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Environment and Communications Legislation Committee
NBN Co Limited

NBN Co Limited


CHAIR: I now call officers from NBN Co. Welcome back, Mr Rue. We have your opening statement tabled; thank you for providing that. Given we are at a late stage of the committee's two days of hearings, we are asking you to provide brief answers, and the senators can seek more information. We're going to kick off proceedings with Senator Urquhart.

Senator URQUHART: Mr Rue, I want to start by asking a few questions about developments that NBN Co have in the pipeline. First off, can you confirm that NBN intends to launch a fixed-wireless fair use policy in the second quarter of 2022?

Mr Rue : Yes, that's correct; we do.

Senator URQUHART: Will this fair use policy be launched before or after the federal election?

Mr Rue : It's scheduled for, I want to say, late June, July—to be in the market.

Senator URQUHART: So it's probably after, then—late June, July. Can you tell me what the fair use policy is?

Mr Rue : Yes. The fair use policy looks to manage—optimise, really—the experience of fixed-wireless customers. What it'll do is identify customers who use above a particular threshold in a given month, which from memory is 400 gigabytes down and 120 gigabytes up. I could be corrected on that, but if you accept that it's roughly that.

Senator URQUHART: I'm sure you'll come back and correct it if that's not true.

Mr Rue : That would deem a customer to be a high user. In the subsequent month, during times of high usage, non-time-critical applications would be speed limited. For example—and there are four categories of applications—one would be streaming video, which from memory would be speed-limited to 14 megabits per second; peer-to-peer file transfers; and some of those gaming downloads, some of those non-time-critical ones. So the objective there is to minimise the impact of those high users and still enable them to download those kinds of applications. But, during those periods where other users are seeking to use real-time applications, it liberates additional capacity for those other users. So, effectively, for smart-pipe carriers, internet service providers and retailers, it's the sort of technique that would be employed quite widely across the industry. We felt that it was a prudent way of managing customer experience to get the best for our customers on the fixed wireless network.

Senator URQUHART: My understanding is that NBN Co intend to target specific internet applications during the busy periods, which I think you've talked about. Can you give me a little bit more information about what those applications are?

Mr Williams : Yes. As I mentioned, it would be for four intensive application types: first, video streaming; second, peer-to-peer file sharing; third, software downloads and updates; and, finally, gaming downloads and updates. We've identified a range of speeds that would apply, but download throughput thresholds would be reduced. If you take the example of streaming a video at 14 megabits per second, that's still a good experience for streaming video. It does mean that other users on that cell have access to more capability. In the case of file sharing it's one megabits per second, down and up. In the case of software downloads it's three megabits per second, down. And in the case of gaming downloads, it's five megabits per second.

Senator URQUHART: Can you confirm that NBN Co is currently offering rebates to retail service providers to re-sign customers who left the NBN Sky Muster Plus plan?

Mr Williams : I'd need to take on notice the specific timing, as to whether our retailer incentive was in place. We certainly—

Senator URQUHART: But is that the intention?

Mr Williams : We certainly have done that, and it's something I'm keen to pursue to ensure that customers have an opportunity to reappraise the opportunity to use the Sky Muster service we've already installed.

Senator URQUHART: What types of customers would that target?

Mr Willi ams : It would be customers who had Sky Muster services but no longer have an active—

Senator URQUHART: So it would target all customers, not specifically businesses or anything like that? I know mostly businesses run off Sky Muster Plus.

Mr Williams : It would be customers who were once active customers and are no longer active customers.

Senator URQUHART: So it would be all across the board?

Mr Williams : Yes.

Senator URQUHART: Is NBN Co making this rebate available because some households and businesses in regional Australia have begun disconnecting their Sky Muster service?

Mr Williams : The Sky Muster service is five or six years old, and all of our technologies have customers who—customers move; customers reappraise.

Senator URQUHART: Do they give you a reason why? Do you know the reason why—

Mr Williams : We don't have that direct relationship with the customer. We garner feedback from retailers from time to time. It is a vexed area. It could be a premises that no longer has anybody living in it. From our point of view, the ability to distinguish between that kind of circumstance and someone who has perhaps decided to take their broadband custom elsewhere is not something we have a precise line of sight of.

Senator URQUHART: On 21 December, Sky Muster experienced a significant outage, which initially took one in every three satellite users offline. I understand that you've completed an investigation. Can you tell me what caused the outage?

Mr Williams : Yes. First and foremost, it was not our finest hour. Our thoughts go out to the around about 600 customers who had their service impacted for a period of up to six weeks. It might sound trite to say. Service interruptions and managing networks are part and parcel of being a service provider, but this kind of outage deserves the classification of being unprecedented. As I walk through—

Senator URQUHART: When I quoted the number one in three, what is the total of that? I said the outage took roughly one in every three satellite users offline—

Mr Williams : Okay; I think it would be worth spelling out the sequence of events—

Senator URQUHART: Yes, sorry; okay.

Mr Williams : because it was a complex, and, as I say—and I don't use the word lightly—an unprecedented series of events.

Senator URQUHART: Okay; just walk me through what the outage was.

Mr Williams : If you don't mind, I've got some notes here. So it was at 8.30 on 21 December. Optus, who manage—they, effectively, fly—our satellites, confirmed an off-orbit condition of our second satellite, which we call our 1B satellite. As to a root cause analysis of why that happened, our satellite vendor, Maxar, has delivered their PIR, their post-incident review, and, while it cannot be 100 per cent characterised as this, all the evidence points to a micrometeorite that impacted the satellite. That effectively makes the satellite's body rotate whilst it remains in its orbit, so the satellite is no longer pointing at the appropriate spot on earth, so the payload—the transmission system on that satellite—is effectively switched off for that period. Now, that impacted about 46,500 customers. The satellite was able to find earth again. It's one thing that—

Senator URQUHART: It does that all on its own?

Mr Williams : You know how you say, 'It's not rocket science'? Well, this is rocket science. It found earth. It recovered. The testing regime that's undertaken meant that those customers were out for a period of about seven hours, so that took it through to about 3.20 am on 22 December. And the satellite's actually got some optical recognition that saw some meteorite activity. So we're pretty confident that that was the cause of that seven-hour outage that impacted the 46,500 out of about 112,000 satellite customers. But then, subsequent to that, there was the impact of those customers coming back online. The major issue, frankly, was for 573 customers, or about 600 customers—

Senator URQUHART: And they were off for about a fortnight, I think?

Mr Williams : They were off for about two weeks. The issue was found to be caused by missing parameters in a configuration file for the customer premises devices—the boxes that NBN puts in the customers' homes. They get parameters from the network, and those parameters were missing. Essentially, some systems in the network had those parameters and effectively knew that that service was there; other network elements didn't believe that that service was there—

Senator URQUHART: So it couldn't pick it up?

Mr Williams : It couldn't pick it up, effectively. And, frankly, though there was a course of action and three times a day updates and that kind of thing, it took quite a long time, actually, to delve into what was wrong and how you could recover. In the meantime, we had a few theories. We were mobilising people off annual leave to potentially do 600 truck rolls into the bush. Fortunately, we were able to recover with, effectively, manual intervention. So, since then, you'd say, 'Well, what caused that?'

Senator URQUHART: Yes.

Mr Williams : There's essentially a system—some load balances that we believe were the root cause. We're now working with our partners in the States to say: 'Let's go down to the next level and the next level of root cause to understand how we can make sure it doesn't happen again.' Meanwhile, we've got some emergency patches or workarounds so that, if we do identify this kind of thing happening again, we can rapidly identify and rapidly recover services.

Senator URQUHART: And deal with it—okay. So were any rebates paid to retail providers and those affected 600 users because of that excessive downtime?

Mr Williams : I'd have to take on notice the timing context, but our wholesale broadband agreement prescribes rebates for these kinds of service interruption.

Senator URQUHART: Yes. Is that an automatic rebate, or do people have to apply?

Mr Williams : It should be automatic.

Senator URQUHART: Can I also confirm that you expect the FTTN coexistence period to continue up until the end of 2023 and beyond?

Ms Dyer : The end of coexistence across the FTTN network is driven by a couple of different parameters, such as existing legacy services that are operating on the network. Where we can't end coexistence, it's because we are working with other providers to exit those legacy services so we can essentially fully power up the FTTN network. The exact date, unfortunately, I can't give you. I can't confirm that date.

Senator URQUHART: Okay, but the issue is: is it expected that it will continue up until the end of 2023 and beyond? Is that an expectation?

Ms Dyer : Certainly the number of lines that are impacted by coexistence is declining, and we have a program in place to work to rectify all of those lines. I guess the number of lines that have been impacted has been decreasing steadily, but I would have to check that date for you.

Senator URQUHART: Okay, can you check that for me? My next question is somewhat predicated on that, but I will put it to you: does this mean that NBN will not be able to deliver the minimum speeds required under law until 2024 or later, if it goes beyond 2023?

Ms Dyer : Certainly for lines that are impacted by the end of coexistence if, for example, they haven't ended coexistence by then. Not all lines are actually impacted even if they haven't reached the end of coexistence, so that would absolutely be something that we would have to monitor very closely.

Senator URQUHART: But that's a possibility?

Ms Dyer : It would be a possibility if those parameters were not met.

Senator URQUHART: Can you talk me through an aspect of the NBN copper network: does the performance of a copper line, in general terms, slightly degrade year on year?

Mr Rue : Yes, it does, but it is subject, obviously, to remediation work and assurance work that we do.

Senator URQUHART: Yes, of course. Can you tell me what causes this degradation?

Mr Rue : Again, Kathrine can talk to detail, but it would be a series of what we call environmental and operational issues. Environmental issues could be things like water ingress, for example. Operational issues would be things around joints, pillars and cables.

Senator URQUHART: By how much does the bit rate performance of FTTN decline each year, on average?

Mr Rue : Again, it depends on the work you do, but, if you did nothing, our engineers think it's between two and four per cent.

Senator URQUHART: My thought was that it was around two to three per cent.

Mr Rue : Call it three, but that's not for every line.

Senator URQUHART: I understand that.

Mr Rue : That's the average across the four million—

Senator URQUHART: I did ask on average.

Mr Rue : Sorry.

Senator URQUHART: That's alright.

Mr Rue : Of course, our job is to do something about that, which is why we have the work that we do in service assurance, network assurance, network augmentation and so on.

Senator URQUHART: With regard to making fibre lead-ins available to the customers on the FTTN network, I understand that will be launched in the second quarter of this year.

Mr Rue : FTTC?

Senator URQUHART: Yes.

Mr Rue : Yes, we're looking to launch that—

Senator URQUHART: Can you tell me when?

Mr Rue : Sometime between now and June.

CHAIR: Can I just check: do you have lots more.

Senator URQUHART: I probably have about another eight or nine in this group, and then I'll be done and then Louise has some.

CHAIR: Why don't we exhaust you? Then Senator Davey has five minutes, and then we'll come back to you, Senator Pratt.

Senator URQUHART: That's great. I'm happy to do that.

Mr Rue : I know you want quick answers, Chair, but we just want to get the FTTN launch first in March, and then, if there are any learnings from that, that will drive the time.

Senator URQUHART: Okay. You said 'between now and June', so will that be launched before, during or after the election campaign?

Mr Rue : That's something we need to consider as to whether or not it's something we should do during a caretaker period, to be honest with you. We gave a date of, I think, early May to the retailers but, as I said, I want to get FTTN launched first, and then we need to think whether that's something we should do if there is caretaker at that point.

Senator URQUHART: When will you determine that date?

Mr Rue : We will get advice on the caretaker conventions, and then we will make a decision on that.

Senator URQUHART: Can you confirm that, on fibre to the curb, consumers will need to purchase a 250-megabit-per-second plan to be eligible for the upgrade?

Mr Rue : Or above. That's the current intention, yes.

Senator URQUHART: Mr Rue, the lack of detail surrounding the fibre backflip overbuild of the copper seems to be an ongoing issue. I want to talk through documents that the NBN Co has released to retail providers about the qualification and assurance processes for the fibre upgrade. NBN Co has said it will charge a downgrade fee if a customer orders a higher speed plan to get the upgrade but then downgrades to a slower plan within 12 months. How much will NBN Co charge for the downgrade?

Mr Rue : I believe it's $200.

Senator URQUHART: If a premise downgrades after 12 months, say at the 14-month mark, there is no downgrade fee. Is that correct?

Mr Rue : That's correct.

Senator URQUHART: In August 2021, NBN Co said that up to 10,000 FTT end premises would be involved in an upgrade trial; however, that number was then scaled down to 525. This included 500 for fibre to the node and 25 for fibre to the curb. Why was it scaled down?

Mr Rue : Yes—Kathrine, do you want to talk to this?

Ms Dyer : Sure. We engaged in a consultative manner with the retail service providers for them to, essentially, put out expressions of interest to their customers. And, due to a number of things that the retail service providers had going on, the need to develop IT systems and processes, some of them elected not to participate in the trial. So therefore that sort of limited the numbers that would participate in an early trial.

Senator URQUHART: Can you tell me which retail providers participated in the trial?

Ms Dyer : I'll have to take that on notice.

Mr Rue : We'll get that for you, Senator, before tonight.

Senator URQUHART: Thank you. Have the 525 spots been fully filled?

Ms Dyer : I will need to check that as well.

Senator URQUHART: As of right now, how many premises have actually been connected to full fibre lead-in since the copper backflip was announced by Minister Fletcher?

Mr Rue : We're currently going through a trial period. We're going to launch in March with around about 50,000 premises, and then we'll be connecting from then. There's probably a couple that have gone through the actual process. But I think your question is really more about the actual sales of those additional services.

Senator URQUHART: Yes, so there are a couple that have actually been connected to that full fibre lead-in?

Mr Rue : That's what we call a business readiness test. So all that does is test the processes between ourselves and the retailers. I don't really think that's what you're asking. The answer to your question is we'll be launching that in March, the end of March.

Senator URQUHART: Yes, okay. So as of now no premises actually have—

Mr Rue : Other than the business readiness; a couple of premises, as I said. What we have is a million premises in design. We've 540,000 premises, approximately, being actually built at the moment, and we will be releasing 50,000 for sale at the end of March, and then it will accelerate from there.

Senator URQUHART: How much is it costing to build a fibre lead-in?

Mr Rue : We haven't yet built a fibre lead-in, Senator, but you would expect—

Senator URQUHART: How much is it going to cost?

Mr Rue : We would expect a number that is less than $1,500 on average. But it will vary, depending—again, we're back to averages. So some will be much cheaper and some may be more expensive.

Senator URQUHART: If the downgrade fee is $200 within 12 months, how do you then recover your costs?

Mr Rue : Our concern was, clearly, that people would upgrade to get a fibre service and then would go back to a lower speed. So what this just attempts to do is to put a disincentive in place for people to do that. What the retailer does with that fee is up to the retailer, of course. But what we really wanted was people who were taking a service—who would then be providing additional revenue, obviously to NBN, to compensate for the additional spend.

Senator URQUHART: What physical work was required to integrate the lead-in over the FTTC network?

Mr Rue : Back to FTTC? Kathrine can talk to that at length.

Ms Dyer : Senator, do you mean to move from FTTC to FTTP?

Senator URQUHART: Yes. What sort of physical work is required?

Ms Dyer : Essentially, it is a splitting out the fibre in the pit. So, where the DPU is—the distribution point for the existing FTTC network—splitting out the fibre, creating a joint, if you like, and connecting the fibre lead-in from that pit in through the leading conduit into the home.

Senator URQUHART: I know it's difficult to say, but what would be the length of time for each premise to do that?

Ms Dyer : It actually depends. The focus of the construction trials that we are running at the moment is, under all conditions where possible, to use the existing lead-in conduit. That drives efficiency from both a time and a cost perspective. We've been trialling a lot of a different innovative ways to do things like potholing. The way is that we actually flush the lead-in conduit. Where previously we encountered obstacles under the previous brownfields FTTP rollout, we've taken those learnings and looked at how we could take those into the new FTTC to FTTP and FTTN to FTTP, and we're trialling a lot of those construction practices at the moment. So the answer is, in relation to time and cost, the biggest determiner there is whether we can use the existing lead-in rather than install a new lead-in conduit.

Senator URQUHART: More broadly on a national level, as part of the copper backflip, how many homes has the local fibre distribution network passed to date, noting that the lead-in is not construction?

Mr Rue : We are actually constructing. We are currently building 540,000 premises. They haven't all passed yet, but that is physical work being conducted. We have a million premises that are actually passed through, in the design stage.

Senator PRATT: Mr Rue, the Liberals first promised to deliver NBN for $29.5 billion with minimum speeds by 2016. We've been through this discussion many times. It became $41 billion in 2020; $49 billion; then $51 billion; and now $57 billion. At each point along the way, both the government and NBN Co executives wilfully misled the Australian public about the cost of deploying fibre. Can I ask, now that that's been revealed, what internal processes, governance and probity arrangements do you now have in place to ensure the company cannot be politically manipulated and exploited in the manner that occurred between 2013 and 2018?

Mr Rue : Firstly, the plans that the company put forward—I can only talk to what I was involved with—in the 2015 corporate plan talked about building out a network between $46 billion and $56 billion and targeting $49 billion. So within that program of work, from the plan the company put forward in the 2015 corporate plan, the initial build was delivered within that range. We then talked about an additional investment of two lots—$1½ billion and $4½ billion. That was a couple of years before that. I think two years ago we talked about that. So the governance the company had to deliver—we said we would deliver between $46 billion and $56 billion—was actually in place.

In terms of the operations that are given to me and my colleagues on the board, that is a statement of expectations. It's our job to really not comment upon policy but to deliver upon the statement of expectations of whatever government of the day it is.

Senator PRATT: That's not what happened, though, because your costs escalated at the same time as the government was using you and using your evidence to say that Labor's alternative plan to deploy fibre was too expensive.

Mr Rue : The company was given a statement of expectations to build a network as quickly as possible and at least cost to taxpayers—we now have a new statement of expectations, of course—and our job was to deliver upon that. We built a plan, as I said, in 2015 to build upon what the government of the day asked us to do, and we said it would take us to 2020 and it would be done for between $46 billion and $56 billion. Any political commentary does not come from the company, now or in the future. It's not our job to talk to policy.

Senator PRATT: But you acknowledge that you've been used in the past for political manipulation in relation to costs that you now recognise as being in that frame—that are parallel to what Labor was proposing at the time?

Mr Rue : There's always been political commentary around NBN. That's the world we live in. And I'm sure that will continue. Again, my job is to deliver upon the statement of expectations of the government of the day, and I will always faithfully do that.

Senator PRATT: Statement of expectations to participate in that political manipulation?

Mr Rue : No, the statement of expectations in the past, which was to deliver a network cost-effectively and as quickly as possible, and the current statement of expectations, which asks us, amongst other things, to ensure the nation benefits from economic and social benefits of the network.

Senator PRATT: The corporate plan forecast that NBN Co would have 8.7 million activations by June 2022 and $5.6 billion in revenue. That was the 2019 corporate plan. Can you confirm that, despite having a footprint that is 300,000 premises larger than was assumed at the time, NBN Co will not only miss the aforementioned activations but also miss the $5.6 billion revenue target by a significant margin as well?

Mr Rue : The expectation of our revenue this year, which we laid out in last year's corporate plan, is between $5 billion and $5.2 billion. We're pleased with the half-year results. They show we're on track to deliver a program that's within that range.

Senator PRATT: Yes, but that was last year's corporate plan. My question was in relation to what you forecast in 2019 and whether you acknowledge that what your new targets are have been missed compared to what you were forecasting in 2019.

Mr Rue : I think this has been a regular line of questioning in Senate estimates, and I can only simply repeat what I've said previously, and that is that long-range forecasts change over time. All long-range forecasts, of every company, change over time. Obviously, between 2019 and today we've had a global health pandemic, through which we provided significant support to industry and community, as we should have. As I said during the half-year result briefing, that held back our average revenue per user. I don't resile from that, because it was the right thing to do to support our retail partners and support the community through the health challenges that people had.

Senator PRATT: Okay, but that wasn't my question. In relative terms, NBN Co are behind in both activations and revenue, and the cost of the rollout is $6 billion greater than forecast in the 2019 corporate plan.

Mr Rue : In terms the additional spend, that's because we have commenced a program of upgrading the network—

Senator PRATT: Ah, okay!

Mr Rue : which is not in the—did you say 2019 plan, Senator? I think you did.

Senator PRATT: Yes, that's right.

Mr Rue : It was not in the 2019 plan. As you would know, in, I think, the 2020 corporate plan—no, it was the 2021 corporate plan—we had additional investment of $4½ billion.

Senator PRATT: I hear what you're saying. NBN Co is now also forecasting a higher internal rate of return. Is that correct?

Mr Rue : I think the internal rate of return increased. I think that's correct, yes.

Senator PRATT: It appears to me that that assumption of a greater return, given the change in those other parameters, can only be based on assumptions about demand for higher speeds and the enterprise revenues attached to that. Is that correct?

Mr Rue : The additional investment in the network was proposed for consumers as much as anything, but also in part because it has a positive return on investment, and that positive return on investment is greater than the original internal rate of return, which is why you end up with an increase in the overall IRR, as we call it.

Senator PRATT: What enables that? Is it full-fibre connectivity?

Mr Rue : It's the ability of consumers on demand to order higher speed tiers, yes.

Senator PRATT: But to get those higher speeds you need that full-fibre connectivity?

Mr Rue : Certainly not on the HFC network, but on the copper related networks, yes.

Senator PRATT: That's right, and this is what Labor has been arguing all along. The government spent many years between 2013 and 2018 attempting to refute that with the assistance of NBN Co, only for us to arrive in exactly the same place.

Mr Rue : Senator, if you're asking me to comment on government policy, I can't do that. It's not my position to do so. I think you're asking me to do that, and that's not my job.

Senator PRATT: Okay. For the benefit of this committee, can you provide an update as to where NBN Co is up to in relation to its special access undertaking?

Mr Rue : Yes, certainly. We've been through a period of several months of discussing it with the industry and the ACCC in what was called an ACCC industry working group. That took place for several months. That first phase is over. It finished on 21 December, with the publication of the ACCC summary of discussions and NBN's response to those issues raised. I would expect that in the next few weeks we'll formally lodge a revised special access undertaking proposal with supporting material. I would expect that the ACCC will then consult on that variation, which, as I understand it, is required by legislation, actually. I would expect them, therefore, to issue a consultation paper and provide a time line for the process.

Senator PRATT: AS I understand it, the ACCC has conducted and concluded its working groups on the future of the regulatory framework for wholesale access to the NBN.

Mr Rue : Yes.

Senator PRATT: On 22 December last year, the ACCC published a report summarising those matters and the positions that were reached by the working groups, and the overall conclusion reached was that the NBN should move to a similar regulatory framework to that used for established utility businesses now that it has completed its rollout and is fully operational. Do you agree with that conclusion?

Mr Rue : I think the regulatory framework you're talking about is what's called a weighted average price cap. That essentially is where you have regulated revenue if you know your demand. A lot of the utilities you're talking about—energy and water, for example—know their demand. The challenge for us is that we operate within a competitive environment but there is alternative ability for people to access an internet service that isn't NBN.

Senator PRATT: That's the case for some other utilities too, though, is it not?

Mr Rue : Typically the regulation we've been talking about has a very clear demand. Certainly the demand for NBN services, in terms of both the number of subscribers on the network and the capacity that they will use, is relatively uncertain over the next few years. It can't be predicted with certainty. What we have done in our proposal back, though, is to suggest that there could be a process in place to consult on a movement towards that framework that you're talking about but over a longer period of time than just next year.

Senator PRATT: It's no secret that the marginal cost of supporting data growth on the fixed NBN network is materially less than the marginal revenue NBN Co earns from CVC growth. How do you reconcile that with the practicalities of regulatory pricing framework for utility businesses? In what ways do you see the comparison as useful and what ways is it problematic?

Mr Rue : This is a long discussion, but I will try to answer in this way. What we've put forward is an attempt to balance industry feedback, ACCC feedback and our own needs to generate cash flow so we can sustain our business, service paydown debt, reinvest in the network and deliver upon the statement of expectations from the government. We have responded to that feedback with revised pricing constructs. For example, we have looked at moving 100 megabits per second and above to AVC only, we've looked to move CVC to be utilised not provisioned data, half-yearly reviews of that actual data, positioning 25/5 at entry level and having a voice-only product as well as those regulatory frameworks you talk about. The reconciliation is an attempt to balance the need for NBN to deliver policy issues and the commercial requirements together with feedback from industry and the regulator. What we have put forward is an attempt to balance all of those issues. That's a very quick answer to your question, which we could be here for many hours discussing.

Senator PRATT: Thank you for being succinct. NBN Co's current flat pricing is for 100 megabit per second services and above. Retail providers such as Aussie Broadband have suggested this should be expanded to 50 megabit per second tier. What are the trade-offs involved with which speed tiers are on the flat pricing construct and how that interacts with the company's long-term strategy?

Mr Rue : Again, that will require a long answer but I will try to be quick. The advantage of CVC is that lower data users have essentially a lower wholesale charge than higher data users. That is actually consistent with water, electricity and gas, as you were asking earlier. The fact that lower data users have a lower wholesale charge enables retailers to create lower price-capped plans. The alternative that may be suggested is an average charge. That average charge, though, will be lower for higher users and higher for lower uses.

The challenge is where you have plans with a data cap—and there are not many in 100 megs, by the way; they sit at 50 and below—is that in that event those particular plans would see a rise in the wholesale price and therefore the retail price. The other point about those data cap plans is that they are skewed to older populations, lower incomes, people who receive government subsidies and regional bodies.

Knowing the chair wants me to be brief, the other thing is that we have also proposed 25/12 plans. Essentially, that 25 is repositioned at the lower end. The challenge we will have is balancing the economics to be able to have that merger of 12 and 25. We want to balance the economics but also ensure that lower users, those individuals I talked about—the lower income group or older Australians—are able to have price affordable plans. We want to manage our revenue streams and the best way to do that is to have CVC charges on 50 megs and below. That's what we're trying to balance. The trade-off is the simplicity that you're talking about against lower users. Just finally, on a simplicity, that's why we have suggested we move to utilise, not provision, data. That sounds like just words but actually that will drive a lot of efficiencies in the retailers.

Senator PRATT: I understood most of that.

CHAIR: It's a very long answer I have to say.

Mr Rue : It's a very complex question.

Senator PRATT: In the NBN SAU working group response paper in December, the company proposed a flat AVC pricing structure for speed tiers that were 100 megabits per second and above. It said: 'For AVC only offers NBN is proposing an annual price control of CPI plus three per cent.' It then says: 'AVC only offers represent a transformational shift in the design and structure of the pricing model. Typically NBN would introduce the test and test the demand and revenue impacts of such a shift through introduction of discounts. However, NBN recognises the desire expressed by retail providers, including in the working group discussion, for greater certainty in wholesale pricing, and accordingly NBN is proposing to commit to introducing these offers.' It then goes on to say: 'NBN considers that an X of three per cent for the first regulatory cycle is appropriate for AVC only offers, as it provides NBN with an appropriate degree of flexibility to address the demand-side risk faced by NBN in connection with these offers.' Given all of that, didn't you in effect declare that you're prepared to take on the demand-side risk when the government announced its copper backflip in September of 2020?

Mr Rue : No, I don't think that's right. The demand risk still is very apparent at this stage of the NBN when we face competition. We think we're several years away from actually having some certainty on that demand risk. I don't think that's correct.

Senator PRATT: I don't quite get that in the context of what you said earlier, that you're forecasting that high rate of return because of full fibre connectivity internally—

Mr Rue : Yes, but that's not the same as not taking on a demand risk. We are not forecasting that we will have 100 per cent penetration. We will still have competition against us and that demand risk requires—what it basically says is that this is the amount of revenue that the regulator allows you to earn. This is what you forecast your users will be. A divided by B equals the price. We don't believe we're in that position—

Senator PRATT: It's very hard for me to get one over you, Mr Rue, but I can see—

Mr Rue : We don't believe we're in that position.

CHAIR: You're very good though, Senator Pratt. What does CPI plus three per cent mean in practice? Do you have the flexibility to increase prices by 6.5 per cent every year at the wholesale level? Is that what that means?

Mr Rue : What we will do is test the market. It's a use it or lose it, if you like. In the sense that it's not there, and we're not able to sell services at that—the retailers and I just sell services based on that wholesale. We would adjust the prices. It enables us to test what the propensity to pay actually is.

Senator PRATT: How much Australians are prepared to pay for these services?

Mr Rue : That is what we'll see.

Senator PRATT: Is that the price flexibility being sought for an individual speed tier or is the flexibility for a weighted average of prices across speed tiers?

Mr Rue : We're talking about that plus three per cent of the 100 AVC.

Senator PRATT: Just to be clear, is NBN Co suggesting that the implied revenue growth within the current AVC/CVC construct is 6.5 per cent a year, and that if the company moved to a flat access fee structure that this is the type of change required in the SAU to make it work?

Mr Rue : No. We're talking about the first regulatory period—so it's CPI plus three per cent—which is just two years. It's only for the 100 megabit speed. It's not for the bundles below that. Depending on the market demand, that will determine the prices that are charged.

Senator PRATT: Thank you.

CHAIR: Thank you, Senator Pratt. Your questions are very good, very probing.

Senator PRATT: I'm really smart on these issues, clearly, but I've also got people who write very good questions.

CHAIR: Senator Davey.

Senator DAVEY: I only have a few questions. We heard earlier today from the department about regional communications and the Regional Connectivity Program that we have rolled out, which has come about because the Mobile Black Spot Program is reaching the end of its life. NBN don't deal in mobiles, but you do deal in connectivity. How much involvement have you had with the Regional Connectivity Program, and what potential is there?

Mr Rue : This is Gavin's bread and butter.

Mr Williams : I will try and give the brief version. There are two regional connectivity programs. We were delighted to participate in the first one and we were successful in gaining co-investment funding to effectively develop the infrastructure for 18 communities. I could rattle them off, but they include Alpha in Queensland, Wudinna in South Australia—those kinds of places. In both of those cases they were towns that were mapped for the Sky Muster satellite and as a consequence of the Regional Connectivity Program, combined with some co-investment from NBN and in some cases—in fact, both of those cases—investment from councils directly or through state governments. That is Regional Connectivity Program No. 1. Regional Connectivity Program No. 2 had applications close I think last Thursday, if I have my weeks right—time flies! Between 1 and 2, we've engaged very closely with jurisdictions, with councils, through my NBN local team, with people right across the country, and worked to identify those place based solutions and drum up some proposals. Those proposals are subject to commercial-in-confidence and NDAs, but we were pleased to submit about 30-odd proposals covering about 41 locations as part of RCP2. So we look forward to hearing the outcome, and fingers crossed.

Senator DAVEY: I won't delve into your round 2 applications that much. On round 1, those examples, had it not been for the Regional Connectivity Program, was the only option for those very remote communities a satellite dish on every house, through the Sky Muster program? Being a Sky Muster customer myself, I love it, but it's not the cheapest option for internet connection.

Mr Williams : Fixed wireless and satellite aren't subject to a forced disconnect, as NBN's fixed products are. So every customer on the fixed wireless and satellite network chooses to be there, and they may choose other alternatives. It's not the case that that's their only option. We saw in Wudinna just in the last couple of weeks that many homes and businesses are not connected with the Sky Muster service; they continue to be served by ADSL, and they had issues there. Materially, for the NBN option, it is Sky Muster. We've signed the area flit with Wudinna council. We look forward to mobilising our crews to—

Senator DAVEY: Is it more of a centralised Sky Muster rather than each individual house?

Mr Williams : Fibre to the premises. We will be building fibre to the premises across the town.

Senator DAVEY: That's fantastic. I note the regional telecommunications review was tabled only yesterday, so I haven't digested the whole lot of it, but I have had a quick look. One of the recommendations is to enhance NBN Co's regional fixed wireless and Sky Muster services. Do you see the Regional Connectivity Program fitting in with that so it is more fit for location than just a blanket product that's offered across the spectrum that might not necessarily be right for some areas?

Mr Williams : The Regional Connectivity Program is one vehicle, and there are other funds, like Building Better Regions Fund and a range of other funds, federal and state. In the case of NBN, we have our Regional Co-Investment Fund—just to add complexity—which speaks to around $300 million of co-investment. We're in the phase now, in the last months, of getting applications under that scheme. So there are a range of schemes and a number of those include building fixed wireless services. That is an option. For example, flipping a town from satellite to fixed wireless could be a very valid option under the RCP, the Regional Connectivity Program, or other vehicles.

Senator DAVEY: Do those place-based solutions still require a retail partner as well?

Mr Williams : Not necessarily to build the infrastructure. Inevitably, we're working with local councils, local chambers, to make sure that they are place based solutions. Ultimately, we are an open-access provider, so as a consequence of us building that infrastructure customers can access the full range—so, in the case of fibre to the premises, any retailer that retails that in that area.

Senator DAVEY: That makes sense.

Mr Rue : Can I answer one question?

CHAIR: I'm trying to wrap up now, so if it's brief.

Mr Rue : Very, very brief. We have seven retailers who have signed test agreements for FTTN to FTTP.

Senator URQUHART: Sorry?

Mr Rue : I'm answering your question. You asked me how many retailers. Seven have signed test agreements. We have 20 premises connected—not two, like I said. We have 20, and we have 31 more in the pipeline.

Senator URQUHART: Thank you.

Senator CHISHOLM: I refer to question on notice 4482. This is directed to the minister here today. This was submitted by Senator Sheldon on 17 December and asked the minister representing the minister for communications—which I think is Senator Hume?

Senator Duniam: Ordinarily in the Senate it would be; yes.

Sena tor CHISHOLM: It requested a breakdown of premises in NBN upgrade suburbs in remote areas. This question on notice is now a month overdue. What's the cause of this delay?

Senator Duniam: I don't know, but I'll endeavour to find out before 10 pm what the reason for that might be.

Senator CHISHOLM: I was being a bit facetious on that, just to annoy the chair!

Senator Duniam: I'm sure someone is listening who might be able to provide us some guidance anyway.

Senator CHISHOLM: He's gone missing! On a similar note, question on notice 4481, which was in a similar vein, requested a breakdown of premises in NBN upgrade suburbs in regional areas. That is also now a month overdue. I was wondering if you could identify the cause of the delay there?

Senator Duniam: Likewise; I will do the same.

Mr Rue : We don't seem to have that.

Senator Duniam: It's not in this collection here. We have 4480 and 4482.

Senator CHISHOLM: How convenient!

Mr Rue : I know you're addressing the minister—we understand they've been tabled. So I don't know if someone can help you.

Senator CHISHOLM: Thanks for that. Mr Rue, I wanted to turn to question on notice 4447 in relation to NBN Co's mistreatment of subcontractors.

Mr Rue : Sorry—double four seven you said?

Senator CHISHOLM: Triple four seven.

Mr Rue : That's also addressed to the minister for communications?

Senator CHISHOLM: Yes. Has any senior executive in the company had their bonus reduced because of the unethical attempt to cut subcontractor pay under the guise of an IT system change?

Mr Rue : Sorry, can you repeat the question, Senator?

Senator CHISHOLM: Has any senior executive in the company had their bonus reduced because of the unethical attempt to cut subcontractor pay under the guise of an IT system change?

Mr Rue : There was no unethical attempt to adjust pay.

Senator PRATT: So you adjusted pay but only in an ethical way.

Mr Rue : I'm sorry, I can't hear you.

Senator PRATT: You adjusted the pay, but only in an ethical way.

Mr Rue : No. We had challenges with the implementation of a ticketing system, which we have spoken about before, which Kathrine has talked about at length, but there was no unethical reduction of anybody's pay.

Senator CHISHOLM: Was there a KPMG audit done?

Mr Rue : There was a review requested of management to help us determine learnings from the implementation of the system.

Senator CHISHOLM: What did that find?

Mr Rue : Kathrine, do you want to talk to the stuff we talked about before?

Ms Dyer : Sure. That report gave us insight into some of the difficulties that the technicians were having with the implementation of the new IT system. As part of that review, we did interview 27 technicians, our contracting partners, to get information about how they were experiencing the app and the schedule of rates, if you like, in the field. We used that as a way to hear, to get the voice of the workforce and to take that feedback back to make sure that, as we continued to work on the implementation of the new system, we were taking their feedback in mind. We did uncover that some rates needed adjustment. Some rates had gone up. Some rates had gone down. Keep in mind that we did implement this IT system during COVID. Usually, with such a large rollout of a system and process change like this, there would be very detailed induction of technicians. For some subcontractors, we did find that there was a change management gap, if you like, and, unfortunately, that did lead to some contractors in the field being unsure how to use the system and unsure what rates they could claim.

Senator CHISHOLM: I just want to move on to question on notice 158, which is a question that was put in several forms over the course of last year. Mr Rue, you're aware of that question?

Mr Rue : I'm not, but I'm just about to become aware.

Senator CHISHOLM: It goes to the serious matter of whether figures in a public NBN document, which came at a cost to the taxpayer of $4.5 million, were manipulated or altered to support Liberal Party misinformation about Labor's original fibre rollout. I want to put some facts on the table. Page 102 of the strategic review claims the cumulative capital expenditure for scenario 2, the redesigned fibre rollout, is $12 billion less over the peak funding period financial year 2011 to financial year 2024 than when compared to scenario 1. This is shown in exhibit 4-6. However, when we examine the peak funding figures in exhibit 4-6, they only decrease by $9 billion. This does not appear to be mathematically plausible.

Questions pertaining to this discrepancy were put to the department on several occasions over the course of 2021. The department was so intent on distancing themselves that they said the question was a matter for the NBN Co and then did not even transfer the question on notice to the company. In its most recent response, the reason the NBN Co has given for the peak funding decreasing by $9 billion and not by $12 billion is: 'Page 17 of the strategic review document sets out the differences in peak funding between the two scenarios. This includes $1 billion rollover revenue and $8 billion lower capex spend in the forecast period.'

There are three reasons why this response to the Senate is incorrect. First, the figures NBN Co are referring to are cumulative capital expenditure and revenues for the period financial years 2011 to 2021. This is not the peak funding period associated with the report for either scenario 1 or scenario 2. The claims period is financial years 2011 to 2024, which is also stated on page 56. Second, and most amusingly, if revenue decreased by $1 billion, it would have caused peak funding for scenario 2 to increase, not decrease. NBN Co have actually added the figures in the wrong direction in an attempt to mislead the $9 billion figure. Third, scenario 2 is claimed to be faster and more efficient than scenario 1. This begs the question: how could it be generating revenue more slowly?

The reason the NBN Co's inability to explain the discrepancy matters is that it suggests the key tables on page 17 and 102 of the National broadband network: strategic review were not only incorrect but manually altered for political purposes. If this occurred with the knowledge of NBN Co executives at the time, it would raise serious questions. I note that if such activity took place in a private company it would have potential to be captured by the Corporations Act.

Mr Rue, this is not an issue we are going to let go. If standards of public governance are to improve, then lies and the potential manipulation of taxpayer funded reports for political purposes have to be identified and called out. I note for the Hansard record that you were not an employee of NBN Co at the time and that, therefore, these matters do not reflect on you. Nonetheless, Labor senators are going to lodge this question on notice again and seek NBN Co's explanation for the discrepancy. We will be requesting that you or the chief financial officer take personal responsibility for reviewing the response. If the NBN Co are unable to explain the discrepancy, the question on notice response should clearly state that to be the case. The response cannot make numbers up in the hope that this will go away, as we will not let up on it.

CHAIR: Do you want to take that on notice?

Mr Rue : What was the question?

Senator CHISHOLM: We're saying we're going to put it on notice.

Mr Rue : I see.

CHAIR: It's a serious question. I think you should take it on notice. If you want to say now, that's up to you.

Mr Rue : Thank you for pointing that out.

CH AIR: Take it on notice.

Mr Rue : I wasn't an employee at the time.

CHAIR: Take it on notice and the senators will put it in a QON.

Mr Rue : I see.

CHAIR: So take it on notice.

Mr Rue : Yes, I'll take it on notice. Thank you.

CHAIR: Senator Chisholm, are you done?

Senator URQUHART: That's it. We are done.

CHAIR: I'd like to thank very sincerely all the staff of the parliament, all the Hansard people and everyone else who has made this possible. It has obviously been a more difficult time than it usually is to set the building up. People are working long and irregular hours, so I just want to thank everyone very much for their time, and also thank the other senators. I have tried to conduct this in a collegial way and, hopefully, we have done our job as a house of review. Before we go, did you want to make a statement, Minister?

Senator Duniam: I just want to cover two things that were raised. You asked about answers to questions 4429, 4447, 4478 through to 4491. For your information, responses to those have all been tabled. Going back to Senator Pratt's question, I have been provided with this: 'I am advised that the minister's position has not changed from Minister Hume's evidence earlier today. A letter dated 4 February 2022 was written by the WA Minister for Police to Minister Fletcher. To date, Minister Fletcher has not received this correspondence. The letter was provided by The Australian to Minister Fletcher's office on 9 February. Minister Fletcher responded to the letter, which, again, he has not received through ordinary channels, on 11 February indicating he has contacted TikTok and Snapchat.'

CHAIR: Thank you very much. The hearing is closed.

Committee a djourned at 21:48