And it states expressly that it is not a cost/benefit
analysis of the macro-economic and social benefits, etc. that would result.

So, a cost/benefit analysis that looked at the different - posed the problem, the digital divide,
as Stephen's defined it, and then looked at different ways of addressing it, with different
technologies, if that came back, I would read that very, very carefully. I'm not gonna write a
blank cheque now, but I would read it very carefully.

STEPHEN CONROY: You won't even commit if it says yes.

MALCOLM TURNBULL: No, but can I just say this to you, Tony: hundreds of billions of dollars have
been wasted by governments, and indeed by the private sector, on the basis of building
infrastructure in the hope that they will come.


MALCOLM TURNBULL: "Build it that they will come" - "build it and they will come" ...

TONY JONES: Alright.

MALCOLM TURNBULL: ... is a recipe for losing tens of billions of dollars. It's been proved again
and again and again this is policy investment on an eyes-wide-shut basis.

TONY JONES: OK. Malcolm Turnbull, I'm gonna stay with you for a moment. Tony Abbott says no-one
would be more delighted than he if you can utterly demolish the National Broadband Network. I mean,
do you take him literally, because in three years' time, if this government survives for three
years, maybe 30 or 40 per cent of this broadband network will already been built.

So what are you going to do if you come to office after that? Are you going to dig it up? Are you
going to re-incorporate it into some sort of private plan? What is your plan? What's your policy
for what to do with what's already been put in place?

MALCOLM TURNBULL: Well, Tony, that's a - that will depend on how much has been built, where it is
and what its value is. The fact is that - look, I'm not interested in demolishing the NBN. I'm
interested in exposing the hollowness of the Government's justification for the NBN, and that, I
suppose, will demolish their shabby and empty argument.

But as far as the infrastructure is concerned, whatever has been built, if we come into government,
we will obviously have to make the very best possible use of it.

TONY JONES: OK, very briefly then, will you freeze the project there so that there are two
Australias - the one who got the rollout and the one whose didn't? The ones with fibre-to-the-home
and the ones who don't have it? Or will you continue the project?

MALCOLM TURNBULL: Well, Tony, you'd have to assess it. Let me just give you a little fact that is
important to bear in mind. About 25 per cent of Australians are passed by cable, you know, that's
used for pay television, was built for pay television at the moment. That cable, that HFC cable can
be enabled, and Telstra's already enabled it in Melbourne, to deliver 100 megabits per second
broadband now.

So, there are a range of technologies in the ground at the moment, extremely valuable assets that
can be deployed to deliver broadband.

TONY JONES: Alright. I've gotta go back now. Now Stephen Conroy, first of all, can you start by
telling us how much of this is likely to be built after three years of Government?

STEPHEN CONROY: Well, look, we're about to receive in the next few weeks that sort of information
from National Broadband Network, and I'm sure there's a whole range of information that we'll be
making available very, very shortly on some of these key questions and we'll be very, very happy to
put it out into the public domain, Tony.

But let's be clear: Malcolm Turnbull keeps claiming he's a techhead. A techhead would not try and
pretend to Australians that a HFC network can deliver the sort of services that we know are
available now and are going to be invented. I mean, this is about preparing for the future, and HFC
network is configured for - let's pretend it's not being shared, it's 100 meg down and two meg up.

You cannot high-definition video conference, you can't do remote diagnosis, you can't send big
files. This is a situation where Malcolm Turnbull knows better than this. He's a techhead,
self-admitted. HFC cannot deliver the sort of broadband capacity that we're going to need to move
into the new services that are yet to be invented and the existing services that are available
today, and Malcolm Turnbull knows better.

TONY JONES: OK, but very, very briefly. We're nearly out of time. Just tell us what would happen to
the business plan of a partially-built NBN after three years if it was stopped?

STEPHEN CONROY: Well it's like what the Opposition promised in Tasmania. In Tasmania we've already
started delivering customers, live customers in Tasmania. But it only works - the pricing, the
structure in Tasmania only works if it's part of an integrated national network where there's a
cross-subsidy across the whole country - so one price for the same product to everybody.

If you stop the project now, Tasmanians who are using the National Broadband Network will be faced
with dramatically higher prices and worse speeds because they couldn't get the same service. And
that would be exactly what would happen to the many, many tens and 20s and hundreds of thousands of
Australians who may be using the network by the time of the next election.

The entire business model collapses. All of the packages, all of the speeds, the download limits,
the prices would collapse if the Opposition won government and stopped and froze the project.

TONY JONES: OK, I'm sorry we're out of time. Malcolm Turnbull, many questions to ask about that.
They'll have to wait for another time when you've developed your policy more fully. But we thank
you very much for both of you for being there. We'll have to leave you now. Malcolm Turnbull and
Stephen Conroy, thanks for joining us.

STEPHEN CONROY: Thanks very much, Tony.