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Environment and Communications Legislation Committee
28/02/2017
Estimates
COMMUNICATIONS AND THE ARTS PORTFOLIO
NBN Co Limited

NBN Co Limited

CHAIR: This hearing is now reopened. I call officers from NBN Co. Mr Morrow, it is good to see you again. Welcome back to estimates.

Mr Morrow : Thank you very much.

CHAIR: Would you like to make an opening statement?

Mr Morrow : I would. Thank you, Senator. First of all, I am joined by my two colleagues today. To my far right is our Chief Financial Officer, Stephen Rue, and to my immediate right is our Chief Customer Officer, John Simon. I am sure the committee has many questions, but I would like to ask for your patience just for a brief opening statement, as I strongly believe that this will set the scene for a better understanding of what the company is doing and the issues facing the industry.

I will start with the acknowledgement that we are entering a new phase of deploying, using and leveraging broadband across a fully-connected country. This industry-wide transformation began in 2009 with the first phase-out and a remit to establish a business plan that brought about universal connectivity, with a long-term view of what the network should be capable of and, at the same time, generate a profit so that this can remain an investment rather than an ongoing budget expense. A very important part of this plan was also to define the roles across the industry of 'who does what'.

The transition to phase 2 was in late 2013, when the mandate was to improve the economic business plan by building an upgradable fit-for-purpose network as early as possible and at the least possible cost. This, once again, is to ensure we reap the benefits of a digital economy, without risking this becoming an ongoing expense to taxpayers, reinforcing that it must make a modest profit. Phase 2 is well underway, and let me provide the reasons why we feel this way. A few weeks ago, we announced our half-year results and, as we have consistently done so over the past three years, we met or exceeded the target set by the board. More than 4.2 million premises across the country can now order a service. This is more than a third of the country today. We are on track to pass the halfway point in the middle of this year, and we will extend that to three-quarters of the nation a year from then. We are beginning to punch above 70,000 new homes in just a single week, and we expect this to continue to climb. Four out of five of all homes and businesses in the country are now in design, construction or can already order a service. This accelerating pace is important, but equally so is keeping the cost per premise in line with expectation, and, once again, we are either on or better than budget.

To pay for a network that is growing like ours, we need to ensure the revenue will grow in a way that will ultimately offer a modest return for taxpayers. The $403 million earned in the first half is supported by the number of end users enabled by the NBN. We now have more than 1.8 million homes and businesses where our network connects them with their retailer's networks. We are presently adding just under 6,000 new end users every day. That is close to 700 new premises connected to the NBN every working hour.

Regarding the network technology mix, I can report that we are making progress on every front. The early problems with FTTN service activation are largely behind us and we are now making similar improvements in the more recently added technologies. Like all of the previously launched technologies, we have a period of time when issues or concerns are discovered and rectification is needed. Network adjustments, NBN process adjustments and retailer process adjustments have had to be made in all cases, and this will continue as we move further up to maturity curve. Remember, this is a monumental industry transformation. No-one else on the planet has undertaken a challenge equal to the scope and complexity of what the collective industry is doing right now here in Australia. A collaborative partnership with many other companies is essential and will underpin every benefit that this undertaking promises. The 1.8 million existing end users and the accelerating pace every week mean that the absolute number of Australians who are now engaging with the nation's broadband transformation is higher than ever before, and we are still in the early part of this curve.

This is why I believe we are entering the third phase of this industry-wide transformation, a phase that means a greater focus on consumers. To be clear, the end user experience is important to every company involved in building, selling and servicing this broadband internet access. We evaluate and analyse third-party independent surveys and our own internal metrics, and from this I can report that the majority of the 1.8 million are happy with their broadband experience powered by NBN, whether it is having the service installed or using the network. End user satisfaction scores remained stable at around seven out of 10, and the net promoter score continues to be positive. These scores are a reflection of both the service provider and NBN activities. For the very important minority who do not a good experience we try to understand the root cause so both NBN and the RSPs can make the necessary improvements. While the percentage dissatisfied is less than before, the absolute number grows with the higher volume of end users. The complaints to the TIO are a clear example of this. Most reports said that NBN's complaints increased by 120 per cent, but not many of those reports mentioned that as a proportion of end users complaints had dropped by 12 per cent. This is despite us connecting more than twice the number of users, compared to the year before.

Further to the industry challenge, many people do not realise the government owned NBN is only a small fraction of the end-to-end network that connects an end user to their internet content or the other end of the telephone. For example, in some cases, NBN is just the last 10 to 15 kilometres, but the retailers have a far greater stretch of network that must be invested in and maintained to support the user experience. Failure to do so means a reduction in speed, packet dropouts or a call not going through. Adding to the confusion is the fact that the process of having the service turned on or the speed observed even the reliability of the end-to-end network is the work of both the chosen retailer and NBN.

To be clear, we do not want anyone to have a negative experience, but some do, and I would like to focus on them for a moment. Many end-users are confused as to who does what and the industry, including us, must do a better job in providing that clarity. Having gone through some of the customer complaints, it is clear there is too much finger-pointing. Sometimes it is us and sometimes it is the retailer, but more often than not the end user feels like they are getting the run-around. Again, this is an industrywide issue that cannot be fixed by NBN alone. Some retailers are taking strong action already, and it shows in the end user satisfaction scores. For example, we have one retailer with very high scores and another at the other end of the scale, and both are using the same portion of the NBN network and the same NBN process to activate a user. This could be due to a number of factors that are in the hands of the retailer. Examples are the quality of the modem in the home, how much bandwidth the RSP has purchased from NBN, the size of their network that attaches to our point of interconnect or even how much bandwidth they purchased in overseas cables to access content from abroad. We know that have to when users have a choice of access speed and when they equally have a choice of a service provider, that the service provider is more than a reseller of the NBN network, thinking and consumers must select carefully to match their needs to what the service providers can offer. Again, NBN has its own issues and we acknowledge them. We own them, and we are fixing them. But we need to help more people understand who is responsible for which portions and what they can do to receive the best possible service. I have circulated a diagram that helps to explain the various roles and responsibilities. We may reference that diagram throughout the hearing tonight. With that, we appreciate the time for the statement, and we look forward to answering your questions.

CHAIR: Mr Morrow, on behalf of the committee, thank you very much for that very comprehensive and somewhat refreshing opening statement about the achievements and the things to improve, and also for providing a little more clarity on where those lay. I will now go Senator Urquhart.

Senator URQUHART: My inspection of the Discovery Centre last week or the week before—whenever it was—gave me some clarity around my understanding, so it was worthwhile. Mr Morrow, you recently commented that 80 per cent of Australian homes are in the design or construction pipeline or already built. Can you describe in detail what the design phase is, the associated steps and the time lines?

Mr Morrow : Firstly, when we go into design, it is typically a desktop based design that will take all of the data from data bases that either Telstra or the government has provided or that we have in-house so we can get an idea of the best technology, number one, that should be used. Secondly, there is the amount of construction work that might be required: what sort of equipment is going to be needed; where suggested placements are; whether it is a distribution hub or a node that needs to be stood up on a footpath somewhere. All of that is done during the design phase and is through a third-party company that works with us. Once that design is complete, then it is handed over to the construction teams. They then know which equipment and which supplies are needed and they go to work with boots on the ground actually walking the neighbourhoods and pulling cables or whatever else is necessary.

Senator URQUHART: We saw that on the inspection, and it was useful. How does the design phase differ across the fixed-line technologies?

Mr Morrow : It is a similar process but obviously if the most suitable technology is different to another one, it has different criteria that needs to be looked at. Naturally, if you think about an HFC design, that is using pay TV cables. That network is already pretty much prebuild out there and so the type of work that the designer needs to think about is going to be fundamentally different to the type of work of somebody working on an FTTN.

Senator URQUHART: In terms of the design phase, can you explain in more detail what that involves? You talked about the desktop design, then the equipment and then the third-party construction but can you go into a little more detail around what that actually involves?

Mr Morrow : There are a number of preliminary steps. The team will look at and come up with a preliminary desktop design through database analysis. The preliminary design goes into a different phase where somebody can look into the field a little bit more and start talking to a few construction partners, know which equipment is going to be needed and the rough placements of where the equipment is expected. They make assumptions about where the pits, the manhole covers and access to the underground facilities are, but again it is still before you actually get into the field. Then a field visit will take place and then the detailed final design can be issued, and that is when it goes into construction.

Senator URQUHART: How does that design feed into any preprocurement and orders you make?

Mr Morrow : A bill of materials will be produced. Stephen Rue has responsibility for supply organisation within the company. That material is sent over to them and they ensure that, against a time line of construction, that they will have it into a warehouse. It is kitted up and it is made sure that it is available on site according to the schedule of the construction activity.

Senator URQUHART: Can you explain for each access network how much the design phase actually costs and whether it contributes to the CPP.

Mr Morrow : Stephen, can you help with that?

Mr Rue : The design phase will be broadly similar. If you give me a few minutes I can see if I can find the differences. They all feed into the cost per premises, yes.

Senator URQUHART: Can you give me a bit more detail about how much the design phase costs for each access—

Mr Rue : If you want to move on, I will come back to you.

Senator URQUHART: I can move on. Can you describe the construction phase for the fibre-to-the-node network—the associated steps and the typical time lines we would be looking at? Every one is going to be different, obviously, if you run into issues, but a typical time line?

Mr Morrow : I am trying to recall this from memory—Pete Ryan is the leader of the group that has all of this detailed out. Roughly it is a year construction time that is necessary to be able to get everything done. I am happy to take the detail on notice to make sure you get the information that you need.

Senator URQUHART: So around about a year in construction, but that is just the construction—it is not, obviously, other factors.

Mr Simon : Generally speaking the FTTN construction is much shorter than, for example, if you have to build FTTP. The design phases are often similar. From memory, and we will take it on notice, it is about four to five months for an average node, or FTTN, construction compared to say a P construction—

Senator URQUHART: So four to five months?

Mr Simon : Yes.

Senator URQUHART: Can you describe the construction phase at a high level, step by step—what actually happens during the construction phase?

Mr Simon : Once the detailed design documents have been signed off, the construction teams use those design documents to commence construction work, which involves running fibre, pulling through duct and pit, constructing the physical nodes that need to be built—

Senator URQUHART: Are they in the building?

Mr Simon : They can be in the building if it is FTTB, so a DSLAM in the building. Those nodes that you see in the street are constructed, they require concrete plinths to be built, et cetera, and they also then need to be connected to the pillars. The required amount of copper needs to be connected. Once all that is connected up electric power needs to be delivered to those nodes as well—they need to be energised—and once that is all complete we have what is called the asset transfer process, which is a process by which Telstra and us exchange data so we can load our systems—what we refer to as our physical network inventory—at which point the construction and ready-for-service process is complete and we can declare an area ready-for-service.

Senator URQUHART: So that sequence would be the node, and then you power it, and then the fibre—

Mr Simon : The node, the pillar, the power and also the fibre down to the node has to be run.

Mr Morrow : The NBN is always typically between 18 months and two years. Again, every neighbourhood is a little bit different.

Senator URQUHART: So what was the four to five months you were talking about?

Mr Simon : Specifically just to construct. If you look at the total end to end—the preliminary design, the detailed design, construct, asset transfer, handover—

Mr Rue : It can be up to nine months for a design. It is about a $125 cost in the CPP, and it is basically the same for each technology.

Senator URQUHART: I presume that about 80 per cent is the proportion of the number of premises in 2020, so around 11.9 million, is that correct?

Mr Morrow : It will be premises currently today, which we believe is around 11.4 million. This is a really important point: we rely on government databases that have historically been inaccurate. As we go out into areas we assume the number of homes that are specified by the database, and we are finding far fewer homes actually there. So with today's aggregate of 11.4 million homes and businesses, our suspicion now is that it is less.

Senator URQUHART: Do you know how many less?

Mr Morrow : It is hard to say right now. We are going to do a little bit of analysis that will identify this, and then we want to talk with the minister over the next two or three months about what we think the true number of homes is. We have confined a 10 to 15 per cent variance when we go into an area in terms of what the number was in the database versus what is actually there.

Senator URQUHART: Doesn't the corporate plan say that it is 11.9 million ready for service?

Mr Morrow : By 2020. You have new developments. These are new homes that are being built by developers. We see an average of about 120,000 to 140,000 new homes every year built in Australia, so we have to forecast out what that is. That keeps fluctuating and changing as well. We gather that data from another organisation that is responsible for that.

Senator URQUHART: Given that around 2.4 million have been passed, does that mean there are about another 5.6 million premises that are in the pipeline?

Mr Morrow : It is a total of a little over 9½. I can get that number for you that we look at in this regard. It is 9.5 million that are in design, under construction or already ready for service.

Senator URQUHART: How many in the pipeline?

Mr Morrow : Those are all in the pipeline. As soon as you go into design, they have entered the pipe.

Senator URQUHART: So does the 80 per cent refer to 11.4 million or 11.9 million?

Mr Morrow : That should be looking at the 11.4.

Senator URQUHART: So that means there are about 5.6 million in the design and construction phase?

Mr Morrow : You would have to subtract out the 4.2, that is correct.

Senator URQUHART: In your opening statement you said the rollout is about 700 every hour and 6,000 every day. Has that hit scale? How many premises are in construction at any one time?

Mr Morrow : That is on the activations. What we are seeing on actually making the homes available for the retailers to sell into, we are having weeks now where we have punched above 70,000 in a single week. The average is probably around 60,000 a week right now. If you want to look at that, that is what we say. On average, we can do about 250 a month. Today, that is climbing. The team at NBN are just killing it in terms of the productivity increases. We are going to see a bump up of that come May-June time frame. Again, if we do everything right here, by the middle of the year we are going to be on a run rate that is going to carry us through to make sure that we complete the network build on time and on schedule by 2020.

Senator URQUHART: Is that 5.6 million actually what is currently under construction?

Mr Morrow : No, that would be design and construction.

Senator URQUHART: Can you tell me how many are in design and how many are in construction?

Mr Morrow : We do not have that detail at the moment. I am happy to pull that out and send that to you on notice.

Senator URQUHART: If you could do that that would be good. Are you able to get that tonight?

Mr Morrow : I may be able to.

Senator URQUHART: That would be great. What are the contractual commitments involved in the design phase? And how do you link them into the construction phase?

Mr Morrow : Contractual commitments—I am not sure what you mean by that. We have delivery partners that we have contracted with to be able to do our designs. We use several companies. In that contract with a company, it specifies what the rates would be, what the service quality is expected to be and what the volumes are that we anticipate them to produce. But from a contractual point of view, I am not sure. Eventually it gets to the point where Stephen is buying the supplies and therefore there is a degree of obligation, but I am not sure if that answers your question.

Senator URQUHART: It will do for now. I will put some on notice later and if we need a bit more information, I would like that. If you do not have the exact breakdown for that 5.6 million, are you able to give me a rough estimate? How many in design and how many in construction?

Mr Morrow : We will be able to pull that information and give it to you within a short period of time.

Senator URQUHART: Okay. I will handover to Senator Chisholm to continue with my time.

Senator CHISHOLM: In relation to the HFC footprint, have the 2.8 million premises base case in the 2017 corporate plan entered into a design or construction phase?

Mr Morrow : Yes, Much of it has; not all of it.

Senator CHISHOLM: Do you have any more detail about that?

Mr Morrow : In terms of?

Senator CHISHOLM: Just in terms of explaining where it is up to.

Mr Morrow : Not that I have with me available right now. We are on track for hitting our rough targets for the schedule that we put together. We are comfortable that the HFC is going to perform very well. We are comfortable that it is going to come in on the budget side of it. So we are really pleased with the work that we are doing with Telstra right now on ensuring that this happens.

Senator CHISHOLM: Is there someone in the organisation responsible for the HFC aspect of the business?

Mr Morrow : All of us are.

Senator CHISHOLM: If there someone here responsible for it?

Mr Morrow : All of us.

Senator CHISHOLM: Is it someone's job to manage that HFC network?

Mr Morrow : We have somebody within the engineering organisation who focuses on getting the HFC stuff built.

Senator CHISHOLM: Is that person here tonight?

Mr Morrow : No.

Senator CHISHOLM: What phase is the footprint in now for fibre-to-the-distribution point?

Mr Morrow : We have put some in design on fibre-to-the curb now. So there are a number that have put in design and we are anticipating the service to go live in 2018.

Senator CHISHOLM: How many premises?

Mr Morrow : I do not know what the actual number is in design. Ultimately, we are going to be up to 700,000 or 800,000 homes that will be served by fibre to the curb.

Senator CHISHOLM: You cannot tell me the progress that is being made with regard to that number?

Mr Morrow : I can tell you the progress is going well. As far as the actual number in design, I do not have that with me.

Senator CHISHOLM: Is it conceivable that not all of 2.8 million HFC premises are in the design phase?

Mr Morrow : It is conceivable, yes

Senator CHISHOLM: Would you be able to take on notice to provide a bit more detail?

Mr Morrow : About how many are not yet in the design?

Senator CHISHOLM: Yes.

Mr Morrow : Yes, happy to.

Senator Fifield: There are several hundred thousand that are ready for service already with HFC.

Mr Morrow : We already have 250,000 to 260,000 homes right now on HFC that can order the service. Again, you are going to see this ramp up really quickly in the coming months as far as the volumes are concerned. Again, we are excited about this technology. The network is already prebuilt—great cost, great performance and we are pleased it.

Senator CHISHOLM: You sound very confident. On the satellite and wireless footprint, can you give me a sense of whether it is in design, construction or completed phase?

Mr Morrow : Fixed wireless or satellite?

Senator CHISHOLM: Both.

Mr Morrow : Satellite is completely done. There is no more design or construction. All 411,000 homes that are to be served by satellite are done. It is now a matter of activating the customers.

Senator CHISHOLM: At what point do you forecast that 100 per cent of premises will be in the design, construction or built pipeline?

Mr Morrow : It is too early to tell at this point. Again, the team is doing a fantastic job. We have a bit of 'burstiness' with some of the designs—they come in big groups. It is not too far away before we have the entire nation in design, construction or ready for service.

Senator CHISHOLM: What percentage are not in that phase?

Mr Morrow : 20 per cent.

Senator CHISHOLM: What is the composition of that 20 per cent?

Mr Morrow : I am not sure I understand your question.

Senator CHISHOLM: What footprints would they be in?

Mr Morrow : Which technology we would be deploying?

Senator CHISHOLM: Yes.

Mr Morrow : It is going to be a mixture. It will be a combination of HFC, FTTN, fixed wireless and FTTC.

Senator GRIFF: Mr Morrow, I think you are doing a fantastic job of managing to get 70,000 through on the frequency you are now. It is quite an incredible undertaking, and I appreciate that it is not easy on many fronts, dealing with so many contractors and others associated with it. I will no doubt have a couple of things to say about that in the coming minutes. In your 2015-16 annual report, communication and public information costs increased by 82 per cent, from $23 million to $51 million. Can you break that down to what was spent on brand advertising, activation, communication and public education? Are you able to break it down to that detail?

Mr Rue : I have the numbers with for the half year for 2017. I do not have last year's numbers. Can I give you the half-year breakdown?

Senator GRIFF: On notice is fine.

Mr Rue : I will take it on notice.

Senator GRIFF: That will be fantastic. For the half-year period, your communications costs somewhat skyrocketed, compared to the previous period, to $36 million. What are you expecting the full year to be?

Mr Rue : It is between $70 million and $80 million.

Senator GRIFF: So that is up from $51 million the previous year. What proportion of that expenditure is likely to be spent on the 'gen nbn' campaign?

Mr Simon : Four or five million. Just to be clear, the majority of our spend deals with communicating to households that the NBN is going to be ready and, during the 18-month migration window, updating them on the need to move, including disconnection messages. A large part, probably 50 per cent of the spend, relates to that.

Senator GRIFF: Which were those items that I mentioned, so if we can see breakdown of that it will be fantastic. What actually is the purpose of the 'gen nbn' campaign?

Mr Morrow : To be able to illustrate the value of what NBN can bring to a household. This is something that stimulates the take-up rate. The earlier the take-up of our services means earlier and more revenue. And the more revenue the company can create means more profit is served back on the business and the taxpayer.

Senator GRIFF: It is a typical branding campaign.

Mr Morrow : It is not so much about NBN as a brand; it is more about the use that you can have if you have broadband in your home.

Mr Simon : It focuses on different use types. Clearly in any product take-up you get early adopters. What is important for NBN is that we manage that adoption curve throughout that 18 months, because we do not want a situation where there is a large tail of potential users that have not connected. That makes it very difficult logistically to have the field force ready to do that connection. We want to smooth out the take-up and bring forward the take-up, and that will help to drive the appropriate commercial returns. But it does talk to a lot of the people who we can clearly see are a large part of the market, who do recognise the need for faster broadband. The other half are not sure, so this tries to communicate to them the benefits of what faster broadband can bring.

Senator GRIFF: Should that be the role of the RSP? Because the end user's contract is with the RSP rather than you. Even in your opening statement, you said, 'Many people do not realise that government owned NBN is only a small fraction of the end-to-end network.' Many end users are confused as to who does what in the industry, and running what is effectively a retail campaign adds to that confusion. I think that is what is actually happening. People are contacting our respective offices confused as to who is responsible for what. You are really running the brand campaign that retail service providers should be running.

Mr Simon : We are very clear on all the communications that the TV advertising supports. All our marketing makes it very clear that we are a wholesaler and that they have to contact our RSPs. Our website does that, and in fact we pass leads from it. Often we pass 10,000 to 15,000 leads per week through to them. We are very happy for RSPs to also talk about the advantages of faster broadband, but, in reality, a lot of the RSPs are not, and that is just a fact. If you look at the RSPs that are talking about speed, they are not talking about speed. They are not talking about faster broadband, and end users need to understand that they have a choice. They have to make a choice of speed plans—it is important; they cannot just default to the lower speed—and there are benefits there.

Senator GRIFF: Going back to 'gen nbn', there is no mention whatsoever in your TV ad about you being a wholesaler; it is all aspirational and 'what you can do'.

Mr Simon : It is all part of an integrated campaign. We do not just advertise on TV; TV is supported by online, by DM and by our website. We also then work closely with our RSPs, who then support marketing into programs on the back of that. It is a totally integrated program.

Mr Morrow : I would add that is quite common for wholesale-type companies. Intel does a number of advertisements; it actually stimulates the market for consumers to actually say, 'I'd like to have Intel processors within my computers or devices.' It is not uncommon. There are lots of different examples of wholesalers being able to do this to stimulate the market. We actually can see that there is a return on this. The brand image, the attractiveness and of course the desire to take up the services sooner make the amount of spend—and it is less than $10 million. We will take it on notice, with the actual amount, but is less than $10 million and it is well worth the investment.

Senator GRIFF: Certainly in my electoral office, and I would suggest in those of a lot of the senators here, we get a number of calls from constituents, particularly the elderly, who are confused by the notification materials they receive, and really in particular about what is going to happen with their landline. There appears to be very little communication coming from you about that to these people. It seems that money is being spent on branding, building your brand, and yes it might help those who are aspirational and want to get involved in having a very fast or fast internet connection, but the vast majority of the public, particularly older people, are having great difficulty working out what this NBN means to them.

Mr Simon : To be clear, we send at least five pieces of communication to every premise in those pieces of communication. We clearly outline the need to switch, we clearly talk about the service and we talk about what they should do in the case of having emergency services, medical alarms et cetera. So to say that we are not communicating to premises, I would disagree with that totally.

Senator GRIFF: Actually, on the medical one, at the last estimates I asked about your call centre number, saying, again for elderly and those who were not internet savvy, it is very hard or virtually impossible to find it on your website. The response that I received to the question on notice was that the number, 1800 686 627, can be found prominently on the medical alarm page—not on the main page but on the medical alarm page. Is this the medical alarm page that you are referring to?

Mr Simon : The main page actually has a section about what to do and when you click on that it takes you to medical alarms.

Senator GRIFF: And you fill out a web form.

Mr Simon : But the number is in there.

Mr Morrow : Yes, it is, Senator Griff; after you said that, I went in to double check as well. I found the number straight up.

Senator GRIFF: We will come back to that, because I have looked and I cannot find it, and I certainly cannot find it on the actual medical alarm register page itself. I would like to go back to what I referred to before, the communication that is actually going out to people who are going to be connected, and I will use myself as an example. If I go onto the NBN website and enter my address, I am told that the NBN network is available in my area, in large type, and underneath it says that additional work is still required in order to make my address ready to connect to the NBN network. If I put my address into iiNet, it tells me the product is not available at my address; Telstra tells me it is not available yet, but I can get a head start; and TPG tells me: 'Go for it. Now available. Sign up now.'

Mr Morrow : That is exactly the point I was making in the opening statement—this is far more than just NBN. On our website, we can say when we can declare that area ready for service. We cannot control what the retailers say. They may be relying on other data, they may be relying on our own database or they may have a pointer that goes right to the same query that you can do on NBN, but, because we have no control over what the retailer does, it is out of our hands.

Senator GRIFF: But shouldn't your side actually state exactly what the position is?

Mr Morrow : We do. That is why it is on our website.

Senator GRIFF: Why does it then allow you to click to then go off and have a look at a selection of retailers, if the service is not available?

Mr Morrow : It is a retailer decision; it is not ours. We make it available. We have communications constantly with the retailers as far as when they can expect construction to begin, when the RFS date is scheduled to occur—and, of course, it is available on our website today. If they choose to use it, fantastic; if they choose not to, that is okay too. That is up to them and the way that they are going to represent themselves to the end user.

Senator GRIFF: But you are pushing that, in effect, because you are saying, 'View providers in your area,' when it is not even available.

Mr Morrow : We explain on our website when the ready-for-service date is.

Senator GRIFF: But, in my case, I am not ready for service. You still have—

Mr Simon : Have you recently checked the update that we have done?

Senator GRIFF: Two days ago. It has been like this for about four months with me.

Mr Simon : It has been changed.

Mr Morrow : Can you do it now?

Senator GRIFF: I can. I will have a look at that.

Mr Morrow : It is there.

Senator GRIFF: I will have a look.

Mr Morrow : Remember, we just announced this. We updated the database in there, as we said we would do, and so I think if you tried now you would be satisfied.

Senator GRIFF: Okay, fair enough. The ACMA report Migrating to the NBN: the experience of Australian consumers, released in December, said:

Some consumers found the information provided at the pre-migration stage not directly relevant at that point in time or reported that there was too much information to digest.

Overall, there was a feeling that too much information was provided too early in the process, which is what I am really referring to with this. Are there any plans to review or modify your pre-communication to the public, or are you going to stick with what is happening now, given that report?

Mr Simon : We have already removed pre-RFS communication. So we communicate on RFS to tell users that the service is available, if that is what you are referring to. We are constantly reviewing our communications and the RSP's communications. We want to make the role of the RSP versus our role even clearer to end users, because I think at times there is confusion there. They believe that, when they are purchasing a service, it is a full NBN service, end to end, when we are only the access network, so we are working on clarifying those roles and responsibilities on our website and making that very clear. This will continually evolve; it is not a static website. Just like we have updated the search capability to check your address, we will also continue to update the roles and responsibilities.

The other part we want to put in there is a more dynamic ability for users to better understand the things that can impact their speed performance, because the other area that end users get concerned about is that they might not be achieving the speeds that they believe they should be achieving. Clearly, there are three areas that have control there. One is their own environment, with their wi-fi modem and their own devices; one is us and the NBN network; and the other component is with the RSP who provide the backhaul, the transit and the CVC. Making that clearer and being able to arm them with the right questions is another part of the evolution of this.

Senator GRIFF: How far away are you from enabling an end user to determine the speed that is happening within your part of the network versus an RSP's part of the network?

Mr Morrow : We are working on that right now. This third phase that I referred to in the opening statement—it is really important. Because we are just one link in a long chain of the network, we have commissioned our technical team to find a solution where, first, we can actually isolate it and test it; and, second, our RSP can isolate it and test it. Our ultimate vision is that it will be in the hands of the consumer, for them to also look to see if the problem is on the NBN company network, if it is related to one of their retailers or if it is related to their home network, with wi-fi interference, a faulty modem or even the equipment that they are using to surf the net. This is going to take a while. I could not give you a date right now. We see a couple of interim solutions to be able to look at this. This is why we are very pleased with what the government has done to push the ACCC to say, 'Let's get out and get some monitoring. Let's invest in this to where we can actually have greater visibility.'

Senator GRIFF: I imagine Telstra, for commercial advantage, is planning to go out and start publishing what is happening on their side of things and it will hopefully push some others to do the same thing.

Mr Morrow : Telstra endorsed this notion of getting greater visibility out there. I think all of the retailers are supportive of this. Naturally, the industry wants to be sure that it is done in the right way to where false information is not given, and we support that.

Senator GRIFF: Referring back to the estimates response in October last year to some of the HFC installs, which I considered to be not done very well—in Adelaide. Your response to my question four—I am not sure if you have it there but I have it here—indicates that the examples I tabled were not acceptable and any instances like that that were identified by an audit would be corrected. Is that correct? It was question No. 153.

Mr Morrow : It sounds reasonable that if there is a problem out there we would correct it.

Mr Rue : It says that where an audit shows that an installation is not done correctly it would be corrected—absolutely, yes.

Senator GRIFF: Your response to my question No. 2 stated that contractors are required to perform sample audits of their own. Are you saying that contractors are effectively required to audit themselves?

Mr Morrow : No, we are talking about the companies—just in the management ranks. The management would do the periodic audits of being actual technicians doing the physical work.

Senator GRIFF: Your residential preparation and installation guide specifically states 'the placement of a surface mount leading conduit in relation to a PCD or an NTD needs to provide a degree of protection to ensure boxes and cables are secure and protected from accidental or deliberate damage', and so forth. That is what I was referring to back in October. I did send you some pictures of this. I have many more examples of similar instances—in fact, even one in a Westpac bank near my office, of which the HFC cable is exposed to the extent I am indicating, and it is all just at the height off the ground that I am indicating to you. So, effectively, someone could just go and snip and take out that bank. This is not just one example. There are many examples of this that I have noted in Adelaide. Perhaps it might just be an issue in a couple of areas, or it might be a wholesale issue. But your auditing can't be that good for me to have noted as many as I have. My staff have identified 35 of these instances in just over one day of going out and having a look at the way commercial premises were connected via HFC. So I find it surprising that something I flagged in October is still very much happening now. Would you consider this to be localised issue?

Mr Morrow : I am not sure exactly of the specifics of what you are referring to. Were you talking about a cable that does not have protection from somebody snipping it? That is not something that we do. This was built for a secure bank. With the cable itself, we want to make sure it is safe and that no-one can have any kind of electrical signal jolt or any kind of effect from that point of view. We want to make sure that it is protected from inclement weather, to ensure that it stays up and running. As far as security, of somebody coming up and being able to snip it, that is not necessarily—

Senator GRIFF: But in those instances nobody could snip a Telstra cable, for instance, because they are fully closed in conduit all the way up the wall with the box high up. But NBN is about the height off the ground I am indicating to you, with as much of the cable as I am indicating coming out of the conduit, with no other conduit around it. Are you saying that that is an acceptable installation?

Mr Morrow : It sounds like it. I would not know what the details are specifically. But, again, there is cable running all over. Everybody has seen the way the telecom network has been constructed in the past. It was never meant to protect somebody from doing criminal damage of going up and vandalising a home. That was not the intent. It is always there to protect from a safety point of view, but from a vandalism point of view, that is not within the remit.

Senator GRIFF: I would suggest that something that is the height I am indicating off the ground, outside of a bank, fully exposed, is not a good practice.

Mr Morrow : We would be happy to take a look at it so that we know we are talking about the same thing.

Mr Simon : I think there is a difference between whether a standard has been followed and the quality of that build and the location. If the bank will run its own security controls for a branch, they will do that as part of the network determination, whether that is essential service, critical service or whether it needs high security. So I am not clear, when you talk about the conduit—if there is no conduit there or if there is naked cable, then I agree that would not be according to the standard, but the discussion is on the position of that PCD. There are many different types of PCDs that can be located and are accessible to the community. It is impossible to make them secure. That has to be specifically done at the request of the end user.

Senator GRIFF: How many incorrect installations have you had to repair or correct in 2015-16?

Mr Simon : We would have to take that on notice.

Senator HUME: I want to ask a couple of questions about Sky Muster and also about your retail service providers. I might start with the retail service providers, just following on from Senator Griff's questions. Can I preface that by saying I am also on the joint committee, and the trip to the Discovery Centre was possibly the most invaluable thing that I have done in association with the NBN. Your presentation that day, Mr Morrow, was fantastic. I hope all my colleagues will get a chance to see it. Maybe you should turn it into a TED talk or something like that! It was terrific. I am interested in your relationship with the retail service providers. Obviously there are some that are very well-known organisations that are very reputable, and there are also some smaller ones that perhaps are slightly more out of left field. Do you get a chance to choose the retail service providers that you deal with?

Mr Morrow : No. As I said in the opening statement—that is the document in front of you—phase 1 of the design of NBN back in 2009 was actually to define the roles across the industry, and they made it very clear NBN is not allowed to determine who can resell the service. That is really independent—we cannot discriminate. They sign an agreement with us and they have the same rights and access as everybody does.

Mr Simon : But obviously there are security checks and credit checks—we do that. And they must onboard—they go through a technical onboarding process. If they cannot meet the technical onboarding, then, clearly, we do not let them sell. But apart from that technical onboarding, we do not have the right—it is not up to us; we are a wholesaler with non-discrimination obligations.

Senator HUME: I get a sense that there has been a level of reputational risk that you guys are under because of those retail service providers. Occasionally, if you have a problem with your internet service, you ring the retail service provider and you say, 'I've got a problem here,' and they say 'It's an NBN problem.' And you have no recourse.

Mr Morrow : No recourse, no.

Senator HUME: That is because you are not allowed to deal with that end user?

Mr Morrow : Correct.

Senator HUME: How are you transforming the relationships that you have with the retail service providers to prevent this happening in the future, or to address the situation?

Mr Simon : There are three levels that we are working on. Your comment is absolutely right. We run weekly and monthly end user satisfaction scores, and the scores that Mr Morrow talked about reflect the industry's NPS scores, which includes us and RSPs. Those scores vary, so while our score for the collective industries is an average of seven, we do see some RSPs at 7.8 and others down at 6.2. Yet, we have the same system and the same processes, so what that tells you, therefore, is that there is variability driven by the RSPs—that is your point. It is fair to say, I believe, that all RSPs do want the right outcome. The issue that they all tackle is having training and keeping that training fresh and updated, particularly at call centre agents—you tend to find that part of the industry has relatively high staff turnover, and, therefore, making sure those people have access to the right information is important. We are working with the RSPs to lift that level of training. We are putting training modules in.

As I mentioned before to Senator Griff, we will be making a much stronger statement and making it a lot clearer on our website as to our role versus the role of the RSPs. Mr Morrow mentioned that we are working on also providing some tools and diagnostics that will help identify better analysis of speed-related issues. So it is a combination of better education and also working more clearly with those RSPs. The other thing that we support wholeheartedly is the recent ACCC position, where they have outlined that just talking about headline speeds in the industry is not enough, because we all know the headline speed is what something peaks at, but it is not necessarily the average experience that an end user has. So I think when there is better clarity that will help educate the users, and the ongoing monitoring of that capability will also help. So those three pieces, we believe, will make a big difference.

Senator HUME: On the day that we were at the discovery centres, I found that this diagram was possibly the most useful piece of information that you could provide us.

CHAIR: The consistent rule is that you can refer to it.

Senator HUME: It was a document that you had tabled.

Mr Morrow : Yes.

Senator HUME: I found it very interesting that of all the things that could wrong on the chain, it could be that the end user has an outdated modem; it could be that they are trying to download something from a server in California that was overloaded. There are so many things along the continuum that could potentially go wrong that could affect internet speeds, yet the blame seems to come constantly back to NBN. That does seem somewhat unfair.

Can I ask you about the CVC pricing model that you have instituted in order to address the issue of the bandwidth aspect—I might have my terminology wrong here. This is about what people are actually purchasing and also making sure that the retail service providers have some flexibility in what it is they are offering their consumers.

Mr Simon : The recent pricing change we made was to institute what we refer to as the CVC pricing. We refer to it as dimension based discounting via RSP. As the RSP's user base consumes more—the RSP should also expand their CVC purchase or their network dimensioning to ensure that the right experience is delivered—our price points decrease. As RSP purchase more units of CVC, the unit price goes down. That is to reflect that we also believe that there is ongoing growth in usage by end users. It is to make sure that there is a long-term economic sustainable model for both us and the RSPs and also that the right customer, end user experience is there so that we do not see, or hopefully should not see, choking at the interface between our network and where the RSP's network takes over.

Senator HUME: Has that pricing model been well accepted by the retail service providers?

Mr Simon : I would characterise it by saying that the majority of the RSPs believe it is heading in the right direction. Like all commercial organisations, they would probably like to see bigger discounts or bigger price drops, but we need to manage the objectives that we have all got, both as a wholesaler and a retailer and also, importantly, for the end user.

Senator HUME: Can that model evolve in the future?

Mr Simon : We are not stopping there. We are going to explore additional options. The model that we have is a model that was originally put into the NBN from the onset. We have been busy rolling out lots of new networks and products. We will be reviewing with the ongoing industry growth in data usage, which we do assume will continue, whether there are some better methodologies and better pricing schemes to put in place. We are going to explore that this year, and we will go back to our customers, the RSPs, and have that consultation with them. But we do think there are other options available.

Senator Fifield: Senator, if I can go back to where you started, and I think it also goes to questions from Senator Griff: we do collectively need to keep explaining that the competition here is not at the infrastructure level; the competition is at the retail provider level. It is important that consumers have good information. The government and NBN are actively looking at ways that we can ensure that consumers have better information about respective responsibilities, and part of that includes the diagram that you held up before, which shows that there can be a range of things that affect speed. Some of those are within the remit of the retail service providers, some on occasion will be NBN and others will be equipment related. But we do need collectively to keep explaining the nature of the system. Competition at the retail level, with a variety of products and a variety of prices, and also the quality of service will vary between retail service providers. So they are points well made by you and Senator Griff.

Senator HUME: I am going to suggest that all Australians should go and visit the NBN discovery centre. Ditch Luna Park next time you are in Sydney. Go to the NBN discovery centre instead.

Mr Simon : And we don't charge.

CHAIR: I will go to Senator Chisholm for 20 minutes. We will then break for tea until half past. When we come back, we will go to Senator Ludlam and then Senator Roberts. We will have about another 10 minutes, but that is all.

Mr Morrow : Could I answer Senator Urquhart's question. She asked for the number of homes that are in design and construction: 3.2 million are in design; 2.1 million are in construction. Of that 2.1 million, 600,000 have actually had the physical work complete, and it is standing by ready for some other internal stuff that we do before it is made ready for service.

Senator URQUHART: Thank you.

Senator CHISHOLM: Mr Morrow, can you run through the elements of deploying new network technology. For example, when the NBN Co embarked on introducing HFC into the mix, what must you put in place before you can begin upgrading and connecting customers?

Mr Morrow : It depends on the technology, but in the HFC case, obviously we first need an agreement with Telstra, who had previously owned that network, and then we need to establish contracts and agreements with companies that have the capability to put those designs together and then, further, those that can go out and make the modifications to the network to bring it up to the standard that NBN wants to offer. So, on that, what we do is essentially go out to this network that has already been prebuilt. We update the electronics that are in the exchange. We update the electronics that will be in the home—this is what we refer to as our network terminating device or NTD that is in the house. We look at the number of homes that share the coaxial cable—that is, the pay-TV cable the runs down the street in front of the house—and therefore how many homes we should put on that network to share that bandwidth and how many fibres are necessary to make that division to where that quality of service is always up to par. We also look to see if there are enough lead-in, taps, to be able to go from the street to the home itself. Once all of this is done then we declare that area essentially ready for service, and then the retailers start sending their orders in to the team and the activation crew then heads out to finish the installation.

Senator CHISHOLM: In terms of your experience in rolling out networks overseas, what are some of the biggest hurdles that you have to overcome?

Mr Morrow : Typically, first and foremost it is cost, and civil works are obviously the most difficult, because when it involves trenching or pulling cables, clearing ducts that typically get clogged over time, that is the most time-consuming and typically the most cost-draining component of building networks. You have to make sure you are complying with local planning standards, and everybody has different plans. Even here in Australia as we go out there are a lot of different requirements that we try to accommodate the local councils on. From that point it is just making sure that the technology works according to the manufacturer's design and specifications.

Senator CHISHOLM: I will come back to something I touched on before, and I just want to push this a bit. In terms of going through the design and construction phase for fixed wireless, how long does it take in a given area, given the design, consultation, planning and building the tower as well?

Mr Morrow : Again, it depends on where. Towers can be quite a sensitive matter, as I am sure you are aware. We will typically go into an area, try to identify where the best placement is to access as many homes as possible within the distance range that that signal can carry to ensure that those customers can get a high speed. Once we identify a few of those candidates then we will go out on site to see where the actual tower could be built, and then we start working with the councils, property owners and the like to see if we can then construct the tower. A company goes out to construct it and puts it up. We put the radio equipment on it; we start doing a variety of different tests. Once all of that seems like it is in place and ready to go, then we will declare with the spectrum that we have that that area is then ready for service, and we start opening it up for the retailers. That is a typical process that is used across mobile networks that I have been a part of all over the world. It is not uncommon to take that step.

Senator CHISHOLM: When you say that there are differences, are those different geographic locations; is it as simple as regional versus city or is it terrain—

Mr Morrow : Yes, it is all of the above. What we find is typically we are on the outskirts of the metropolitan areas when we are talking about fixed wireless, so you may have some high density and some low density mixed in close proximity, so you have to be very careful not to overload with one and not have enough capacity to serve the others. You also have the terrain issues. I have seen a couple of cases where it is very mountainous. You go out there and try to do a design for a tower but it will only reach two homes. Even though the radio signal can propagate further it cannot go through earth. Therefore, you would have to place multiple towers in that location to be able to get to those homes when you have a very hilly situation. There are other things, because we do go after a direct line of sight, meaning that the house antenna—the dish we install on the house—has to be able to see the tower via a direct line of sight to get the kind of speeds that we offer on that service.

Senator CHISHOLM: In terms of the wireless footprint, are you saying that there remains part of that which has not entered a design phase?

Mr Morrow : I believe there are still a few that remain. Again, the cycle is fairly short on that because we have been doing this for a while. We have a lot of experts in the company and they are quite good at this. But yes, there still are some that need to be entered into the design itself.

Senator CHISHOLM: I do not know if that was looking for more information—

Mr Morrow : This is the 20 per cent I was referring to. We will get a breakdown for you, Senator. If we get an answer before the end of the night we will be happy to provide it. Otherwise, we will take it on notice.

Senator CHISHOLM: In terms of coming back to some of the questions about the technology and the rollout and your experience there, it is really interesting and I appreciate your time. When NBN Co embarked on the fibre to the node, how long did it take to lay the groundwork in terms of developing the necessary ICT systems, et cetera?

Mr Morrow : There were lots of different things that had to be done. From an IT point of view you have to build in to the inventory system and recognise the various pieces of equipment according to the geography it is going to be put in. So there was a considerable amount of IT work that was done. I think we have probably one of the best IT organisations, certainly in Australia if not the world. They were able to do that, I think, in a record low time. That part was fine and it went smooth.

We actually worked with Telstra. I do not know if you recall, but there was a special agreement we actually reached to be able to start the initial design so we could learn from them since they were the owners and very familiar with the copper network. From that learning we were able to apply the design processes and the construction processes. Probably where the most difficulty came in was what we referred to as the asset data transfer. We had to pull information out of Telstra's databases about which pair of copper went to which home coming from the node, and what kind of binder it was terminated on within that pillar that is in the neighbourhood entry points. Then we had to put that into the format we use within our databases.

Early on, that was a bit cumbersome and quite a bit was manual. It took far more time than we had anticipated. Again, because of some great people both on the Telstra side and in-house at NBN we were able to actually automate and perfect that to where FTTN is now a very smooth process. That is why we are being able to see the kind of numbers we are on the rollout. FTTN has proven to be a fast technology to be able to get homes ready for service.

Senator CHISHOLM: Just in terms of trying to get an understanding of the time it actually took, I probably did not ask this specifically enough. How long do you think it took to lay that groundwork and develop the necessary ICT systems?

Mr Simon : The first product we rolled out on FTTX product family was FTTB. It took roughly 11 months. Then we added N to that quickly—about six months later. So we released the entire products—that is, the building of products, the IT and the network release which basically activates the passive network.

Senator CHISHOLM: I am just trying to get an understanding of what you undertake for a trial in terms of IT systems versus when you roll out commercial deployment, and what the differences are between the two. The one I am probably interested in—I am more aware of it because I live near there—is the HFC trial in Redcliffe, for example.

Mr Morrow : This was an Optus based network in Redcliffe where we launched. That was a network that, again, was prebuilt out there. We put some of the electronics in at each end. This is in the Optus exchange. We have to go inside where all of their electronics are. We get some of what we refer to as rack space. We throw the new electronics in. That then heads into the fibre cable that goes out to the neighbourhood entry point. That then is where it attaches to the coaxial cable that goes down the house. That was a cycle time that I believe took roughly about the same amount of time for us to develop the product, develop the network and get that up and running: a six-to-nine-month time frame.

Mr Simon : It was about nine months, yes.

Senator CHISHOLM: What is the difference between the trial and the commercial deployment?

Mr Simon : Normally, the biggest difference is the scalability of the platform and the supporting capability. The trials will normally have the feature and function of the product: can the end user connect to the internet with the speeds and broad capability? But it would probably not have the full end-to-end flow-through on the back end of our systems for provisioning. Normally, that comes a bit later once we have tested that the product capabilities and the processes are working. The commercial release will allow more volume because, obviously, as we open the gates for RFS and the orders come, we have got to make sure—similar to the RSBs. The RSBs will often sell first. When they start selling, their systems will continually improve, just likes ours will improve, as they scale up and they get more experience.

Senator CHISHOLM: Are these NBN's own IT systems?

Mr Morrow : They are NBN owned, yes. We have third-party help that helps us construct it, but they are owned and maintained by us. You asked a question on fixed wireless about how many were left to be designed. The total footprint is going to be north of 600,000. We have 550,000 that are already in design, construction or ready to go, so there are 50,000 to 100,000—that sort of range—that have yet to start design.

Senator CHISHOLM: I am thinking about the challenges with the fibre to the distribution point. What lessons did you learn from the original rollout that you have been able to apply to the newer technology?

Mr Morrow : That one we are pretty excited about because we did get to where I feel we perfected fibre to the premises in terms of running that out through the street, up the driveway and into the house. I think you recall—it has been about a year or more now—we were doing a trial on what we called skinny fibre. This basically accelerates the time frame and lowers the cost to do a fibre-to-the-premises or fibre-to-the-curb type of application. Given the fact that we already have experience rolling fibre through a neighbourhood and the fact that that trial now has been matured and we are quite confident with that fibre approach, now it is a matter of just installing the electronics. They go inside the pit that is in the footpath in front of your home and actually tap into that copper pair that goes up. So we are confident in terms of the capability. We are confident in terms of our internal capability to roll this out at a scale. The issue is, quite frankly, if we can get that at a lower cost then we will see ourselves even doing more of that than FTTN. I am excited. I do think that, even with the up to 700,000 or 800,000 that I mentioned, our teams are pushing hard to see if we cannot do more of that. But, again, we are trying to get this built as fast as we can at the last possible cost, and, when we have that kind of breakthrough on it, we are going in and replacing some of that fibre-to-the-node stuff and, in this case, also some of the HFC.

Senator O'NEILL: Whereabouts?

Mr Morrow : It is a variety of different areas. We just did an announcement on the locations for the initial FTTC, but we can provide that information to you. The initial round of where FTTC will be delivered was announced this morning. We can get it to you straight away.

Senator CHISHOLM: I am interested in a similar question as before but about the new technology with fibre to the distribution point. What have you learnt from the different ICT systems and rollouts, and how have you been able to apply that to the newer—

Mr Morrow : Again, fortunately, because we have already been doing fibre to the premises and the IT systems that support that, we can leverage a large piece of that. The IT systems need to be able to take the distribution point unit that goes into the pit. They have to build that into the inventory systems to be able to code that. Our teams did not feel that that was a constraint at all. I think they have got quite good at this and therefore that is not a limitation or something that is slowing us down.

We do have a process that we follow with the retailers that John Simon takes them through that includes a lot of consultation and input on the product design, how it is actually going to be installed, what it means, what it looks like and what are the speeds that we get from that. That process is underway as we speak. The engineering teams are looking about how to refine this. We know we want a hit scale. And then there is a unique element about this when you come in to do the cut-over. We have 18-month window from the time we declare RFS to when Telstra shuts off their copper. Because we are using that copper that is running up to the house, actually the order has to be simultaneous with the switch. We do not want to dispatch a truck and a technician every single time, so we are devising ways so that we can pre-wire it. As soon as the customer actually plugs in the new modem, it sends a signal and flops it over and switches it right on to the new fibre-to-the-curb technology. So these sorts of developments are in train and are going to make this a smoother experience for the end user and retailer and be cost-efficient for us.

Senator CHISHOLM: Is that the self-install process that you just detailed there? Is that different?

Mr Morrow : That could be related to part of it, yes. So if we do this the way that the designers are looking at right now, it will be transparent to you as a homeowner. When we declare the area and your retailer contacts you to sell the service, you will purchase the product that you are looking for and the speed from whatever retailer. The retailer will likely send you a modem in the mail. You will plug that into your power point and your jack where your copper was. We should then detect that signal and that is when we have a little remote switch that occurs in the footpath out there, and you should be up and ready to go.

Senator CHISHOLM: Has that already been developed for the other technology?

Mr Morrow : No, this one is unique. All of them are unique just because of the unique characteristics of the technology. But this sort of approach is unique to TTC.

Senator CHISHOLM: In regard to the Optus HFC network, which we know has been abandoned, if you had not abandoned it, would you have deployed fibre-to-the-distribution point to those locations?

Mr Morrow : No. The intent was originally to use the HFC of the Optus network. Remember, whether it is Telstra or Optus, not every street or home is connected to these pay-TV networks, so it really means a mix. So mostly, you use the HFC but we still might have to use a bit of fibre to the node. So we had a plan to have our proportion within that. It was about 450,000 premises that kind of surrounded that Optus footprint. And it was going to be a mix of those two technologies that we were going to use. With the advancements that we saw in fibre to the curb, and the improvements that the team were making against the information and the knowledge that we were gaining about that HFC network, we made the switch and said that we were just going to go all of it with fibre to the curb.

And it does help us too. This is unique because we wanted to have a complete area that was nothing more than fibre to the curb, because we want to study this as well to see if there are other benefits that we can get from the scale point of view. The government's mandate that we have that Senator Fifield is quite adamant on is: be technology agnostic; go out there and get the best technology that you can and stay on budget and schedule. And with that remit, it gives us flexibility to do these sorts of things. That is why the team is energised to go out and we get quite excited. We think there is newer technology even coming down the road. We are looking at 5G—maybe 5G will have an application in terms of a kind of lead-in at a wireless level rather than having to dig up somebody's yard or use the copper that is there. So we are always looking for new opportunities and I think fibre to the curb is a really good example of saying we are technology agnostic and we are not hung on any particular technology.

Senator CHISHOLM: Have you finished?

Mr Morrow : No, I was going to answer Senator O'Neill's question on the location of—

Senator O'NEILL: We can get that in a minute. We have time, thanks.

Senator CHISHOLM: Just in terms of the first non-trial of the fibre-to-the-distribution point, when will that begin?

Mr Morrow : Do you mean the first actual service?

Senator CHISHOLM: Yes.

Mr Morrow : Again, we are in design on non-trial-based services. Sometime in the first half of 2018 is when you will see that actually turn up and those end users will start to be able to use it.

Senator CHISHOLM: Construction will start?

Mr Morrow : No, it will be ready for service in 2018.

Senator CHISHOLM: And construction will start?

Mr Morrow : I think that construction will start at the beginning of next year, or late this year?

Mr Rue : At the end of this year.

Mr Morrow : The end of this year.

Senator CHISHOLM: When will the IT and backend management systems be ready?

Mr Morrow : They are almost ready now. Again, it was not that major for the team to do it. The IT team has done something very unique here by perfecting the process to make this sort of introduction far easier than it has ever been. We are really proud of what they have done. It helps us, if new technology comes down, that our IT systems will actually enable that quite quickly.

Mr Simon : We also have to work with our retail service providers. We issue specifications and they then take those specifications to modify their systems. But, as Mr Morrow said, we expect to be in market, selling and making the services available through our RSPs, in the first half of 2018.

CHAIR: It being 9.20 we will now suspend for 10 minutes for a tea break. We will resume at half past nine.

Mr Morrow : Could I just provide that bit of information first, so that we can close out on this in terms of the question?

CHAIR: You can do that when we come back.

Proceedings suspended from 21 : 21 to 21 : 31

CHAIR: This hearing is now resumed. While we are waiting for Mr Morrow, Senator Urquhart.

Senator URQUHART: Some clarification, Mr Rue, in relation to that breakdown of numbers—the 5.6 million premises—did you get the answer back?

Mr Rue : Yes.

Senator URQUHART: I think you said 3.2 in design and 2.1 in construction. Is that correct, or did I mishear you? Sorry, I thought it was you that told me?

Mr Rue : Yes, that is correct.

Senator URQUHART: That adds up to 5.3. Where is the other 300,000? It was 5.6 million.

Mr Rue : We will have to wait until Mr Morrow comes back.

Senator URQUHART: He is here now. Mr Morrow, I was just seeking clarification on the numbers that you came back with in relation to the 5.6 million premises and the breakdown for design and construction. What I understand I heard was 3.2 in design and 2.1 in construction.

Mr Morrow : That is correct, and 4.2 that are already ready for service.

Senator URQUHART: Sorry, I missed that bit—so 4.2. But if you add up the 3.2 and the 2.1 that equals 5.3 and there were 5.6 million premises that were under design that I asked you to break down. I am wondering where the missing 300,000 were.

Mr Morrow : Where did you get the 5.6?

Senator URQUHART: That was the question I asked you: to break down the 5.6.

Mr Morrow : It is 5.3.

Senator URQUHART: It is 5.3, sorry.

Mr Morrow : There is a total of 9½ million homes that are in design and construction that were ready for service. That breakdown is 4.2 million that are ready for service, 3.2 that are in design and 2.1 in construction. Of that 2.1, for 600 the construction is complete. There are a few other things that we have to do before we can declare it ready for service.

Senator URQUHART: No worries. Sorry, that was my error. Thank you.

Senator LUDLAM: Apologies that I missed your opening statement. I had a quick skim. Maybe you addressed this and maybe you did not. During the 2013 election campaign, then communications minister Malcolm Turnbull committed, under an Abbott government, to deliver minimum broadband download speeds of 25 megabits per second by 2016, at a cost of $29½ billion. How is that going?

Mr Morrow : I do not know anything about those numbers. What I do know is that from the strategic review that was done in 2013 after Malcolm Turnbull became the communications minister that plan was put in place, and that is going largely quite well.

Senator LUDLAM: You have delivered 25 megs per second to the whole country by last December?

Senator Fifield: Let me speak to that. Obviously, that was the 2013 election policy, which was—

Senator LUDLAM: Voted on. That was the one that people voted for.

Senator Fifield: based—

CHAIR: Senator Ludlam, if you ask a question, please allow the witness to answer the question.

Senator LUDLAM: Fair enough.

Senator Fifield: which was based on the information that was available to the then opposition at the time. We came into government. There was a strategic review that found that the NBN was in not good shape and that there was serious replanning that would need to be done. That has been done, and we are working to a different timetable now, and that timetable is being met.

Senator LUDLAM: What did you miss? Maybe it is more appropriate to put this to you, Senator, rather than to Mr Morrow, who was not even on the payroll at the time. How did you get it so catastrophically wrong? You made the commitment in 2013 to complete the NBN 25 meg per second by 2016 and 50 meg to 90 per cent of the country by 2019. What was it that you got wrong?

Senator Fifield: There was very little that had actually been achieved with the NBN by the previous government. There were only, I think, 51,000 connections. Contractors—

Senator LUDLAM: But, Senator, you were in the same hearings that I was. We were accessing the same information as you.

Senator Fifield: Contractors had downed tools in four jurisdictions. The then organisation and the then government did not actually know what the cost per premises was, so there were a whole—

Senator LUDLAM: They did. They were reporting it to select committees that I was on.

CHAIR: Senator Ludlam, if you want to ask your own questions, it probably best not to—

Senator Fifield: No. Well, they might have been reporting cost per premises, but the cost per premises that they were reporting was wrong.

Senator O'Neill interjecting

Senator LUDLAM: It is not. I have been asked not to interrupt.

CHAIR: Senator O'Neill!

Senator Fifield: We have covered this ground.

CHAIR: Minister, can you just hold on. I ask senators here to please refrain from interjecting or answering Senator Ludlam's question for him. Senator Ludlam, I remind you, if you have asked a question, to let the minister answer, and if you do not like the answer, then, of course, you can follow up with another question. Please continue, Minister.

Senator Fifield: Thanks, Chair. This is ground that has been traversed, I think, at pretty much every estimates since I have been the minister and, I know, prior to my time as minister as well. Senator Conroy would have covered this ground before. It is a matter of record that the NBN was essentially a failed project when this government came into office, and we had to reassess on the basis of the facts on the ground.

Senator LUDLAM: This is pure reinvention of history. But let's move on, because you are right, it has been traversed a few times. Mr Morrow, late last year—maybe the third quarter of last year—there was news that you had abandoned reconditioning the Optus HFC network. What was the cost of acquiring that network and how much did you spend establishing that you were not then going to be able to use it?

Mr Morrow : There was no cost to acquire the network. The previous agreement in 2011 left that network to be abandoned. What we did was renegotiate the right to use it, but with no cost.

Senator LUDLAM: You already had it on your books at the time you took it over.

Mr Morrow : Correct. But there was never any money paid for the network. The previous agreement in 2011 only paid for the migration of customers from Optus over to the NBN—similarly with Telstra—and we took the decision to no longer use that for two reasons. The first is the advancements that our team has seen in fibre-to-the-curb. That has progressed well enough to lower the cost and accelerate the time frame. Then, when we looked at the amount of money that would have to be spent on the HFC network, with the facts and the data that we were pulling in all the way up to that point of decision, that led us to say, 'Let's go ahead and convert that over to this newer technology.'

Senator LUDLAM: That seems reasonable, although before you came on board the government was warned that that would be the case. I take it, though, that you have made a distinction between the Optus network and the Telstra one. Are you still proposing to put Telstra customers onto an upgraded HFC?

Mr Morrow : That is correct.

Senator LUDLAM: What was the difference between the two networks?

Mr Morrow : The ways in which the two networks were designed were fundamentally different, and the Telstra network design was more conducive to the ultimate design that we wanted to offer over HFC. It basically meant that we would have to invest less in the Telstra-based network than in the Optus network. That is not to say the Optus network was not a good network that served its customers well; it is more our architecture and the closer fit for purpose with the Telstra side.

Senator LUDLAM: One last question on HFC before I move on: how much new HFC are you going to have to infill into the Telstra network?

Mr Morrow : Very little.

Senator LUDLAM: Not zero, but not much? Go ahead, Mr Rue.

Mr Rue : It is still being determined, but it is not a big per cent.

Senator LUDLAM: Is it single figures, double figures? You still will be laying new HFC to fill in some gaps or degraded parts of the network.

Mr Morrow : Yes, but that is small.

Senator LUDLAM: Is it less than 10 per cent?

Mr Morrow : Can I give you a little bit of an idea to kind of explain it, because we do not know the percentage. We will take it on notice, if you would like.

Senator LUDLAM: That will do. I will move on. Mr Morrow, I want to draw your attention to some comments that you made; I would be surprised if somebody did not bring this up, and I do not think you addressed it in your opening statement. I think you made these comments a couple of times—that Australians are not interested in gigabit internet, and you are quoted at an event at which I think you were announcing your half-year results:

Even if we offered it for free, we see the evidence around the world that they wouldn’t use it anyway …

The metrics that you used are that if you have a household full of people all streaming 4K TVs at the same time then you are still only using 10 meg, and 90 per cent of your capacity is idle. Before I hear some views on that, do you stand by those comments in the light of the critique that it attracted?

Mr Morrow : The initial article that started much of this conversation stated that I said Australians would not want superfast internet, even if it were free. That was not what I said. That was a gross misrepresentation of what I said. We were talking in the context of moving from 100 megabits to a gigabit-per-second and why aren’t people buying gigabit-per-second. The first belief was that we did not offer that product, but we have a million-and-a-half homes today that we do have a product at a gigabit-per-second level that our retailers have chosen, for whatever reasons they have, not to offer that to their end users.

Senator LUDLAM: Can you hold just there, because this is interesting and important. Are all 1.5 million of those homes on the fibre-to-the-premises architecture that was set up by the previous government?

Mr Morrow : That is correct, yes.

Senator LUDLAM: What proportion of the 1.5 million homes are on fibre-to-the-node, fixed wireless, fibre-to-the-curb or satellite?

Mr Morrow : There is about 1.6 million on fibre-to-the-node; 1.5 million on fibre-to-the-premises; and we have about 500,000 on fixed wireless; 250,000 on HFC; and 411,000 on satellite Sky Muster.

Senator LUDLAM: Sorry, what was the last number?

Mr Morrow : It was 411,000.

Senator LUDLAM: I will come to that in just a tick—my apologies, I know I can probably just look those things up on your site, but it is useful. For the 1.5 million homes that you would offer a wholesale gigabit service to if people would take it up, are they all on the fibre-to-the-premises architecture?

Mr Morrow : Correct, today. In the future it will be offered equally, so on HFC. But if I can continue, if you are ready, the point is that it is available today and any retailer can choose that if they desire. I was then asked: 'Why aren't people taking it? And we have done our research—talked to other companies around the world that have actually sold gigabit-per-second services into the homes of end users—and we asked the question: 'Do people actually use that much bandwidth?' and the answer was a resounding no. The reason for that is that today there are not the applications. I believe that in the future they are going to come and they are going to create the bandwidth—that is augmented reality, virtual reality and 4 K and AK television—all these wonderful things. But today—

Senator LUDLAM: How far into the future, Mr Morrow?

Mr Morrow : It is hard to predict; Nostradamus would have trouble on this one.

Senator LUDLAM: I am going to throw you some numbers from Cisco right now. We do not need to go to Nostradamus. This is stuff that I looked up while I was sitting here while you were giving evidence earlier, and when I hear—this is no offence to you, obviously, because it is a very common thing—people using the 'how many television screens in the house' metric, it makes me want to chew my face off. That implies that you are building a network for the 20th century, when television was the most interesting thing coming into people's homes. That is, I think, almost by definition, not what the internet is for. According to Cisco at the end of last year—and I will provide you with a link if it is useful; just trust me on the raw numbers for the moment—overall IP traffic is growing at a compound annual growth rate of 22 per cent from 2015 to 2020. Does that sound roughly within the ballpark?

Mr Simon : Yes. That is ballpark.

Senator LUDLAM: That is a doubling time of three years and two months. For video IP traffic, which I think is the fastest growing sector, compound annual growth is 31 per cent, a doubling time of 2.2 years. VR IP traffic—interesting that you mentioned that yourself—is growing at a compound rate of 127 per cent, so it doubles every six months. Business traffic is 18 per cent every 3.8 years. And in Australia, IP traffic growth is 21 per cent. So every three years and four months it doubles, then it doubles, then it doubles, then it doubles.

I was a little bit surprised, but not greatly, that you could not find that many households that were buying this service in 2017, but you are building a network for 2030 and 2040.

Mr Morrow : I would argue that we are building a network for today's needs and tomorrow's, and we can upgrade with whatever the future holds.

Senator LUDLAM: By pulling out the HFC and the fibre to the node?

Mr Morrow : No. You do not need to pull out the HFC. The HFC will keep pace with all of those applications that you are referring to without any problem whatsoever.

Senator LUDLAM: What about peak hour, when everybody is hitting the network at the same time because the new season of Game of Thrones just dropped, or something like that?

Mr Morrow : Overseas again: we are very well in touch with the overseas carriers, and they are investing heavily in HFC. They are already talking about 10 or 20 gigabits per second up and down on HFC. There is too much investment around the world in HFC. These carriers are competing head-on with the traditional telephone carriers, and that is sunk asset; that is not something you abandon and then try to go fibre all over in the replacement.

Senator LUDLAM: But you have with the Optus network. You were just telling us how you have abandoned that because it was crap.

Mr Morrow : And that is a portion of it. Again, you look at the volume. I think it was close to 150,000 that we were going to do on HFC with Optus, which we are not. We are going to do near three million with HFC on the Telstra, and that three million, added to the overall numbers of fibre to the prem that we are going to have, will give us 40 per cent of the nation that will have gigabit-per-second capability or better. We will have FTTC, which will be another increment that will take us up closer to 50 per cent with the evolution of what that technology will have.

I can tell you, looking at the data, no-one else around the world, no country of our size and our scope, is going to be at 50 per cent of the nation having gigabit-per-second capability. We will be in a leadership role. And can I further say—because I know this is a concern of yours, and of many—with the other portions of the network, when you look at fibre to the node, there are upgrade paths. We will extend fibre further down the street. We can utilise a lot of the same equipment that is there. As that demand comes in, when people are willing to pay for the added value, the added utility, of these other services, or maybe when they do not need their cable subscription any longer and rely on more of these streaming content channels—that is, when the same amount of money is spent in the same household but they are going to spend more on a broadband connection—that is when we can actually monetise these high levels.

That is what I was referring to: it is not the function of prices as to whether or not people are willing to purchase gigabit-per-second capability today; the applications are not here yet. I want them to be here and I believe they will come, and when they come we will be ready to make sure that Australians can have the network to serve that. But let's not spend the money now betting it will come. Let's keep the price low. Let's keep this thing as a profit, not going onto the budget to where taxes go up or you have to defer your money. We will spend it with the profits that we are going to make within this company by doing that approach. No-one will be constrained; no-one will be restricted. We will still be a part of the future and we will do it with financial prudence.

Senator LUDLAM: Thank you, Mr Morrow; that was useful. The Vertigan review, which was quite an important part of changing tack from the mostly fibre-to-the-premise network to the multi-technology mix that you are building, said that as of 2023 median households will require 15 megabits per second download. Has that number just jumped, or are you still working to that? Please tell me that is dead.

Mr Morrow : I can tell you it is not my household. I need more than that.

Senator LUDLAM: You probably have fairly heavy internet use, I imagine.

Mr Morrow : Yes. We have four or five people using the internet quite a bit.

Senator LUDLAM: Right. So what about everybody else? That was his view: the median household would require that as of 2023, not even now.

Mr Morrow : I think if you actually look at what we are selling today, that describes a little bit of what we are seeing.

Senator LUDLAM: I just want to know whether Vertigan was right or wrong, because time is a little bit short.

Mr Simon : 15 megabits?

Senator LUDLAM: In 2023. Let us just get this over with.

Mr Simon : The thing is that, as Mr Morrow outlined, the network will have far greater capability.

Senator LUDLAM: I checked out your site the other day where it says, 'When is the NBN coming to your town?' I live in North Fremantle, and I am getting fibre to the node, so I am in the 50 per cent of people who you are going to be hearing a fair bit more from. The reason that—

Mr Morrow : It is not 50 per cent, Senator.

Senator LUDLAM: It is slightly less than that?

Mr Morrow : I do not want to give the wrong impression. Less than 40 per cent of the homes will be fibre to the node.

Senator LUDLAM: Well, I am one of them. That is interesting, isn't it? When I was looking to get some rough idea of bandwidth requirements—not in 2017, but in the near term; it is in-the-pipeline stuff that is not fairyland but that we can see coming down the road—I got some figures from online reports. I am happy to provide these references to you if you like, but just trust me for the time being. This one is from ARRIS. They estimate that a VR game in 720p will require 50 megs per second. That is down. They do not say what it will require up. A 4K VR game would need 500 megs per second. This is why I am a little bit frustrated when you are talking about how many people at a time are using 4K TV, because these are not the most interesting applications that are going to be used on this network. Are you going to be able to deliver that over a node? At what point are you going to need to tear that out and just go fibre all the way to the premise?

Mr Morrow : There are two things to consider.

Senator LUDLAM: You probably have—

Mr Morrow : First of all, I have been around technology my entire career, coming up to 40 years—the bleeding edge of technology, unfortunately. I can tell you that, while today that is the predictions that I have heard from ARRIS and many other companies as far as what the VR will require, that is not taking into account compression algorithms that will actually stretch that out to be able to deliver that. You have to remember that the cost of—

Senator LUDLAM: No, I am talking about compression.

Mr Morrow : building networks out is very expensive, so the R&D that will go into how to reduce that kind of bandwidth requirement for that sort of application will also be invested in. We will see some advancements in that sort of approach as well. Having said that, it may turn out to be the case that there is a mass market where people say: 'I'm willing to pay for having that virtual reality signal coming in. Even if it takes 50 megabits per second, I see the utility and I'm willing to actually up my speeds with my retailer to pay for that.' That would support the economics to go through and upgrade that network where we cannot get 50 megabits per second.

Senator LUDLAM: By which you mean tear the node out?

Mr Morrow : No, that is not required. I also remind the senator the mandate that we have from the government is that 90 per cent of the fixed line area has to be at least 50 megabits per second already. When you average this out, about 88 per cent of the nation will be on 50 meg to begin with. So we are probably reasonably safe with that application. If it goes above that then we are going to have to start investing further into this fibre-to-the-node technology. With the other ones—even the wireless stuff out there—we are doing 50 already. We are seeing these enhanced 4Gs that are going to probably go up to 100 pretty soon—maybe even in the multiple hundreds. With fixed wireless, HFC, fibre to the prem, there is no problem. With fibre to the node, it does have its limitations, but you are going to get 50. A few people will get a little bit more than that, and we will continue to push that fibre down.

Mr Simon : And FTTC as well.

Mr Morrow : And FTTC is the other one.

Senator LUDLAM: Thank you for that. I will probably follow up with some questions on notice, but I have a couple of others that are probably at a bit of a tangent to this line of thinking, even though I could go on about this stuff all night. A couple of people have asked, even since we have been sitting here, why NBN's Twitter account is so readily blocking people who are offering feedback or critical comment, because that means they cannot see your stream—

Mr Morrow : We have a policy like everybody does. If people are mischievous, if they are insulting and if they are disrespectful, we block them. That is the policy that we apply.

Senator LUDLAM: For being mischievous?

Mr Morrow : Yes, definitely.

Senator LUDLAM: That seems like a low threshold for blocking somebody, because that means they cannot see any of the advice.

Mr Morrow : Are you referring to somebody in particular?

Senator LUDLAM: I would never disclose my sources, but I suspect whoever is operating that account knows exactly who I am talking about.

Mr Morrow : Some of them deserve to be blocked, I can assure you.

Senator LUDLAM: Some of them probably do not. I block trolls. I suspect everybody in here does. But it has come up a couple of times. It sounds like maybe they are a little oversensitive. I have put it to you—

Mr Morrow : As you know, social media brings out a lot of interesting people.

Senator LUDLAM: Yes—the best and the worst of people.

Mr Morrow : We are going to block all of those people who do not deserve to be on there, who are disrespectful. We monitor this very closely. It is a policy that is adhered to by the likes of Facebook and Twitter themselves. Lots of other companies follow this. A couple of organisations in particular are very lobbyist. Internet Australia is one of them. It is run by a couple of people who were failed executives. They are constantly promoting one side of the party's approach on this. They are disrespectful and they are insulting to migrants, so they are blocked and they will stay blocked.

Senator LUDLAM: How much greenfield fibre to the node are you putting into the ground?

Mr Simon : I cannot tell you the exact amount. Our policy on greenfield for broadacre is still for FTTP, but without a doubt—

Senator LUDLAM: Sorry?

Mr Simon : Fibre to the premises.

Senator LUDLAM: That is what I thought.

Mr Simon : However, when we are in an FTTN area, if there is, say, a classic small house redevelopment that turns into a duplex or four apartments, if the node is there we would be connecting to the fibre.

Senator LUDLAM: Could you throw some metrics to us? I think I asked you this last year at some point. Could you put some numbers to that on notice?

Mr Morrow : Can I just be sure that I understand the question, Senator. If there are couple of new homes that are being built in an existing FTTN neighbourhood, copper will be run to those because it does not make economic sense to put fibre in for just a couple of homes on a block of land that has been remodelled. If it is in a bigger development, that is typically going to be served by fibre going up to those areas.

Mr Simon : Correct—broadacre.

Senator LUDLAM: I cannot get out of here without asking about Sky Muster, because I think the rollover to the new satellite was today, was it not?

Mr Morrow : Yes, that is correct.

Senator LUDLAM: I have two questions. If they are complex please take them on notice, because we are out of time. Have you had any complaints from users of those satellites around the latency involved that makes it almost unusable for voice communications because it is bouncing a long way out and a long way back? Secondly, how many people did you leave behind in the rollover from the interim service?

Mr Morrow : The network was never designed for voice. It can do it but it is a second-rate service, if you will.

Senator LUDLAM: Because of the latency?

Mr Morrow : Because of the latency, predominantly.

Mr Simon : It is not a voice satellite; it is a broadband satellite.

Mr Morrow : I would remind the senator, too, that we do not disconnect the copper. Telstra does not disconnect the copper going to these homes. After 18 months the fixed line network has to disconnect. For the fixed wireless and the satellite, Telstra continues to maintain the copper and provide those services.

Senator LUDLAM: So what do the folks in the Sky Muster footprint without copper do for voice from now on?

Mr Morrow : No. Again, you can do a variation of it, but it is like an early Skype call, if you remember that quality.

Senator LUDLAM: I do. Right. What are those people meant to do for voice communications?

Mr Morrow : It is not a requirement of NBN.

Senator LUDLAM: I am happy for you to take it on notice if you have got anything you can add.

Mr Morrow : We are happy to. If that does not answer your question, we will.

Senator LUDLAM: Thank you.

Senator CHISHOLM: [inaudible] of the fibre to the distribution point, and I can get a sense of Mr Morrow's excitement. I have a couple more to finish off on that. In terms of what they are using for the fibre distribution point, is it VDSL2?

Mr Morrow : It is—today. The initial application will be.

Senator CHISHOLM: Is that using a 17a or a 30a profile?

Mr Morrow : We will have to take that on notice. I will ask the team whether they know. We will see if the team knows.

Senator CHISHOLM: Thanks. Coming back to a decision in September last year around deploying fibre to the distribution point to 7,000 premises, what impact did that have on pit funding?

Mr Morrow : We were able to absorb it, because of the cost of what we would have had to spend on the Optus footprint. The other application is that when you get copper that is so long, beyond a kilometre, that is when the speeds will drop below 25 megabits per second. That is a commitment that we are mandated by the government to provide, so we have to find an alternative solution. Quite frankly, fibre to the node is not one of the best solutions for that, so those homes will also get fibre to the curb. We anticipated that incremental cost for those houses and, instead of spending the money on the incremental spend in Optus, we are able to apply it to the fibre to the curb. So we are still on track for our $49 billion peak funding envelope for the country.

Senator CHISHOLM: What impact did that have? I am looking at the 2017 corporate plan and the cumulative ready-for-service figures. Did that have an impact on that?

Mr Rue : It has no impact on the 2017 ready-for-service. It has no impact on when the build will be complete either.

Senator CHISHOLM: I should be clear on what I am asking. Does the decision that you made in September have an impact on the corporate plan in terms of the cumulative RSF profile in any way?

Mr Morrow : No, it does not change the 2020, but it does change the 2018 number. Again, remember there was probably 450,000 homes that were going to be in this HFC footprint that were either going to use FTTN or HFC, and now it is going to go back into a fibre down the street, which does take longer to construct. So there is going to be number of those homes that will be moved from 2018 to 2019. We are still doing the work and the study on that and when we submit this year's corporate plan that will be cleared up.

Senator CHISHOLM: So it has had an impact in terms of those numbers for 2018 and 2019?

Mr Morrow : Yes. For the two years over 2018 and 2019 were made whole, but there is a number of them that will slip from '18 and '19 because the fibre does take longer to construct.

Senator CHISHOLM: Basically, does the decision made in September last year going to mean some people are waiting longer for the NBN?

Mr Morrow : In 2018, that is correct.

Senator CHISHOLM: In regard to your evidence around the decision to deploy fibre-to-the-distribution point, was any other net effect that it has had in terms of the activation's profile in that corporate plan as well?

Mr Morrow : I do not believe so, no. Not materially, no.

Senator O'NEILL: What does that mean?

Mr Morrow : If it is, it is a minor number and it is not going to impact what our objectives are.

Senator CHISHOLM: Coming back to that peak funding question, are you saying that it had no increase at all, or it had an increase but it is still staying under that $49 billion mark?

Mr Morrow : On this constantly, as we discover new things, we make savings in some areas, and some things cost a little bit more. But we round it all out, so this is why we are able to kind of keep the budget. If you probably looked at the overall expense of the number of fibre-to-the-curb homes that we are doing, it is more than if we kept on the HFC and fibre to the node, but the slight increase behind that has more than made-up for some other expense savings that we have seen naturally from refinements in the process.

I will highlight again that the added cost of the Optus HFC network that we would have had to spend compensates for most of what is required on FTTC but not all. The costs that would be needed to get 25 megs to the end of the copper links in a fibre-to-the-node area, we had budgeted for an amount that we knew was going to be more expensive than the average fibre to the node, $2,300, so that helps pay for the HFC. That is why, instead of spending it on these, we are spending it on FTTC. It is slightly more, but we are making up for it in other areas and hence the reason we can stay on schedule with the 2020 build and stay on budget with the $29 billion peak funding envelope, and have an even better network that gives better speeds.

Senator URQUHART: Can I follow-up quickly, Mr Morrow? I asked you when I started off about the 80 per cent and the number of premises around that, and I asked you whether or not you could provide figures on the technology composition making up the residual 2.5 million premises. I think you said that you would try and get that to me tonight.

Mr Morrow : Yes, they are still working on it. I do not have a note from them.

Senator O'NEILL: Coming off the back of Senator Chisholm's questions, I want to confirm that the fibre-to-the-distribution point which you are now calling fibre to the curb—

Mr Morrow : It is not me.

Senator O'NEILL: Who decided to coin that phrase change?

Mr Morrow : The industry, they refer to it. We started talking to the manufacturers, and we say 'distribution point' and they say 'curb'.

Senator O'NEILL: FTTdp did not form part of the 2017 corporate plan?

Mr Morrow : We knew that we were going to do some. If you recall seeing the charts, we highlighted that we were looking at this technology, and it could be a portion of that FTTS service.

Senator O'NEILL: Do you want to take me to that, because I have looked for it in the 2017 plan.

Mr Rue : It is on page 40 of the corporate plan, table 2. It reads 'FTTN/B/dp'—it did not say C in those days, but it said 'dp'.

Senator O'NEILL: I will come back to a question on that. In the 'Multi-Technology Mix of Premises' table in the 2016 corporate plan, on page 39, the row states 'FTTN/B', without the additional 'dp' that shows up in the 2017 plan. The 2017 plan includes it. Why was the table in your corporate plan at the time it was released updated to reflect the distribution point was part of the technology mix?

Mr Morrow : Because it was new. At the time it was not available, in the previous year, so we started studying this after that corporate plan was released, and once we realised that this thing actually had some merit and deployed it into the network, we put the indicator into the 2017 corporate plan, the trial has continued, and that is why you will see in this next corporate plan some definitive numbers behind it and that is why we have announced that up to the 700,000 or 800,000 level, today, we plan to deploy FTTC.

Senator O'NEILL: So did it or did it not make any contribution to the base case when that report came down?

Mr Morrow : The 2017 corporate plan?

Senator O'NEILL: Yes.

Mr Morrow : We had anticipated and we put a budget for that into the copper loop length, and we have of course had money for HFC and Optus—that was planned in all of those numbers. We repurposed that money to go towards FTTC because it does the same thing and even provides a better network for that end-of-copper FTTN side.

Senator O'NEILL: Why did you put it there?

Mr Morrow : Because we knew that we were in the middle of trialling it, and we did not have enough data just yet. We could not completely define what the costs were.

Mr Rue : We have an allocation of funds, as Mr Morrow said. If you look on page 41 of the 2017 corporate plan, it says in the third paragraph on the right-hand side:

The program continues to explore the strategic, commercial and engineering benefits of FTTPdp and how it could be introduced.

It was actually a few months after this corporate plan was released that we had a plan that we could work on. At the time of publishing this it was still in progress.

Senator O'NEILL: And it was not factored into the base case at that point?

Mr Rue : It was factored in in dollar terms, as Mr Morrow said, and we highlighted that it would be something that we may be introducing, which is why we said FTTN/B/dp. At that time we did not have a number, although we were due.

Mr Morrow : I can remember with a bar graph in a public presentation showing a portion that could be FTTdp—that is what we referred to it as at the time; we were just introducing the FTTC terminology. So we have always been consistent that we think this has hope, and we did further trials, and now we know that it has some promise. How much we do not know yet but now we have the announcement of up to 700,000 or 800,000, and you will see in the next corporate plan more detail behind this.

Senator O'NEILL: So there is some wriggle room and some rubbery money there that allows you to do this, is that right?

Mr Morrow : It is reapportioning money—it is not rubbery or wriggle room.

Mr Rue : In the event that the trials were not successful and we were not able to use it, we would have had to have a solution for those long lines that Mr Morrow talked about. So the money would have been spent anyway, just in a different way.

Senator O'NEILL: To be clear, what was factored in and how much was factored in?

Mr Morrow : Unfortunately we always talk in averages and that can get us in trouble. Fibre-to-the-node has an average of $2,300 of capital spend to build that network out. But we know that if you get beyond a kilometre it will not work. So you cannot use fibre to the node from beyond a kilometre. But we did not know whether it was going to be fixed wireless or some other technology or if we would have to put fibre to the premises in, so we allocated money for those homes.

Senator O'NEILL: How much was that? That is the question.

Mr Morrow : Far more than $2,300. I do not recall.

Mr Rue : I don't recall.

Mr Morrow : We can take it on notice. It is no secret. We allocated a certain amount of money for those homes that we knew would be far greater than $2,300. So now what we are doing is saying that we will take that money, because we now have a solution with fibre to the curb that fits within that. So that is fantastic. We will use that. That solves the 25 meg problem. It puts more FTTC and we will get more experience. We are trying to get this to where that is a preferred technology. We are excited about that. On the HFC for Optus, we know what the cost per premises is now that we have all of that new data. We know what the information is on FTTC cost per premises. So let's go ahead and switch that, because we think that we can learn more. Even if it does cost slightly more we can learn more from doing more fibre to the curb in a bigger area. If we nail that and get that right then that clearly is going to be one of the solutions when we come back to needing to offer more speed on that proper network, especially at the long loop lengths.

Senator O'NEILL: From a parochial point of view, do you have any fibre to the node rolled out that goes beyond a kilometre?

Mr Morrow : Yes, there is some that starts out initially that way.

Senator O'NEILL: Where is that?

Mr Morrow : We would have to take that on notice.

Mr Simon : It is not in a particular area. It just happens that there might be a couple of premises that sit in an area. We obviously then remediate them to deliver them back to a distance that can meet the 25 minimum and 50 minimum speeds.

Senator O'NEILL: When do you make the decision to remediate them? Is it as soon as you figure out that a kilometre is too far, or do you wait for them to complain?

Mr Simon : It is in the build. It is even well before RFS. These premises have not gone RFS. If we know that premises are not going to attain the right speed we will not release it for service.

Senator O'NEILL: I have more questions on that that I might come back to. Going to the corporate plan, in terms of the internal rate of return and the outwards projections around that, Mr Morrow.

Mr Morrow : A 2.7 to 3.5 per cent rate of return is the range. Am I correct, Stephen?

Mr Rue : That is correct.

Mr Morrow : We give a range of 2.7 to 3.5 per cent, and we figure it is going to be somewhere in the middle of that. We will update that number in this year's corporate plan as well. We keep getting better and better, fortunately. We can get a little bit more precise, so we will narrow that range coming up in this year's corporate plan.

Senator O'NEILL: How many years does that go out to?

Mr Rue : It goes out to 2040. Then there is a terminal value that is used beyond that. But the model goes to 2040.

Senator O'NEILL: It is 20 and a bit years out.

Mr Morrow : It is a long time.

Senator O'NEILL: Are there any assumptions built into the modelling, about when the fibre to the node network is to be upgraded, that feed into the corporate plan?

Mr Rue : The assumptions in the plan assume that there will be ongoing capex that would need to be spent. Some of that spend would be on replacing, perhaps, fibre to the node, but it could be on the other things as well. There will obviously be ongoing capex spend that the company will need to incur, long term.

Senator O'NEILL: Is there a possibility of the replacement of fibre to the node on the Central Coast?

Mr Morrow : I can give an answer to that—conditional It would be yes, if the people on the Central Coast are willing to pay for the higher speeds to where the business model actually works to keep this off the budget, not increasing taxes, and does not require the government to re-apportion the funds. If we can get a financial return on it, absolutely.

Senator O'NEILL: I think I know the answer to that, knowing my community, that it would be very difficult to achieve that collective bid.

Mr Rue : The internal rate of return in the corporate plan was 3.2 to 3.7, to be clear.

Mr Morrow : What did I say? 2.5 to three?

Mr Rue : Yes. You said the 2016 rate. It is 3.2 to 3.7.

Senator O'NEILL: When you were talking about the decision not to go out past one kilometre, they get fibre to the curb in order to get them to 25 megabits download. Is that what you said?

Mr Morrow : The people that are out at the one-kilometre level—it is give or take a little bit; there are other conditions—are going to be sitting at 25 and no more. Anybody beyond—again, with a little bit of variation—we have to find a different solution, and fibre to the curb is our preferred solution for them.

Senator O'NEILL: You talked a little while ago to me about the peak funding. There was no increase in peak funding?

Mr Morrow : That is correct.

Senator O'NEILL: How did you manage no increase in peak funding when the price of the HFC was only $2,300 in the 2017 corporate plan but then we saw that that went up?

Mr Morrow : Are you talking about the corporate plan in 2016?

Senator O'NEILL: Yes.

Mr Morrow : In 2017 we announced that the cost per premise for HFC was going to be higher, but we had a number of other factors to keep us at $49 million. You will recall there is a contingency amount of money for the unexpected. We had to allocate this because before contracts are established you do not know what the equipment providers are going to charge you and you do not know what the service delivery partners or delivery partners are going to charge you to be able to do the work that you need to do, so you build in a certain contingency amount. That is prudence. It is probably one of the things that I will credit Stephen for, making sure that we have an allocation for the unknown. We were able to utilise a little bit of that when we took the HFC number from the corporate plan 2016 to the corporate plan 2017, which saw that increase. Why that was a great decision back then is that it allowed us to stay within the $49 billion peak funding envelope. There is still some contingency within that because there are still a couple of other uncertainties that we have to get through, on revenue and things of that nature, so this is prudence at its best. The good news is a better network on track for time, and we are going to keep to that $49 billion peak funding.

Senator ROBERTS: My knowledge of the NBN is fairly limited, to say the least. Can you advise what the average repair time is for rectifying issues with lines.

Mr Morrow : It depends on the technology. Right now it can range from anywhere from a day out to several weeks, depending on the extent of the problem.

Senator ROBERTS: So it is the case that in some circumstances faults may be allowed to remain unaddressed for extended periods, of, say, more than 12 days.

Mr Morrow : That is correct.

Senator ROBERTS: Can you advise how responsibility for repairs is allocated between your organisation and other stakeholders, such as Telstra. Can you advise also what the process is for communicating this information to your customers.

Mr Morrow : We use a third party to do most of our field work. When it comes to maintenance, when a ticket comes in we dispatch it to one of the companies that we use, and they will send one of their technicians to the home. We do not offer a choice for them to say, 'I'm going to do Telstra first over one of the other retailers.' They work for us directly, and we determine who gets what ticket and the quality levels that they must adhere to.

Senator ROBERTS: So that is outside your control.

Mr Morrow : No. It is directly in our control with the delivery partners—but they are managing it for us on our behalf.

Senator ROBERTS: So on an incident-by-incident basis it is managed by someone else, without your knowledge at the time.

Mr Morrow : We have limited knowledge within, but we are holding them to account for a variety of KPIs that they report to us on.

Senator ROBERTS: One of our constituents asked if you acknowledge that a Telstra technician was dispatched to fix a fault affecting the town of Thirlmere only for the constituent to be told by an NBN technician—presumably one of your contractors—that he was not allowed to fix it?

Mr Morrow : Well, this gets to the problem. I do not think you were here for the opening statement, but there should be a copy with you. Our network is only a small portion of the total end-to-end network. Telstra still have a network of their own. They have equipment inside the customer's premises. They will dispatch a technician to do something in the house who is different to the technicians who we dispatch through this third-party, which culminates, unfortunately, into confusion for the end user out there. This is one of the issues we are trying to resolve, as an industry, as we go forward. Our technicians are to work on the NBN portion of the network, not the Telstra portion and not the iiNet or TPG portions.

Senator ROBERTS: Let us go to questions on a bigger scale. Does the increasing market share of wireless technology present risks to NBN Co's ability to get sufficient customer uptake to be profitable? What is being done to mitigate these risks, considering that there has been a 34 per cent decrease in the number of households that have a fixed-line service?

Mr Morrow : I believe that your question stems from some of the recent announcements, particularly by Telstra, about looking at enhancing their 4G wireless network to offer up to near-gigabit per second speeds. There are two things I would point out. The first point is that we have anticipated a certain degree of infrastructure competition. In our business model, we a take-up rate of only up to 72 to 73 per cent. The rest of it will be for people who do not want it at all or who are choosing an alternative supplier or infrastructure provider. The second point is that we study this enhanced 4G very closely ourselves; we are even doing a bit of a trial right now. We are looking at 5G, as well, as an enhancement to our fixed wireless, so we understand a lot about it. Mobile networks are typically built and designed for small snippets of data. The average we see across the NBN network is 155 gigabytes per month, per customer, riding over our network. A mobile network will see less than 10, so there is not a comparison in terms of the volume of data that will flow through these two different networks.

For a mobile company, they could apply that, but they would have to re-engineer their network and invest heavily in it. They very well may do that, and we are okay with that. We encourage competition; we think it is healthy giving the consumers, giving Australia, broadband choices—on top of our list of interests and concerns—but we have accounted for that in our business plan. Right now it is not a concern. We monitor it closely. We will be competitive. We are charged by the government to be competitive and to respond to that competition by providing a better network, a lower price and a better service. Whatever it takes, we will be there.

Senator ROBERTS: So you are acknowledging that there is a risk and a threat there, but you are aware of it and managing it?

Mr Morrow : That is correct.

Senator ROBERTS: Given that the board of NBN Co apparently believes that it is worth paying their CEO $3.6 million a year to produce annual losses in excess of $2.5 billion, how much do they anticipate paying in the event that NBN Co ever breaks even?

CHAIR: This is probably not a question for the chief executive.

Senator ROBERTS: Hypothetical?

CHAIR: It is hypothetical, but also not one for the chief executive because it is for the board. Minister, would you care to say anything.

Senator Fifield: Obviously, NBN Co is I was going to say a start-up, but it is far more than a start-up; it is well under way, as we were canvassing before. Obviously there is a lot of up-front investment before revenue starts to come in. NBN Co does aim to be cashflow positive in 2021-22. In terms of Mr Morrow's remuneration, that is something that is determined by the board.

Senator ROBERTS: I should have directed my question at you. Sorry, Mr Morrow.

Mr Morrow : No problem at all.

Senator Fifield: That is something which is determined by the board of NBN Co. The telecommunications environment is a very competitive one when it comes to high-quality chief executives. The government is of the view—and indeed this was a view that was shared by the previous Labor government—that the board of NBN Co should have the capacity to ensure that there is remuneration appropriate to attract a CEO of the calibre of someone such as Mr Morrow. This is one of the largest and most complex infrastructure projects in Australian history, so, yes, there is good remuneration for the chief executive. But can I say that he and his team have basically hit every mark over the last two or three years.

Senator ROBERTS: You have already answered the next question: when, if ever, does the NBN Co expect to run on a profitable basis? Your projections, as you just said, are around the year 2021-22. Is that right?

Senator Fifield: That is when it will be cashflow positive and when it will be no longer reliant on government funding. It will be able to start repaying debt.

Senator ROBERTS: When will it be profitable?

Mr Morrow : By technical definition, that is profitable. That is typically what the business community thinks about operating free cashflow positive, which is what they refer to it as. It is a very important milestone—

Senator ROBERTS: I agree.

Mr Morrow : And then, again, you pay back the debt. When you look at return on capital employed or internal rate of return—these are other factors that are out further in time—that was the figure that Stephen was quoting earlier. The 3.22—

Mr Rue : It is 3.7 per cent.

Senator ROBERTS: In the event that NBN Co was to be sold—maybe this is hypothetical too—how much of the over $20 billion that the government has invested in the company so far could be expected to be recouped? I would imagine, as business people, you would be looking at that.

Mr Morrow : If we, hopefully, do our job well, more than that equity investment will be recouped. In the end $29½ billion will be invested. We do hope, as we pay down the debt, that the equity value of the company actually goes up. That remains to be seen. It is hard to predict where the future is, but our determination is to keep value for the taxpayer investment of NBN Co.

Senator O'NEILL: We just talked about $29 billion. There is another $20 billion on top, Senator.

Senator Fifield: You are right. There is $19½ billion from a loan which is being obtained by the government on behalf of NBN Co. The intention is that that will be refinanced in 2020-21 by NBN Co—that that loan is repaid and that it is refinanced by NBN Co. Senator Roberts, in terms of your question about future ownership, it was the intention of the previous Labor government, and it is the intention of this government, that NBN Co does take on private owners.

Senator ROBERTS: Is it factually accurate to say that the costs related to the NBN rollout are so high that they will add $43 per month to a typical household's broadband bill?

Mr Rue : I think you are referring to the average revenue per user that we have. No, it is not. The retailers do not have the costs of building the network. We are building that for them. The retailers will charge a correct fee to the end user. It is not true that it adds $43 to a typical household's broadband bill. It is not true that, if it was not for the NBN, the end user would pay $43 less. That is not true.

Mr Simon : In fact, if you actually look at NBN plans that the RSPs have out there—

Mr Rue : They are the same price.

Mr Simon : compared to traditional ADSL2 plans—

Mr Rue : They are similar.

Mr Simon : they are very similar in their price points.

Senator ROBERTS: That quote was actually said by the current Prime Minister when he was the shadow communications minister. He said:

Costs are so high that they will add $43 per month to a typical household's broadband bill.

What has changed between then and now to mitigate those costs?

Mr Simon : I am not familiar with that—

Mr Morrow : Can I offer a little bit of an explanation? Copper does require more money to keep updated and to repair than fibre. We know that for certain. The cost to build a fibre to the prem is about $4,400; the cost to build a fibre to the node is about $2,300. If you look at that roughly $2,000 difference that you get, you can afford to pay more on a per month or a per year basis of operating costs to maintain that copper than you would for the fibre. All of that gets factored in for the economic decision of fibre to the node being cheaper, even with those incremental costs. We are still gathering data and history about what that ongoing cost will be and, I think when we have that secured, Stephen, we can provide that sort of information for your awareness.

Mr Simon : To be clear: there is no conjecture or intent that end users will be paying $43 more than they currently pay for their broadband.

Mr Morrow : As Mr Simon said, the retail prices have not gone up.

Senator Fifield: Senator Roberts, I think that $43-per-month figure was referring to an all-fibre rollout, as was proposed by the former Labor government, so that is what would have been the case if we had not reverted to a multitechnology mix.

Senator DUNIAM: I want to go back to Sky Muster, where Senator Ludlam left off. There has been some reporting about the problems that Sky Muster suffered in recent times. I just want to know where things are at with that, what fixes have been put in place and what improvements have been made to the service.

Mr Morrow : This is a technology that was designed in 2010 and that was different and new to the satellite world—a special, purpose-built, broadband-focused satellite offering 25 megabits per second to 400,000 homes. That design was well thought of in terms of the architects behind it, but it had never been proven.

Senator DUNIAM: It is a trial type—

Mr Morrow : Yes. It is great, and I still believe it is fantastic technology, but unfortunately, because you are a pioneer in something that is new, it actually gets tested live in the field. When we first turned it on and started loading a few customers up, it was wonderful. But, the more customers we loaded up, suddenly the bugs in the software started to come out and failures started to occur.

We saw late last calendar year an exorbitant number of network failures that were occurring. This was in the neighbourhood of 30 to 40 a week that we were seeing on a constant basis. And it would take the network down for an hour or two. And it would take the modem inside someone's house an hour to boot back up. Working with the manufacturers out of southern California, we worked 24 hours a day to try to identify the root causes behind this, and the team has been slowly knocking these off, to the point where, in the last few weeks, it has been running at about five to seven incidents per week, and a few of those are related to weather.

I just want to make sure that the committee is really clear on this. This satellite, while it is wonderful in its new technology, cutting edge in so many ways, and offers a service that most people in the distant remote would never be able to have because of the reach, is prone to error. It will never be as reliable as what many people would get in the metropolitan areas. It uses a 30-gigahertz band that is susceptible to rain fade, so when there is heavy rain it is going to go out, and there really is not anything that we can do. There was a decision taken back in 2010.

Mr Simon : Maybe I can add to Mr Morrow's comments. As indicated, we have systematically gone through and worked with our venders to eliminate root causes. Maybe the best way that I can give you evidence that we are seeing improvements is not what we say but what the end users say. Every week we monitor end users, and we get satisfaction scores and NPS scores. I will give you an example of that. We had two types of problems. We had the network performance issues, which started back in September-October, and we also had field force issues, where we were struggling with installations. We have moved systematically now. Where we were getting scores on installation that were around 5½ to six, we are now getting scores that are 7½ to eight on installation—

Senator DUNIAM: To be clear—out of 10?

Mr Simon : from end users—out of 10. That clearly shows that we have now fixed the major issues around installation. It does not mean that we get every single one right, but, by comparison to the other technologies, we are there.

Similarly, on network improvements, we are starting to see all the improvements come through and provide indications that the satellite has become more reliable. We have moved from use scores—end users rating the service—which were in the fives, and now for the last couple of weeks they have moved up into 6.2 or 6.3. Again, it is not where we want it—we want it to be up above the sevens—but the indicators are positive. We continue to work hard, monitor and improve those performance indicators.

Mr Morrow : I want to say, for all of the people that are using this service, that we care very much about them and the quality of service that they are getting. We have staffed call centres to be able to take their calls direct. The retailers that are out there are very small, family-run, goodhearted people and they just cannot deal with this sort of issue. So we are trying to help in this regard and we want to get it right for them. There is only going to be so much we can do, but we will make sure that at least it can perform at the best possible according to that design.

Senator DUNIAM: With respect to the failure that occurred towards the end of the last calendar year, how many users were on the Sky Muster service at that point in time?

Mr Morrow : At the time I think we were roughly about 30,000 in December—is that right?

Mr Simon : Yes, somewhere around that number. When we launched the service we did not see any issues and it was working quite okay up until about 15,000 to 16,000 end-users. Once we started seeing some load, under load we started seeing some of these network incidents occur, and that basically occurred in September and October. By December we had about 30,000.

Mr Morrow : Actually, we were doing about 1,000 to 2,000 a week, so it was maybe even a little more than that. Call it close to 40,000, roughly. We can go back and check if you like.

Senator DUNIAM: Sure, that would be great if you could do that on notice. And currently we have?

Mr Morrow : 65,000.

Senator DUNIAM: With those of load issues, moving forward, one would hope there is a greater take-up in extremely remote regions of Australia.

Mr Morrow : Over 200,000, we hope.

Senator DUNIAM: That is the projected full coverage?

Mr Morrow : Yes.

Senator DUNIAM: So are you confident then, moving forward with the technology that you have, that we will be able to deal with the load?

Mr Morrow : I can say I am confident that improvements will continue. I am not confident they will go away entirely for a while. There are so many things—we think everything is great. We had a very unfortunate incident last night that lasted for a couple of hours. We thought everything was running well; there was no indication of any other problem, and something new pops up. So, again, this is so new, I think it is going to take us probably close to six months to a year to iron out and get the bugs to come out to where we can sort them. This is why I just feel awful that we have to do this real-time with live customers.

Mr Simon : At the end of December we had 54,000 customers on Sky Muster.

Senator DUNIAM: In relation to Sky Muster and the announcement by Qantas on the wi-fi service, I am just wondering how that will work and why the users in flight path beams will not be affected. If you can explain that to a layperson, I will give you a Nobel peace prize.

Mr Simon : As you indicated, we have 101 beams that cover Australia. With the majority of those beams the capacity that is there is not used during the day. It is really at the peak, busy hour where about 40 of those beams start over time once we get full connections where the capacity becomes in demand.

Senator DUNIAM: So that is in the evenings?

Mr Simon : That is in the evenings. Peak time is about nine o'clock. The peak time for the aero application is five to six. So they have two very different peak times. The other thing is, when you look at the capacity required and you model it across, it needs no more than 0.3 per cent—that is less than a third of one per cent—of the total capacity of the satellite. Then what happens is—this is another way to figure it, so that I do not talk in megabits—a plane with 200 seats would need the equivalent of about 15 homes; that is roughly the broadband capacity it needs. The beam that covers outer Sydney, for example, covers 5,000 more homes. So you can see that it is quite a small amount.

Ultimately what these planes also have is technology which you do not have in the home. They have servers and caching so that when users stream popular content they are not actually pulling the service from the satellite; they are actually pulling it from a local server that has stored the information on the aeroplane. So, through a combination of some localised advancements and through some optimisation of satellites, the actual capacity required is quite small. Then finally, the reason ultimately we will not let it affect the broadband user is we can prioritise the traffic. So, ultimately, if there is ever any congestion in play we will prioritise the land based broadband as the higher priority than the aero based broadband. That is why we are very confident—the overall capacity demand is small, the combination of the technology used in the plane and then the actual capacity we have, coupled with the prioritisation—this will not be an issue.

I would also point out that this innovation will lead to being able to deliver some enhanced services to regional Australia. Things like emergency services will now be able to use this same aeromobility model. Flying doctors, for example, will be able to get better internet services on their plane. So this is not just about Qantas and passengers on an aeroplane; it actually delivers a range of real benefits that we would not have been able to deliver if we did not have the anchor customer for someone like Qantas.

Senator DUNIAM: So we are in trial phase now?

Mr Simon : It is a trial; this is a trial where we are testing all this out. Clearly, if we find that it does not work, or there are issues—

Senator DUNIAM: So it being the trial phase, when do we project that we will be looking at this—

Mr Simon : Sometime in the third quarter of this calendar year.

Senator DUNIAM: Thank you.

Mr Morrow : Could I answer Senator Urquhart's question; she has been waiting patiently. Of the 20 per cent that has yet to move in design, I am going to give you a breakdown by technology centre, but I would like to caution you: this is a high-level view, and we will not know until we get further into it, so it could change. But currently, nine per cent of the 20 per cent will be HFC; six per cent will be FTTN; four per cent will be FTTC; and one per cent fixed wireless.

Senator URQUHART: Thank you.

Mr Rue : Could I answer Senator Chisholm's question: it is 17A. He asked whether it was a 30A or a 17A; it is 17A.

Mr Morrow : For the VDSL—

Mr Rue : For VDSL2.

Senator DUNIAM: I am sure he appreciates your answer!

Mr Morrow : He is a very technical person, known to ask that question.

Senator URQUHART: I did not get that from your accent. What was it—ADSL? Sorry, it's getting late!

Mr Rue : What accent, Senator?

Senator DUNIAM: There are a few to choose from over there!

Mr Rue : I have lived in Australia longer than Ireland; you should hear what Irish people call my accent! But let's move on.

Senator DUNIAM: Yes, let's.

Senator O'NEILL: In the month St Patrick arrives in the morning!

Mr Rue : It is St Patrick's Day every day!

Senator O'NEILL: Mr Morrow, could we go back to the capex? Could you explain to me what the ongoing capex is for?

Mr Morrow : After the build, you mean? Every network has a certain amount of capex that they have to build to redo networks. When you build a network and you put capex in, it has a depreciation life. The guy to my right will account for this and start depreciating. Say you spend a million dollars: you have to depreciate it over time because, eventually, that asset no longer has any value, and you have to spend more money on replacing that; things like remediation, or sometimes capital cost—it depends; there are certain circumstances for this—or upgrading equipment to get more functionality, or upgrading FTTN to get higher speeds with FTTC. There is a portion of the ongoing capex that is necessary to keep that network performing at the highest level.

Senator O'NEILL: So it is a common business phenomenon: you just set it aside as a standard ratio of revenue. Have you got a standard ratio of revenue? How much have you got?

Mr Morrow : It is referred to as capital intensity, and I think we are doing 12—

Mr Rue : It ranges in the long-term plan, but it is between 10 and 15 per cent.

Senator O'NEILL: And it starts at what; 15 per cent, and depreciates to 10 per cent over time? Or is it the other way?

Mr Morrow : It will stay forever. I can tell you, having built and run networks all over the world, 12 per cent is the average that I have seen in these companies, and it just does not go away. There is always something else that you are going to have to spend money on.

Senator O'NEILL: Could you confirm for me whether the ongoing capex that you have just said is set aside in your forward projections is for a wide scale upgrade of the 5.4 million premises that are on the FTTN network?

Mr Morrow : I can assure you it is not. It is for miscellaneous things. If a cabinet gets hit by a car, we have to go out and put a new cabinet in. If there is a new software release by the supplier that actually gives better reliability, we have to invest in that. If there is new use of some IT capability, we have to invest capex in that. At the moment, we are not planning in these longer-term plans to go and replace the copper, but I want to give you some assurances here—I think it is really important. The business model that we have, to make sure that we can offer that rate of return and keep this thing off the budget so we do not raise taxes, only has the amount of speeds going up to a certain level.

If in fact people are willing to pay for more than the estimated amount of speeds, more than the number of 100-megabit-per-second services that we have, if they want to buy in 250s and 500s and a gigabit per second and they are willing to pay more according to the schedule that we have, that is new revenue for us. Then that says: all right, great, now we have a new business model that is an add-on to the overall NBN model that warrants going out and saying, 'Let's upgrade that copper; let's put higher speeds on it,' because it pays for that capex in its own right over a period of time. I have seen it time and time again in near 40 years of experience there. We are going to upgrade these networks. I can guarantee it that we are going to have—

Senator O'NEILL: But not with capex?

Mr Morrow : Well, with a business model that will warrant paying for those upgrades in the future time. Remember, cash flow positive—what we have been talking about in the 2022 time frame. At that point, we will be paying back the $19½ billion debt to the refinance company—the government is mandating that we will already have a different debtor at that time—and we will be using the rest of the money to invest in the future. This gets into a little bit of the ongoing capex that Mr Rue is referring to, and we will start to develop more business cases to say, 'Great, now let's upgrade this network because we think AR and VR and AK are here'—or whatever else is new coming down the pipe—and that will allow us to always keep this network up and running to a level that never stops Australians from being capped like they were under the old DSL regime.

Senator O'NEILL: But for the foreseeable future there are 5.4 million who are on the FTTN, and there is no money allocated, there is no money there, for a wide-scale upgrade to the FTTN. They are stuck with it.

Mr Morrow : First of all, you are using a number of over five million. Remember that up to 700,000 or 800,000 FTTCs are going to reduce that number. I believe that in the end we are going to probably see something a bit above four million, and we are going to constantly look to reduce that number. It is a little more than a third of the nation that you have to think about that will be on FTTN.

Senator O'NEILL: Yes, but I am in the part of the third of the nation that has got that, and we are stuck with this.

Mr Morrow : I know, and I am sure your constituents appreciate the fact that you are on a constant fight for them to have as good a network as they can get. I appreciate that.

Senator O'NEILL: But they are not going to get the good network. They are stuck with 25—

Mr Morrow : No, listen. They can range today from 25, if they are close to the node, up to 100, and this is what we are talking about. They are even going to do other things. In fact, I thought I saw in the FTTC on some of the areas—and I may be wrong; my geography is little challenged here. I would be speaking out of school if I tried to guess all of those areas up there. But, again, if people said, 'Not only do I want 50 megabits per second; I want 200, and I'm willing to pay the difference between 50 and 200 because of incremental utility in my house; I have a new value that I didn't have before, so it's worth it to me to spend a little bit more money,' then we will say, 'Great, let's do a business case,' and we will actually upgrade those people out there for that. But you have to be willing to pay above what you are paying today for the 25-meg service, and the only way people typically do that is if in fact there is better value for them and there is better utility for them.

Senator O'NEILL: I love the sound of the promise in your voice there, Mr Morrow, but the reality is that, if you look back to the IRR in the 2017 corporate plan, it is based on the premise that most of those people—you say four million, but your figures there are 5.3 million—who are on FTTN will be on FTTN until 2040.

Mr Morrow : I am convinced that that will change. That is today, because we cannot right now count on when AR and VR and AK are going to be here to create that higher value to warrant people spending more money. That is why it comes back to this fundamental premise: how much are you willing to pay today? If I can give you 25, 50, 100 or 250, how much are you willing to pay? Most people today, because they do not have those, say: 'All I really need is 25. That is all I'm willing to pay for.'

Senator O'NEILL: But right now, Mr Morrow, if people are looking at the corporate plan and what is in there, capex—we have clarified—has nothing to do with a wholesale upgrade, a wide-scale upgrade, of FTTN. You are stuck with it. You are stuck with what you have got until we create a whole new business model after 2021, and then maybe some money from that we will start to give to you to improve your technology.

Mr Morrow : I appreciate why you are saying that. There is no business case today that says that is coming. If AR and VR come closer to time and reality—and there are mixed reviews out there as to when VR is going to be here—to a level where people are willing to pay for it. Let us assume that within five years it is going to be en masse. Many people are going to want it, they will see the value in it and they will want to spend the money, but their network will not be able to handle that. That is your concern. My point is that when we see that people are actually willing to pay incremental amounts over what they are paying today for 25, then a business case can be written, bolted onto the top of what Stephen has been talking about with the current out to 2040 time frame, and we will go ahead and update that network.

I can assure you that this is the way that all network companies operate. If you look at mobile companies, they went from analogue to digital and to 2G, 3G and 4G on an incremental business-case basis when people said, 'I'm willing to actually give more value to get higher speeds, higher data allowances and a more robust network.' That is why they bolted on, in time, these other business cases. If there is one bet I can be certain about, and I am not a gambler, the idea of what we are predicting out to 2040 will not even be close because future changes will come about and we will have to modify those business plans.

Senator O'NEILL: The current corporate plan assumes that the FTTN will be used until 2040. That is what the current plan assumptions are—is that correct?

Mr Morrow : Yes, that is correct. What I am trying to tell you is that we cannot tell you when AR, VR and AK are going to be here to the level where people are willing to pay more. As soon as we know that, that plan will change. Today we do more of a five-year view of things. This extension that Stephen is talking out to 2040, this is the finance people getting into a room and saying, 'We have to do this modelling out.' John does not get involved in the depths of that at this moment. It would be foolish to say, 'Let's put together a 50-year plan.' You just do not do that in our world that changes so fast. So you put together a five-year plan and you look at what that is and every year you update that. I am convinced that within the next few years, you are going to see us coming back here and saying: 'Do you know what? Now where we see where we can monetise AR and VR and AK and immersive sound and autonomous vehicles and drones flying all over and doing our robotic work.' When we can see that coming, you will see an upgrade to the networks because we know we are going to have to upgrade those.

Senator O'NEILL: Isn't that the whole point of why we were actually putting in the fibre to the premises in the first place because we could already see that it was coming and people were going to get the technology to allow them to do that straight up? Now, we have a divided Australia with people right across the Central Coast economically burdened by inferior technology that you have no money to upgrade. You are going to leave half the country behind.

Senator Fifield: That approach would have meant that there were some people in Australia who had to wait for an extra six to eight years for the NBN. The approach that we are taking, the mandate that we have given to NBN, is we want to get the NBN out to people as soon as possible.

Senator O'NEILL: I know. That means half the people get a crap version. Sorry, it is a blanket as that. It is so bad.

Senator Fifield: No, there are people—

Senator O'NEILL: That you have to replace but you have no money to replace it.

CHAIR: Senator O'Neill.

Senator Fifield: If I can respond.

Senator O'NEILL: That is it. I am finished, Chair.

Senator Fifield: I will respond, if I may.

Senator O'NEILL: I do have many more questions and I have not even started on the Central Coast.

Senator Fifield: There are people with very ordinary service who would be very keen to get a 25 megabits service today or last week or last month who otherwise might have had to wait an extra six to eight years to get a service. So we want to address the practical needs that people have today and ensure that there are upgrade paths. We will get the NBN to people much, much sooner and we will save money in the process.

Senator O'NEILL: Businesses are not saving money when they have not got the right—

Senator Fifield: But they would waiting longer under your approach.

Senator O'NEILL: They got a lemon.

Senator URQUHART: Mr Morrow, can you confirm whether the ICT systems for the fibre-to-the-distribution point will be ready by the time that construction begins?

Mr Morrow : It may not be by the time construction begins but it will be by the time we are launching the service in 2018.

Senator URQUHART: I have a few questions around Sky Muster. I know that Senator Duniam touched on it. I think you talked about the outage last night and I understand, from what I heard, that it was a software failure. How long did it take for internet services to resume?

Mr Morrow : It varied by individuals. The outage itself lasted for just under three hours, I believe. But sometimes it takes a while for modems to come back up. They come back up in different orders so some people could have been out for hours longer than that. Mr Simon, do you know how much longer than that?

Mr Simon : They would have come back up within an hour or so.

Mr Morrow : For full disclosure, there was another failure that occurred in the middle of the night. That one was restored much quicker but I just want you to know that the one in the evening was the really painful one and then there was another one in the very early morning hours that was fully backed up by four or five in the morning.

Senator URQUHART: Is it correct that Sky Muster users were left for at least 2½ hours with nowhere to turn to find information during the outage and they went to a volunteer group—Better Internet for Rural, Regional and Remote Australia—for answers?

Mr Simon : No, that is not correct. Their RSPs do put up notifications that the service is not available and that there is an outage. To say they had nowhere to go is incorrect.

Senator URQUHART: Is it correct that NBN's current practice is to notify the retail service providers of outages and not the customers and that it is up to the providers to notify the customers?

Mr Simon : They are not our customers. They are the customers of the retail service providers.

Senator URQUHART: Is it true that NBN are currently developing a new outage notification strategy?

Mr Morrow : We are looking at ways we can communicate—for example, we are evaluating whether we should have an IVR, which is basically where you call a call centre and you get a recording that says: 'Hit number 1 to go in this direction', or 'if you are a satellite user interested to know whether or not there is an issue on the satellite, hit this number.' If they hit that number there could very well be a voice recording saying: 'We have had an incident and we have an estimated time to restore. We think it is impacting this many people. Please check back in', and we can do updates on that. The team are looking at other solutions as well. We do like working with the various organisations. We know the retailers—

Senator URQUHART: Sorry Mr Morrow, the chair is going to wind me up and I have a couple more questions that I want to get to.

Mr Morrow : Okay.

Senator URQUHART: When will that be operational?

Mr Simon : We do not have an exact time.

Senator URQUHART: I understand that the interim satellite switches off today, is that correct?

Mr Simon : Yes.

Senator URQUHART: I understand there are something like a thousand customers who are still active end users on that. What will happen when it switches off?

Mr Simon : The number is more like 790. We have about 790 end users where we are working with RSPs. For 400 of them we have end user contact details and 66 will be installed today. One hundred end users have asked for an installation to take place after the cut-off—they are quite happy with that. We are in communication with another 181 to set up appointments which will probably be done in the next five to 10 days, and we have another 60 to go through. Another 70 will be moving to fixed wireless and end-user installations will be scheduled. Then that leaves about 220 we have been trying to contact—when I say 'we' I mean the RSPs and us—

Senator URQUHART: There are about 50 in Tassie, I understand.

Mr Simon : And we have not been able to get responses from them.

Senator URQUHART: What steps do you take to try and get in touch with them?

Mr Simon : We have called them on their land lines and, where we have their mobile details, we have called them on their mobiles. We have sent registered mail to them, we have put splash pages on the service so that when it comes up it tells them that the service is up for disconnection, and we have also placed advertising in local magazines and in magazines such as The Land and a number of other places—so it has been exhaustive. Also with the RSPs, we have put some of our resources into the RSP's call centres to help on the outbound contact.

Senator URQUHART: Look, I have got a heap more questions here, but I just want to end with this one: Mr Morrow, I know I could not come to an estimates without talking about the west coast of Tasmania. I have got many questions on the west coast to follow up with you on a spillover day.

CHAIR: Or on notice.

Senator URQUHART: There has been some issues with the website. I have had a tweet out and I have had a couple of emails from Russell Kelly in Tasmania having a bit of a go at me actually, but anyway. They have fixed the planned availability date on the website, but I know a women who will particularly be very interested—I actually stay at her accommodation place when I go to Queenstown. On the website—and probably about three hours ago I printed this out—she is registered for fibre to the premises, which is fantastic. She is going to be over the moon, but someone just around the corner—she is in Cutten Street—is actually planned for fibre to the node. Is that something that you might want to fix up on your website so it is not confused?

Mr Morrow : I am convinced that you used telepathy to get through, somehow or another, to our coders on there to tell them to put fibre to the premises in there when they should not have. As you know, we moved from satellite with the help of the government spend. There has been some local cooperation through our Technology Choice Program. We are upgrading that satellite to fibre-to-the-node technology. Those designs—

Senator URQUHART: That is the only premises that I can find on that entire map that shows fibre to the node.

Mr Morrow : So those designs are being finalised and the RFS dates will be put in. How that fibre to the premises got in there, I still think somehow or another you had a hand in that. But that was an error.

Senator URQUHART: That is only that premise. There are more than one.

CHAIR: It being after 11 pm, that concludes the committee's examination of the communication and arts portfolio. Senators are reminded that written questions on notice should be provided to the secretariat by close of business on Friday, 10 March 2017. I thank the minister and their office for attendance. I thank all staff who attended here this evening. I thank the secretariat staff and, of course, as always, broadcasting and Hansard staff for your work tonight. Thank you very much and good night.

Committee adjourned at 23 : 02