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Environment and Communications Legislation Committee
NBN Co Limited

NBN Co Limited


CHAIR: I welcome Senator the Hon. Mitch Fifield, Minister for Communications and Minister for the Arts; and portfolio officers. Minister, would you like to make an opening statement?

Senator Fifield: No, thank you, Chair.

CHAIR: I also welcome to estimates Dr Switkowski. Would you like to make an opening statement?

Dr Switkowski : Thank you, Mr Chair. In fact, I would like to invite, with your permission, the CEO to make some opening comments.

CHAIR: Fine. Mr Morrow.

Mr Morrow : Thank you, and good morning to everybody. It is a pleasure again to come back. We know that there is a lot of interest in NBN, and we know that we are a big project spending a lot of money in the country, and we understand the scrutiny that it must go through. We know that there have been a number of questions on notice that were taken from the last review. Those questions are being sought out in terms of being given adequate answers. If we can answer them today, of course, we will should they be brought up again.

As far as the business goes, we would like to reassure the committee that it is progressing well. We continue to see improvements week over week. We know that, when you look at the rollout and see that more than 30 per cent of the nation can now access an NBN service, it is a positive step forward. In fact, on the weekly rate that we look at, we are now seeing that even in the last couple of weeks 70,000 and 80,000 homes per week were completed—that is construction phase. That equates to nearly 40,000 a week—that is translating into making these homes ready for service. As we have said before, by the end of this year we will be near 50 per cent of the nation complete, and by a year after that three-quarters of the nation will be complete.

All of our access technologies have now been launched. There is still a maturity curve that we are going up for some of the newer technologies. As we ramp up on that maturity curve, there are experiences that are less than desirable or less than acceptable that we see as they relate to the end users. We know that the TIO has issued the report and, while on one hand we are very pleased that there is a 12 per cent improvement year over year in the number of complaints per active user, we still realise that any complaint for anybody is not pleasurable nor acceptable and it is something where we try to make sure that everybody has a positive experience.

When we look into those TIO complaints, I think it is important to recognise that, on a percentage basis of active end users, the number is quite low, and the reports that are made to the TIO include those responsible for NBN Co as well as those responsible for the retailers. As a result of that, it is so confusing and there is no way an end user would know who is responsible. We work very closely with our retailers to be sure that that experience is better than it was in the past. With that, we open up to any questions that you may have for us.

Senator DASTYARI: I thank the chairman for making himself available to be with us today. It is an important project and there is necessary government scrutiny, but I thank the chairman for being here. I know that he was very willing to come and give evidence. Chairman, would you run through with me your history with NBN. There was a period of time when you were chief executive officer as well as chairman. Would you run through the dates with me.

Dr Switkowski : I would be happy to do that. I was appointed as chairman and acting CEO in October 2013. That was an executive chairman role and I stayed in that role until the appointment of the current CEO, Bill Morrow, which was, I think, 2 April 2014, at which time I resumed the role as a non-executive chair, a position that I currently occupy.

Senator DASTYARI: So, after the federal election in 2013, you were appointed as chairman-CEO, there was a process undertaken to fill the CEO position and you performed both roles for roughly six months?

Dr Switkowski : That is correct.

Senator DASTYARI: The election, as I am sure you are well aware, was in September 2013. The chairman's role and the acting CEO position you took over in October 2013. Did you offer yourself for that position or were you asked? You obviously would have had some conversations with the minister at the time about that.

Dr Switkowski : Which date are you referring to?

Senator DASTYARI: I am talking about your October 2013 appointment.

Dr Switkowski : Discussions were initiated by the then opposition minister for communications in—I do not know—May of 2013 and then that led to the appointment in October 2013.

Senator DASTYARI: I want to be clear—it was all done through the appropriate processes of government appointments through the relevant means. In May 2013, you started having broad conversations about whether it was a position you would be interested in if it were to be available—is that fair?

Dr Switkowski : That is correct.

Senator DASTYARI: Did you provide advice to the then shadow minister regarding the pre-election policy that the shadow minister took to the 2013 election?

Dr Switkowski : No, I did not.

Senator DASTYARI: So you are saying that, prior to your appointment as chairman, at no point did you advise on or give information or assistance in the development of the NBN policy that was taken by the then opposition to the election.

Dr Switkowski : That is correct.

Senator DASTYARI: So you did not provide advice to Mr Turnbull that he could provide Australian households with access to a 25-megabits-per-second NBN service by the end of 2016?

Dr Switkowski : No. I was aware that that was the developing policy by the then opposition, but, no, I was not asked for my opinion. And, frankly, at that stage, because I had not been following NBN closely, I would not have been a well-informed adviser.

Senator DASTYARI: How does it come about that in May 2013, out of the blue, he contacts you? It is a small town. You have known Mr Turnbull for many years. Is that a fair comment?

Dr Switkowski : I have known Mr Turnbull, but not well.

Senator DASTYARI: But you have known him for a period of time?

Dr Switkowski : Yes, probably back to the OzEmail days—so, for a number of years. The degree of interaction was very minor. I doubt that we met annually.

Senator DASTYARI: You doubt—

Dr Switkowski : I doubt that we had meetings even as infrequently as once a year.

Senator DASTYARI: Then in 2013, around May—and, again, I am not pinning you to these dates, because we are going back a few years now—out of the blue, he contacts you and says, 'Is this something you would be interested in?' How did that happen?

Dr Switkowski : That is pretty much the way it happened. I was able to rationalise that by thinking through what sort of people might the government look to to step into the role of chair should that position become available. When you look at the criteria that governments were considering in terms of having telecom experience and, in Australia, familiarity with the regulatory regime and understanding the role of a GBE, there probably was not that deep a pool. So the fact that I was considered and approached was probably predictable, even though I did not spend much time thinking about it at the time.

Senator DASTYARI: So you just got a phone call out of the blue saying, 'Would you be interested in being chairman, if it were available?'

Dr Switkowski : Again, I do not know whether I would get the details right, but that is pretty much the way it happened.

Senator DASTYARI: In April 2014, NBN Co was issued with a statement of expectations from the shareholding ministers, directing the company to roll out the multi-technology mix, or scenario 6, of the December 2013 Strategic Review. Correct?

Dr Switkowski : Correct.

Senator DASTYARI: The SOE said:

The Government has considered the NBN Co Strategic Review’s report of 12 December 2013 and agrees that the NBN rollout should transition from a primarily fibre to the premises … model to the ‘optimised multi-technology mix’ model the Review recommends—

And it calls it 'Scenario 6'. Correct?

Dr Switkowski : Correct.

Senator DASTYARI: I want to confirm that that recommended scenario in the strategic review was Scenario 6, which is the optimised multi-technology mix.

Dr Switkowski : I do not know the exact words, but I am sure you are reading from the right document. Yes.

Senator DASTYARI: And you were chairman and CEO during the time in which the strategic review was produced.

Dr Switkowski : I very much owned the strategic review, having initiated it and presented it to the government.

Senator DASTYARI: As opposed to your role now as chairman. I think we are talking about the same document here—the strategic review document.

Dr Switkowski : It looks familiar.

Senator DASTYARI: That is your document?

Dr Switkowski : Yes.

Senator DASTYARI: And you signed off on this document before it was submitted to the shareholding ministers. Correct?

Dr Switkowski : I did.

Senator DASTYARI: And the funding envelope envisaged by the strategic review for the MTM, on page 102 of the strategic review, sets out that the peak funding estimate for the MTM is approximately $41 billion. I am reading from the document. Is that the correct figure?

Dr Switkowski : That figure is correct.

Senator DASTYARI: And the peak funding amount is now $54 billion. Is that correct?

Dr Switkowski : We are working to a peak funding of just under $50 billion.

Senator DASTYARI: Let me just correct that. In this document, the peak funding was $41 billion.

Dr Switkowski : Right.

Senator DASTYARI: I thought in the latest corporate plan it was $54 billion.

Dr Switkowski : We have an approved corporate plan. The plan points to a peak funding need of just under $50 billion. But we have qualified that by saying that it is a big project, it has a number of assumptions about our future costs and there is a range—I think it is now between $46 billion and $54 billion. But in the technical terms of saying what is the central estimate around which all the forecasts in the budget are struck, it is $49.6 billion.

Senator DASTYARI: So $54 billion is the top end.

Dr Switkowski : Our estimate of the top end.

Senator DASTYARI: That is your fat, if you will, or buffer.

Dr Switkowski : It is a buffer. Clearly, as we get closer to the end of the build, that buffer is reduced because we are more certain about what the total cost will be.

Senator DASTYARI: It is a lot of money: $41 billion dollars and $50 billion in a bit over a year, whether or not it goes to $54 billion. Where is the discrepancy? Where is the $9 billion?

Senator Fifield: Your own election commitment was for even higher than that.

Senator DASTYARI: Sure, but that was not my question. I am just asking the question about the 41 and 50; if you could just explain to me the difference between the two.

Mr Morrow : That $41 billion in the strategic review was correct. That was previous to one of the biggest agreements that was established with Telstra that occurred in late 2014. So there were a lot of predictions in terms of what the cost would be. Equally so, without any experience of rolling out the new technologies that would now be in the multitechnology, that took that peak funding from $41 billion to $49 billion. As management, because we are embarking on a project that is an unchartered territory—no-one around the world has ever done this before—we felt it prudent to be able to put a range. That original range was $46 to $56 billion where we feel the peak funding come in, but, as the chairman has said, we knew with our forecast and our plans and our objectives it was on $49 billion.

Last year, because the contracts were now established, because we have experience in at least launching all these new technologies, we lowered the top end of that range from $56 billion to $54 billion, and we anticipate doing so even as we go further. I would also like to point that, as specified in the corporate plan, the $49 billion has a large amount of contingency already in its buffer. So if you look at what we would actually produce, assuming that there was nothing unexpected, it would be far less than the $49 billion.

Senator DASTYARI: In language I can understand, it sounds like you are saying—and I know I am summarising things that are probably a bit more complex—the strategic review was based on assumptions that were made at the time and those assumptions have been reviewed as contracts have been entered into.

Mr Morrow : That is correct.

Dr Switkowski : And there were some model assumptions about how the network would be distributed and the details associated with connecting the network to the distribution streets and households that were then updated as we got more information, and that led also to an upward revision of the costs.

Senator DASTYARI: Exactly, because in December last year there was a leaked NBN document that demonstrated that the strategic review's assumption that the cost of the premises for fibre to the node would be $600—I am sure you are well aware of these documents that have been in the public domain—and your latest corporate plan has it at $1,600, which is triple the cost assumed in the 2013 report; is that correct?

Dr Switkowski : I am not that close to those figures. Bill, do you recognise that?

Mr Morrow : It is not triple the cost. There was an increase—once we got into the contracts and had the experience, we had lifted the cost per premises from what that original estimate was and we would acknowledge that.

Senator DASTYARI: What was that estimate?

Mr Rue : It was not triple. I do not have what the estimate was, but you are not comparing apples with apples there.

Senator DASTYARI: The NBN documents that were leaked said that the cost per premises for fibre to node would be $600. That was the assumption that was built into this document.

Mr Morrow : There was never a cost assumption of $600.

Senator DASTYARI: So are those leaked documents wrong?

Mr Morrow : I do not know which document you are referring to.

Senator DASTYARI: Your latest corporate plan puts it at $1,600.

Mr Morrow : No—the fibre to the node cost per premises—

Mr Rue : That is correct—without the duct lease.

Senator DASTYARI: What was the assumption used for this document?

Mr Rue : I did not prepare it at the time, but it was not as low as $600—I can tell you that. It was not triple the cost.

Senator DASTYARI: Do you remember what it was?

Dr Switkowski : No, I do not remember the assumption.

Senator DASTYARI: Can you take on notice what the assumption was. Mr Rue, we can talk about the exact amount, but your broad evidence is that that assumption figure did go up. You are saying it was not triple but you are not able to tell us what that assumption rise was with the information you have with you now—is that correct?

Mr Morrow : We can provide on notice the information you are looking for to bridge from what was assumed in that document to what is factual today.

Senator DASTYARI: Would there be any reason why that information could not be given to us on notice?

Mr Morrow : At the aggregate level, I would not see why not.

Dr Switkowski : I think we may have published a reconciliation.

Mr Rue : I can give you the high-level reconciliation between the 41 and 49, which we provided before, which is that the timing of revenue was $1 billion, operating expenditure was $3 billion and capital expenditure in total was $4 billion, which is why I am saying it cannot possibly be three times.

Senator DASTYARI: The question of what it costs for fibre to the node—is that not the fundamental assumption that this document is built on?

Dr Switkowski : No. Let me recount how this worked. Upon change of government and change of management and the board in October 2013, at NBN we were then tasked with a review of the strategy that the company was then pursuing, to see whether there were alternative ways of building the network that would lead to a less expensive, faster build of a fit-for-purpose network. We undertook that exercise. It was done very quickly over a period of 10 weeks, and a report was published in December 2013. That then informed the commentary around the multi-technology mix et cetera. At that stage, the outcome of that modelling process led to an estimate of $41 billion. As we went further into the calendar year 2014 and subsequent to that, and we observed our actual experience, changes were also made to various agreements with Telstra et cetera. That cost was revised to $49 billion—in the range $46 billion to $56 billion—and the $49 billion figure has stayed in place now for a couple of years. That is the target against which we are working and against which we will measure.

Senator DASTYARI: I want to park the aggregates aside for a moment. I note that Mr Morrow and Mr Rue were not there at the time. You have said yourself, Dr Switkowski, that this is your document. The information that I am after is the cost-per-premises assumption, because you could not build an aggregate without having a cost-per-premises assumption.

Dr Switkowski : Indeed.

Senator DASTYARI: I am not sure why that was not put in this document in the first place, but that is a different matter. What I am after is the cost-per-premises assumption itself that was built into this strategic review. Mr Morrow, surely there is someone back at NBN Co—

Mr Morrow : I am asking for it now.

Senator DASTYARI: If you can get that for us in the next little while—

Senator Fifield: There is something that might help, by way of comparison with cost per premises and also the base case funding. I raise this because I know this is not Senator Dastyari's core area of responsibility. The previous government had a costing or an assumption—I am not quite sure how to characterise it—but let me put it this way: the previous government believed that the cost per premises for fibre to the premises was $2,300. When the new government and the new management came in, it turned out that the real cost per premises was actually $4,400.

Senator DASTYARI: And this is the same minister who said that NBN would cost $29.5 billion.

Senator Fifield: There is a cap on equity contributions of the government of $29.5 billion, which remains the case. But my point is that the previous government and the previous NBN management did not have a clue what the cost per premises was. They believed it was $2,300 per premises; it was actually $4,400 per premises.

Senator DASTYARI: You seem to know a lot more about that than the projects you are responsible for.

Senator Fifield: Again, because this is not Senator Dastyari's area of shadow responsibility, Labor's policy at the last election was for the NBN, under them, to cost $57 billion, which is $8 billion more than our base case funding. Also, Labor had in their policy that they would go back and do some fibre to the premises in addition to that which is in their policy, but that was not costed. So there is an additional multibillion dollar cost to Labor's policy. I thought that might be helpful for the committee, by way of comparison.

Senator DASTYARI: There is nothing to compare it to.

Senator Fifield: There is the reality of what is happening.

CHAIR: As you mentioned minister, when the government came into government in 2013 it discovered that NBN at that point did not have firm costings and did not really understand the costs that it was dealing with. But it had put out indications that it did, to some degree. Prior to the 2013 election, all the opposition had to work with for doing its costings was the information that NBN had put out. We subsequently found out that that information was not particularly useful.

Senator Fifield: That is a statement of fact.

Senator DASTYARI: Minister, you very kindly keep observing that it has not been an area of my expertise and that is why I am here to ask the questions, but it is your area of expertise. What is the exact amount that Chorus telecom in New Zealand is doing fibre to the house for?

Senator Fifield: I am not the New Zealand communications minister.

Senator DASTYARI: Do you know the amount? Mr Morrow, do you know the amount?

Mr Morrow : We are familiar with the amount that they have, and I can assure you that when you take into account—

Senator DASTYARI: What is the amount—?

Mr Morrow : the vast land that we have here in Australia we are running as efficiently as New Zealand is. We have talked to them and there is an issue of how they account for this—also, that equally is different.

Senator DASTYARI: What is the amount? Do you know the amount?

Mr Morrow : I believe the cost per premises in New Zealand is about NZ $2,800.

Senator DASTYARI: About $2,750.

Mr Morrow : Again, I would point out there are vast differences—

Senator DASTYARI: The minister seems to know a lot about the local projects but not about what is happening just across the ditch.

Senator Fifield: It is just the blind hypocrisy and willingness of Labor—

Senator DASTYARI: Mr Morrow, I have some more—

Senator Fifield: —and I think the committee benefits from knowing what the history is.

CHAIR: Senator Dastyari, you made a point rather than ask a question. The minister is entitled to respond.

Mr Morrow : We are not comparing like for like. There are many additional costs in our cost per premises from an accounting point of view that are different from the New Zealand costs. When you actually reconcile the two they have actually come down to the level we are at.

Senator DASTYARI: I will place my series of questions on hold if, Mr Morrow, we are waiting on information that will be coming regarding what the cost per premises assumption was that went into this document. It should not be a hard figure to get. Chair, can I pause my series of questions for a moment and we will come back to it.

CHAIR: I am happy for the opposition to continue asking questions for a little longer before we might—

Senator DASTYARI: Okay. In the previous estimates there was a long conversation at this table regarding the details surrounding the opinion piece that was published in the Australian newspaper. I do not think it is worth us re-traversing the intricacies of that, in so far as everyone else's role within that. But during the conversation we had on 18 October—and this is straight out of estimates—Mr Morrow said:

Our chairman had mentioned to me that he was considering putting out an opinion piece about a lot of the NBN rhetoric that was in the news.

And Ms Keisler went on to say that 'he'—which was referring to you, Dr Switkowski—'was responding' to what 'he had read in the press'. What was the series of events, as you understand it, during that period?

Dr Switkowski : I think that period began with the Australian Federal Police actions, which occurred on 19 and 20 May, which I think may have been a Thursday. On the Sunday Bill and I had a phone call, which we frequently do, and I raised the issue where I thought the media commentary was very negative, poorly informed and inappropriate, and some form of rebuttal was appropriate and I felt I should do that. That was on the Sunday. On the Monday we had a scheduled NBN board meeting in Melbourne. We talked further about the nature of the criticism of NBN following the AFP action. I mentioned to the board the appropriateness of writing an opinion piece and had their support. The following day or two would have been taken up writing the opinion piece, among other things, and it was finalised on Wednesday evening. On Thursday, I think that day was spent with our staff liaising to some extent with the communications department about the opinion piece. They then offered their views, which were shared with me on the Friday morning, at which point I took the position that we would go ahead and submit the opinion piece, which actually ended up being published by the Fairfax press on the Saturday.

Senator DASTYARI: I do not believe this bit came out in Senate estimates. Are you saying that you raised it at the board meeting on the Monday?

Dr Switkowski : I did.

Senator DASTYARI: Formally, or as part of an informal conversation?

Dr Switkowski : The way the board operates it would have been as part of a conversation around matters to do with the commentary around NBN following the AFP raids. It was not a matter that went formally to the board that said 'Please approve'. That is not why the board operates. But the board was aware of my intention to write it and was supportive and did see the draft.

Senator DASTYARI: Do you sit on the board, Mr Morrow?

Mr Morrow : Yes.

Senator DASTYARI: Do you recall that coming up at the board meeting?

Mr Morrow : I do—yes.

Senator DASTYARI: We will have a chance to review it again, but I think in our previous conversations here, Mr Morrow, the evidence you gave was that you first heard about it at a later date than that.

Mr Morrow : No, I first heard about the interest in putting an opinion piece out there was before the board meeting, as the Chairman just mentioned, on that Sunday.

Senator DASTYARI: So, on the Sunday, Dr Switkowski, you had a conversation with Mr Morrow?

Dr Switkowski : I did.

Senator DASTYARI: You said, 'I want to do an op-ed,' or 'I want to respond,' or what?

Dr Switkowski : I noted my concern about the amount of misinformation that was being reported and repeated in the press and I thought it was time to correct it, and that an opinion piece published in the press was the way to go.

Senator DASTYARI: The board meeting was on the Monday, which would have been the 22nd?

Dr Switkowski : I think it is the 23rd.

Senator DASTYARI: On Monday 23 May there was a discussion about it at the board. You have submitted a draft through to nbn co, or they assisted you in drafting that—

Dr Switkowski : Wednesday.

Senator DASTYARI: On Wednesday they assisted you in drafting op-ed?

Dr Switkowski : I would have started drafting the opinion piece probably on Monday night or Tuesday. It was in a state ready for review internally on Wednesday night.

Senator DASTYARI: Then on Wednesday night it was sent to nbn co?

Dr Switkowski : Yes.

Senator DASTYARI: I am sure you had a chance to have a look at the evidence that everyone else has given about this matter before you came today, about the dates and this and that. Mr Morrow, did you speak to the Prime Minister about the op-ed, prior to its publication?

Dr Switkowski : Is that a question to me?

Senator DASTYARI: Yes.

Dr Switkowski : No, I did not.

Senator DASTYARI: Did you speak to the minister prior to its publication?

Dr Switkowski : No, I did not.

Senator DASTYARI: Did you speak to the minister's chief of staff?

Dr Switkowski : No.

Senator DASTYARI: Did you speak to anybody in the minister's office?

Dr Switkowski : No.

Senator DASTYARI: Did you speak to anyone in the Prime Minister's office?

Dr Switkowski : No.

Senator DASTYARI: Did you speak to anyone with the government, or the department, yourself at any point in time?

Dr Switkowski : Me personally, no.

Senator DASTYARI: So you had no conversations with anyone outside of nbn co?

Dr Switkowski : No, not personally.

Senator DASTYARI: Did you speak to anyone at all outside of nbn co about the op-ed—relevant to government?

Dr Switkowski : No.

Senator DASTYARI: Or to the department?

Dr Switkowski : That is correct. That is personally. I was aware that our staff were liaising with the department. Liaising may be overstating it; they had communicated the content of the opinion piece of the department.

Senator DASTYARI: Mr Morrow, in previous estimates—you might want to take this away and come back to us—you said that you were aware of the op-ed on the 25th and 26th. That is when you first became aware of it. The elements that Dr Switkowski has given is that it was raised at a board meeting on the 23rd. Did you want to review the evidence you have given?

Mr Morrow : No, it has been quite consistent in what I have said and what the chairman just said—

Senator DASTYARI: It is completely different.

Mr Morrow : No, it is not. I am quite well aware of what I had said. The Sunday before is when the chairman had mentioned that we wanted to put an opinion piece out there, because he believed there were numerous misrepresentations about the company that were false and quite damaging to the company. In the board meeting on the next day he raised the issue for discussion with both Karina, who was in the board meeting for a particular agenda topic, and the rest of the board members. The opinion piece was put together within a couple of days after that, and, as we talked about in the last Senate hearing, that is when the PM&C advice had taken place.

Senator DASTYARI: I would strongly suggest you consider reviewing the evidence that you gave. I have that evidence in front of me; you do not have it in front of you. I will give you the opportunity to take this on notice and reflect on that. The information you gave to us is that you were made aware on the 25th and 26th. That, in my opinion, would fly very much in the face of having a discussion about it at a board meeting prior to that date. I do not think it is fair to put you in a position to deal with that right now, so I will give you an opportunity to reflect on the evidence you have given to this committee.

Mr Morrow : I am happy to. Nothing has changed since the last testimony that I gave.

Senator DASTYARI: It has changed completely.

Mr Morrow : I am sorry, but it has not.

Senator DASTYARI: You said to us that you became aware on the 25th and 26th of something that we now find out had already been raised at a board meeting on the 23rd.

Mr Morrow : That is not true. I specifically recall talking about it, so maybe you are looking at a different part. I will give you the benefit of the doubt to review as well. I will do the same thing, but there is nothing different between what I recall and what I had said. I am confident in that.

Senator DASTYARI: I think you are going to regret that.

Senator Fifield: It is too early in the day for these games, Sam. Ease up, buddy.

Senator DASTYARI: Dr Switkowski, when were you informed that the advice from the Department of Communications and the Arts, through the PMO and others, was that—again, we can play around with the wording here; I am summarising—the article risked breaking caretaker conventions?

Dr Switkowski : I received their advice via our internal government relations people, I believe, on the Friday morning. Again, for the record, I have never viewed this as advice about my breaching the caretaker convention; it was advice about how the caretaker convention might be interpreted in the light of my opinion piece.

Senator DASTYARI: What is the difference?

Dr Switkowski : I do not believe I breached the caretaker convention.

Senator DASTYARI: So they were wrong?

Dr Switkowski : No. This is one of these issues where reasonable people can end up on opposite sides.

Senator DASTYARI: You are a GBE, you are independent and you are working within the framework of government. The department gave its advice, and people can—and have done in the past—get their own. Did you get your own legal advice?

Dr Switkowski : I did seek feedback from our legal department on the content of the opinion piece, but I did not ask for their view about its consistency or inconsistency with the caretaker convention.

Senator DASTYARI: So your assertion that you did not breach caretaker conventions is based on your opinion, not on any external opinion?

Dr Switkowski : That is true. Can I add to that?

Senator DASTYARI: What would the department know, right? The advice of Department of the Prime Minister and Cabinet and the Department of Communications and the Arts was that this risked breaching—I think they used the word—caretaker conventions; your own assertion is that you did not. I am trying to work out what the basis of that assertion is, as I am not an expert on caretaker conventions.

Dr Switkowski : You may assert that I am not either. Just by way of my history, I have been involved with GBEs since I joined Telstra in 1997, when it was a 100 per cent government owned entity. I left it when it was partially privatised. I have lived through a couple of elections and had a clear understanding of the implications of the caretaker conventions then, and I also understood the nature of the caretaker convention through this election. I have always understood that at the end of the day, as the chair of a GBE, I would have to exercise my judgement as to what the appropriate thing was to do, and that is what I did in this case.

Senator DASTYARI: You have been very up-front about this from the start and, in fairness to Mr Morrow and others, you have said this was your call.

Dr Switkowski : It was my call.

Senator DASTYARI: And you made the decision.

Dr Switkowski : And I made the decision.

Senator DASTYARI: You made the decision despite the advice that was given to you by the department, through Prime Minister and Cabinet? It was your call at the end of the day, and you made the call—correct?

Dr Switkowski : Despite the cautionary advice, yes.

Senator DASTYARI: The evidence that was passed on to you—I just want to confirm this is the evidence that was passed on to you, because Ms Keisler, in a previous Senate estimates, indicated that interpretation of advice was that 'government companies should observe the conventions and practices, unless to do so would conflict with their legal obligations or compelling organisational requirements'. That was the advice that was passed onto you as chair—correct?

Dr Switkowski : I believe so.

Senator DASTYARI: And you were of the view to go ahead and do it anyway.

Dr Switkowski : I was of the view that circumstances were such that it would justify my going ahead, yes.

Senator DASTYARI: And even though there was a potential that it would conflict with legal obligations, you did not seek legal advice on the matter regarding the caretaker convention internally?

Dr Switkowski : If there was a conflict, it was with the spirit of the caretaker convention. I understood that might be the case.

Senator DASTYARI: The entire police raids and what you have defined as 'misinformation' relate directly to the information, rightly or wrongly—and, again, I cannot speak for the veracity of the information that was leaked; I have seen the information, but I cannot speak to the veracity of it—that was used in the production of the strategic review. Is that correct?

Dr Switkowski : I am not at all sure that the leaked documents—

Senator DASTYARI: You have not seen the leaked documents? You did not read them?

Dr Switkowski : No, I do not know what has been leaked.

Senator DASTYARI: You do not know what has been leaked?

Dr Switkowski : No, not in detail; not at all. In fact, I have not seen copies of documents that have been leaked.

Senator DASTYARI: The media reports?

Dr Switkowski : I have read the media reports.

Senator DASTYARI: Okay, so the media reports—

Dr Switkowski : Excuse me, Senator. My understanding is that the numbers and the criticism that appeared in the media reports related to events that were much more recent than that document.

Senator DASTYARI: They did both.

Dr Switkowski : That is possible.

Senator DASTYARI: They refer to information that would have corrected and shown that the information in the strategic review was—

Senator Fifield: That is not what you said before. You said that they related to the preparation of that document.

Senator DASTYARI: No, Minister, what they did—you are aware of the media reports around it?

Senator Fifield: No; I am just saying you said two different things.

Senator DASTYARI: No. What that information did was show the assumptions—

Senator Fifield: But that is not what you said before.

Senator DASTYARI: No, it showed the assumptions had changed, and once you make a comparison between those assumptions and the assumptions in the strategic review, it demonstrated that the gulf was there.

Senator Fifield: You said it was material that was fed into the assumptions of the strategic review.

Senator DASTYARI: Yes.

Senator Fifield: But you just contradicted yourself. You said that was the case, and then you said, no, it was not.

Senator DASTYARI: No.

Senator Fifield: You did.

Senator DASTYARI: In late 2013, at the NBN Senate—

Senator Fifield: Senator, you just said two completely irreconcilable things.

Senator DASTYARI: No, I did not at all.

Senator Fifield: You did.

Senator DASTYARI: No.

Senator Fifield: You did!

Senator DASTYARI: In late 2013, at an NBN Senate select committee hearing—

Senator Fifield: Work out what your line is.

Senator DASTYARI: Minister, you were asked to table an unredacted version of the strategic review. In fact the committee was happy to do so in camera. NBN Co refused, with you saying:

I have concerns about the committee assessing the full report. The parts that have been redacted have been redacted for a reason.

Did you want to expand on what that reason was?

Senator Fifield: You said 'minister'; did you mean 'chair'?

Senator DASTYARI: Sorry, it was the chair. What ended up happening at the time, as I understand it—I was not here in 2013; Senator Conroy was here—was we had asked for an unredacted version of the strategic review.

Dr Switkowski : In December 2013?

Senator DASTYARI: In late 2013—I think it was December 2013. Dr Switkowski was the chairman.

Dr Switkowski : Executive chairman at that point.

Senator DASTYARI: I believe it was taken on notice at that point in time, about whether or not an unredacted version would or would not be provided. A decision was made, I assume through the minister and the government—

Senator Fifield: In December 2013?

Senator DASTYARI: Yes.

Senator Fifield: I was not the minister in December 2013.

Senator DASTYARI: No. As I am saying, a decision was made not to provide an unredacted version. That was, I am assuming, for commercial reasons?

Dr Switkowski : Commercial reasons, yes.

Senator DASTYARI: Considering that time has now passed and that negotiations, which perhaps at that point in time may have been sensitive, may no longer be sensitive, are you able to take on notice whether or not you can now provide an unredacted version or a version with less redaction based on what is now no longer perhaps commercially sensitive?

Mr Morrow : I think it is fair that we can take on notice the consideration of such, yes.

Senator DASTYARI: Has that figure come through?

Mr Morrow : No. If I could just state the facts in terms of the Hansard—and I am on page 141, if you have the report in front of you. Senator O'Neill asked:

And the conversation that you had, where the chairman indicated that he really wanted to do this, happened when? The 24th, the 23rd, the 22nd?

I responded:

It was prior to the 25th. I do not recall the specifics.

A little later down, once again Senator O'Neill asks:

It was in the days immediately prior to the 25th and, certainly, no more than a week prior. Is that your evidence?

I responded:

Yes, I would say roughly that is about the timeframe, but I would not go on record with that because again I do not recall the specifics. That was a long time ago and a lot stuff has happened since then.

Senator DASTYARI: You did not feel it was necessary at the time to inform us that it a discussion had been had at the board level about this?

Mr Morrow : The question was not asked.

Senator Fifield: You asserted before that Mr Morrow was going to regret what he had said and that there were complete differences between what had been said today and the last occasion.

Senator DASTYARI: Honestly, I think it is pretty disappointing that Mr Morrow has done everything he can—

Senator Fifield: Senator Dastyari, it is early in the day; please do not do the, 'Mate, you're going to regret this; there are complete differences,' when in fact you are the person who is wrong.

Senator DASTYARI: Senator Fifield, I think it is disappointing that, for a matter of this significance, Mr Morrow did not feel it was remotely relevant—

CHAIR: Senator Dastyari—

Senator DASTYARI: If the minister is going to start badgering me—

CHAIR: The minister is entitled to make statements. You are here—

Senator DASTYARI: It goes to the board of NBN and we do not get told about it.

Senator Fifield: Senator Dastyari, you are wrong. You made an assertion and you are wrong.

Senator DASTYARI: We do not get told about it.

Senator Fifield: You are embarrassed. You made an assertion and you are wrong, and speaking loudly is not going to detract from the fact that what you said 15 minutes ago is wrong.

CHAIR: Senator Dastyari, we can suspend if you want to go for a break, and we can waste some of this time we have available.

Senator DASTYARI: The idea that this has gone to a board meeting and yet Mr Morrow suddenly cannot remember—

CHAIR: Well ask him a question about it.

Senator Fifield: Apologise to Mr Morrow.

Senator DASTYARI: I am waiting on the figure.

Senator Fifield: Your allegation earlier today was wrong. You said that he had made inconsistent remarks, and you are wrong.

Senator DASTYARI: The fact that this has gone to a board—

Senator Fifield: You are raising a different issue now. You are wrong.

Senator DASTYARI: and the fact that only 20—

CHAIR: Senator Dastyari, the people on this side of the table need to ask questions. You can put context around your question by making some statements, provided you put it in the context of a question. The minister is entitled to make statements.

Senator Fifield: I am not going to allow you to say witnesses at the table that they are going to regret that what they have said and that they are inconsistent in their evidence when the Hansard shows that you are wrong.

Senator DASTYARI: I want an opportunity to respond. I said to Mr Morrow, and I thought I was quite polite about this, take the opportunity to check the record. I felt that at the previous estimates we had a very frank conversation around times and dates. Dr Switkowski came and gave information this morning that this is a matter that had been discussed at a board level. I felt that was new information, and it was new information to me. I asked Mr Morrow to clarify and to take on notice whether or not that was consistent or inconsistent.

Senator Fifield: You did more than that. Read your own Hansard.

Senator DASTYARI: Senator Fifield, can I finish? Mr Morrow is of the view that that is consistent. That is the evidence he has just given here. I am going to take the opportunity to reflect on that. I still feel that the series of questions we asked at the previous estimates would have warranted something as significant as this matter having been discussed at a board level being raised with Senate estimates. We will have the opportunity in future Senate estimates to revisit that, but I feel we are going around in circles at the moment.

Senator Fifield: Let me respond, Chair.

CHAIR: Yes, certainly, Minister.

Senator Fifield: Senator Dastyari said that the evidence that was presented today was completely at odds with Mr Morrow's evidence at the last estimates hearing. He said, 'Do you want to check the Hansard?' Mr Morrow said, 'I have been entirely consistent.' Senator Dastyari said, 'You are going to regret saying that.' Well, Mr Morrow does not regret saying that because the Hansard, which Mr Morrow has read out, demonstrates that there is absolutely no inconsistency. It is Senator Dastyari who is wrong. If anyone needs to reflect and to read Hansard, Senator Dastyari should read the Hansard of his contributions earlier today.

Senator DASTYARI: Senator Fifield, again, I feel we are going around in circles. But I believe I should have the opportunity—

CHAIR: Senator Dastyari, I will give you a degree of licence in your next question to put context around it where you might respond, but beyond that you need to be asking a question, or I will take the call from you and give it to somebody else. Proceed, but in the context of the question.

Senator Fifield: We are not going to put up with smears and 'You are going to regret this.'

CHAIR: Minister, I will allow Senator Dastyari to take this opportunity.

Senator DASTYARI: At the previous Senate estimates that you were sitting at the table at, was information provided to this estimates process that you are aware of that this was a matter that had been discussed at a board level?

Senator Fifield: Mr Morrow indicated that the matter had been raised in days beforehand.

Senator DASTYARI: That was not my question. Let me reword it. Were you aware that this had been raised at a board level on 23 May?

Senator Fifield: There is no reason why I would have been aware.

Senator DASTYARI: So the first you became aware of it was today, to the best of your knowledge?

Senator Fifield: I am aware and you are aware that it was discussed at the board as a result of the evidence of the chair.

Senator DASTYARI: And you were not aware before this?

Senator Fifield: I was not, but there is no reason—

Senator DASTYARI: That was not my question.

Senator Fifield: why I would have been. The fact that Dr Switkowski raised that does not call into question any of the evidence that has already been given by NBN today or at the previous estimates.

Senator DASTYARI: I believe this is information that we should have been made aware of, but I will move on. I am happy to give the call to someone else while I wait for this information.

CHAIR: Either Senator Chisholm or Senator Urquhart? Senator Chisholm.

Senator CHISHOLM: Turning to the fibre to the distribution point, Mr Morrow, I understand that NBN have undertaken some trials in Sydney and Melbourne. I just wanted to get a bit of an understanding of what challenges were presented during these trials and how much the technology has changed over the last 12 to 24 months.

Mr Morrow : Fibre to the distribution point, from a global point of view, is most commonly referred to as fibre to the curb. We wanted to ensure that we tested the way in which we were going to pull the fibre down the street. This is what we have called 'skinny fibre', and we have spoken about it in public in the past. It is a different way that allows it to be pulled more cheaply and go faster than the original fibre-to-the-premises type of an application.

The second portion of the trial was of the actual electronics that go into the pit that sits outside the home and the footpath. These were prototype pieces of equipment. We needed to understand what the power dissipation was, how the power would be fed into this device, what other kinds of environmental issues it would have, what the provisioning might look like for us. Those were challenges that we had to make sure met certain specifications, and that is why it was still preliminary, in our view, as to whether this was a viable technology.

Since then I am pleased to say that, with the help of a number of different manufacturers, including the most recent Aussie company, NetComm, we have identified electronics that can go into that box that meet all of our specifications and standards. Therefore, we feel that there are up to 700,000 homes that are great candidates for this new approach.

Senator CHISHOLM: That was getting to my next question. I am just trying to confirm how many homes at this point in time the NBN is proposing to connect to fibre to the distribution point?

Mr Morrow : Up to 700,000. It varies because there is so much that we do not know until we actually do the field visits, walk the streets, open up some of the pits and take a look at things. But, at this point, we think that there could be up to 700,000. We hope there will be many more as we refine and perfect this technology.

Senator CHISHOLM: I am just comparing the 2016 and 2017 corporate plans. The 2016 corporate plan indicated that four million homes would be connected to the HFC at the end of the rollout in 2020. That is correct?

Mr Morrow : That is correct.

Senator CHISHOLM: Then the 2017 corporate plan indicated that between 2.5 and 3.2 million premises would be served by the HFC by the end of the 2020 rollout.

Mr Morrow : That is correct.

Senator CHISHOLM: If I take a midpoint between the 2.5 and the 3.2, there are 1.2 million homes that will no longer be receiving the HFC, and, of those, about 700,000 will receive fibre to the distribution point.

Mr Morrow : If I explain the process, I think it will make perfect sense. We looked at where the HFC network previously owned by Optus and Telstra was deployed and we drew a circle around those areas. That equated to about the four million homes that we were initially targeting with HFC. As we got into more of the detail—we walked the streets, we assessed the plan and we tried to purify the data records which are often out of date—we found that there were a number of multidwelling units. These are apartments that go up that were never cabled up with the pay TV cable or coaxial cable itself. So we had to remove from that four million a large portion of those homes, because it does not make sense. Fibre to the building is a far better technology application with those high-rise or multidwelling units.

Equally so, both Telstra and Optus did not necessarily build out the network continuously around those neighbourhoods. There were many streets, for example, that were left without cable for whatever reasons that those two companies took in the past, and so, when you started to deduct both of those factors, it actually reduced the number substantially. Now, the Optus footprint had a circle of about 450,000 homes where there is only Optus pay TV cables. We are targeting that area now for this fibre-to-the-curb technology. So, when I say up to 700,000, a good portion of that is going to be where that area is today. It is important to note that we did not assume the full 450,000 homes in that footprint would be HFC. In fact, many of those, the majority of those, were going to be slated for a fibre-to-the-node type of technology. This is why you saw the reduction in fibre to the node and the increase in fibre to the curb occur.

There are up to 200,000 or 300,000 homes that are outside that Optus-HFC-only footprint because, when you go into areas with fibre to the node, if the homes are less dense, the cost obviously goes up. You still have to put in a node, so, if you have one node serving 10 homes versus one node serving 200 homes, that cost per premises is obviously vastly different. Therefore, this fibre to the curb is a far better technology in those areas. The final application that we looked at is where that copper loop link is so long that we fall below the minimum requirement the government expects of us of 25 megabits per second. We then need an alternative solution, and that is where fibre to the kerb comes in.

Senator CHISHOLM: What are those about half a million likely to receive?

Mr Morrow : The Optus-only footprint? They will likely see the fibre-to-the-curb technology, and that will give them initially hundreds of megabits per second. With the upgrades of G.Fast we know that that will go up towards a gigabit per second. It is a great technology. It has many upgrade capabilities that are simple, easy and straightforward.

Senator CHISHOLM: Is it possible, just with that group, to get a bit of a breakdown of where those locations are likely to be? It might have to be taken notice.

Mr Morrow : We certainly can take that on notice and have a look at it as to where we are targeting.

Senator CHISHOLM: Just in terms of the fibre to the distribution point, are you aware of any other deployments of that technology elsewhere in the world?

Mr Morrow : We know that it is being trialled in a couple of different locations—the UK; it has been deployed slightly in Italy. We are working with all of the equipment manufacturers. We are working with the other carriers to make sure we can apply best practices. I think we are now probably the largest in terms of the intended scale deployment of fibre-to-the-curb technology, so we have a lot of outside interest asking to be able to ride our coat-tails to this new approach.

Senator CHISHOLM: Who are the technology venders in those other countries that are using this technology?

Mr Morrow : In terms of the equipment suppliers, do you mean?

Senator CHISHOLM: Yes.

Mr Morrow : I do not recall offhand. I know there are two or three different companies that work in this space—Corning and ADTRAN—and there are a few others that provide equipment in this regard, and I know they are active in these overseas countries.

Senator CHISHOLM: In terms of the 2017 corporate plan, it mentions the 5.1 to 6.5 million as being forecast for fibre to the node, fibre to the basement and fibre to the distribution point. What is expected to be the breakdown of how many will receive which technology?

Mr Morrow : This is a fluid issue because, again, we find so much happens in the field and we are constantly evaluating new approaches and new technologies, and that is why I say it is fluid. When you look at the breakdown, roughly just fewer than five million will receive pure fibre to the node and the other million will be fibre to the basement and fibre to the curb.

Senator CHISHOLM: Turning to the technology itself in terms of fibre to the distribution point, it brings the fibre and the electronics closer to the customers up to a distribution point that is closer to the home. Is that essentially the—

Mr Morrow : Yes, that is correct. It shortens the length of the copper that is being used.

Senator CHISHOLM: In terms of the active electronics, are they placed in a Telstra pit and service a few homes each?

Mr Morrow : Yes, that is correct.

Senator CHISHOLM: In terms of how these devices are powered, are they powered from the network or reverse powered from the end user?

Mr Morrow : They are reverse powered. In all of our technologies, a piece of equipment goes inside the home. That piece of equipment has to be powered by the local end user. What this does is draw a little bit of the power from that same box powered by that same end user and runs it down those 30 metres of copper to this box to be able to power it.

Senator CHISHOLM: My understanding is that at the 15 March NBN select committee session, Mr Ryan, who I think might have been the chief engineer—

Mr Morrow : Correct.

Senator CHISHOLM: He was asked about the roughly 30,000 fibre-to-the-node nodes, and it cost $2,000 per year in electricity to power each node. That was the evidence, in my understanding, that was given back in March.

Mr Morrow : I would rely on his testimony.

Senator CHISHOLM: Does this electricity cost for those fibre to the node go to the NBN?

Mr Morrow : That is correct, yes.

Senator CHISHOLM: But if we went to more fibre to the distribution point then the electricity cost would effectively disappear for the NBN?

Mr Morrow : For those homes that are powered by fibre to the curb, the electricity cost would be in the exchange, and there is electricity is powered, again, by the modem that is in the customer's house. In the end user's house, again, already today all technologies, even fibre to the premise, there is an NBN NTD that we install and that is power by the customer's power. Then the RSP comes along and plugs in a gateway that equally is powered by the end user. In the case of fibre to the curb, it takes a little bit of that power and runs it down the line to power these devices. If you have a peer fibre-to-the-kerb area, you do not have the electronics at the neighbourhood entry point, like we do for fibre to the node; therefore, you do not need any powering requirements at that midway point between the exchange and the house.

Senator CHISHOLM: Is there an issue with fibre to the node when the power goes out?

Mr Morrow : If power were lost to the node, we do have a backup system that is in place, just like most of the telecom exchanges that exist. If power is lost to the neighbourhood, these devices are no longer battery powered. There were options in the past but, because seldom was it ever used, we stopped using that sort of approach.

Senator CHISHOLM: But with fibre to the distribution point, the cost for electricity to the nodes largely disappears?

Mr Morrow : That is correct.

Senator CHISHOLM: In terms of the Telstra pits, is there potential for water clogging? Do the electronics in there have to be in some sort of watertight casing or something like that?

Mr Morrow : They do. They are in a hermetically sealed container that has been proven to be waterproof. This is an approach that has been taken for decades now to ensure that it has water integrity.

Senator CHISHOLM: Is that decades in Australia or overseas? I am wondering about the sort of extreme heat that we can face in Australia.

Mr Morrow : These things are tested in lab environments. They are proven to operate in a temperature range consistent with Australia's landscape and this is part of the testing that we are doing that you were asking about earlier in terms of the trials. We have the manufacturers validate and verify that it can operate within these ranges and of course again be protected from water intrusion.

Senator CHISHOLM: In terms of the costs of fibre to the distribution point, I have seen some reports that put the cost at $2,700 per premise, which is roughly a $400 difference from fibre to the node. Was this figure based on actuals or estimates?

Mr Rue : It is based on some experience we have had in rolling out FTTP but it is also based on some desktop analysis.

Senator CHISHOLM: In terms of fibre to the distribution point, has the technical configuration been completed yet?

Mr Morrow : The designs are just about to begin. We have a model architecture that has been completed and designs are expected to start by the end of this year.

Senator CHISHOLM: Can you release that once it has been completed?

Mr Morrow : The architecture?

Senator CHISHOLM: Yes.

Mr Morrow : We can certainly take that on notice. I do not believe there are any commercial issues but I would like the team to validate that first.

Senator CHISHOLM: Thanks. In terms of the IT systems to support the distribution point, how long before they will be in place?

Mr Morrow : This is a normal process for us. We have gotten quite professional and quite good at this. We have a fantastic IT team that responds each and every time. Over the course between when this will come online and be commercially ready, which will be early 2018, you will see a couple of other IT enhancements to be able to support that from a record inventory basis to be able to provision, to be able to recognise when it is in the field. Already a certain degree of this has been done and the remaining will occur between now and early 2018.

Senator CHISHOLM: You mentioned before the process of literally walking the streets to decide who gets what technology. Is there some sort of criteria you use in terms of making a decision like that?

Mr Morrow : Indeed. It is the logic that you would expect. We are being tasked with providing NBN to all Australians by the year 2020 and to do so in the fastest and least cost way and to make sure two other factors: that there is a minimum of 25 meg for everybody and 50 meg for 90 per cent of the fixed line and that there is an upgrade path should demand in the future require it—that we have a clear plan to be able to update each of these networks for greater speed and performance. So as we go through each one of the neighbourhoods we look to see, based on the circumstances that are there, which ones are optimised by the various technology mix choices that we have.

Senator CHISHOLM: In terms of the IT systems that are being developed, do they leverage much off what you already have in terms of fibre to the node?

Mr Morrow : They do. The fact that we did fibre to the node and fibre to the building, from an IT point of view it was far more straightforward, less work involved, to do fibre to the curb.

Senator CHISHOLM: So in terms of the trials around the fibre to the distribution point, the electronics were actually tested with a fibre lead-in instead of a copper lead-in; is that correct?

Mr Morrow : It is a copper lead-in, yes.

Senator CHISHOLM: But have you done some trials with a fibre lead-in as well?

Mr Morrow : It would not be applied on a fibre lead-in basis. If you look at fibre-to-the-premises architecture, in front of the pit and inside the home is what we call a multiport. Basically, it has, for example, a four-port system. It has the ability to plug in a fibre to four homes that are in the neighbourhood, and fibre would run from that multiport system all the way up into inside the home. In the case of fibre to the curb, that same multiport exists, but, instead of plugging in the fibre, you are plugging in this little DPU, which is the electronics, and out of this little box of electronics is a copper pair. That copper pair is then spliced into the existing copper pair that goes between that pit and up into the house. When we talk fibre to the curb or fibre to the distribution point in relation to the old technology, there is no fibre beyond that point; it is only copper.

Senator CHISHOLM: In the trials that you have done, you have not trialled it with fibre to the home from that point?

Mr Morrow : For the initial trial, if I understand your question, we took a fibre-to-the-premises area that was already built. Outside the front of the first home that we tested this in, we unplugged the fibre that was run into the house and instead plugged in this new DP unit—distribution point unit—and out of that distribution point came the copper pair that we spliced into the old copper pair that was going up to this same house. In this trial example, there was both fibre going up to the home and the reused old copper pair going up to the home, and that is how we were able to trial the initial prototype of this technology.

CHAIR: When you are doing that, if you are using the existing copper, do you still have the same hardware in the house that you do with other NBN installations?

Mr Morrow : It is different hardware, but it looks the same to the customer, because it is just a box.

CHAIR: It does not work in the same way that wire would for ADSL?

Mr Morrow : Whether it is ADSL, fibre to the premises or fibre to the distribution point, you are going to see a box that has to plug into both the power point and to whatever that line is that is coming in—fibre and/or copper.

CHAIR: I might not have asked that question in a way to truly convey what I was actually asking. Prior to NBN—the copper network—you plug into your phone line with a modem and router. You would not do that now with fibre to the curb that has copper going into the house? You would need NBN—

Mr Morrow : It would look very similar. With ADSL, you have copper coming up to the first plate. You are going to plug that copper into your modem and you will plug that modem into a power point.

CHAIR: With fibre to the premises, you actually have to have the installation—

Mr Morrow : That is taken away and another box—a modem, which we call the network terminating device—goes in its place. It plugs into the fibre and plugs into a power point, and from that you enable the retailer to plug in what they call their gateway and that is where wi-fi comes out. That is the layer 3 protocol service.

Senator CHISHOLM: How would the on-demand fibre to the distribution point to fibre to the home upgrade option actually work in practice in terms of the choices that people have? Would someone be expected to pay around $1,200 per premise to actually get that technology into their home?

Mr Morrow : Obviously, we offer this to anybody that is interested. Do not quote me on this, but I believe we have had roughly 300 or 400 qualified applications that have come through. There have been only 21 in total that have actually proceeded with this. When you look at the ones that have taken it, typically they are moving from fixed wireless to fibre to the premises. I think there are a couple now that have been from fibre to the node to fibre to the premises. We find that it is typically private schools that are willing to pay for this. You see a couple of multidwelling units where the strata has gotten together and said, 'We want to go ahead and pull fibre in to the rest of the house', or a business that is in a particular location. I think there might be one case, or two at the very most, of individual residents that have chosen to do this. That cost range will vary depending on how far away they are from where the node is, because we know we have fibre up until that point, or the way in which the house is constructed on the property. There is a varied range behind that, but we do process the applications and we have seen a number come through.

CHAIR: Would it be possible to provide on notice an average of what the cost has been?

Mr Morrow : Averages are dangerous, Senator. Why don't we take that away to see what we can actually apply to give you a sense of roughly what the costs look like.

Senator CHISHOLM: Dangerous for whom?

Mr Morrow : For everybody! Again, the range could be from literally hundreds of dollars to multiple tens of thousands of dollars. If you say an average and I think I am going to get that and suddenly I get a $30,000 quote, I may not be happy. That is why averages can be dangerous.

Senator CHISHOLM: I just wanted to read out some comments you made on 15 March about the fibre to the distribution point, and I think Mr Rue made some as well. Mr Morrow, you went on to say:

We have had discussions—

about what fibre to the distribution point could do—

and its potential when combined with skinny fibre when we learned of this some time ago, and the question that comes back is: is this a technology that can be faster and cheaper and/or reduce the peak funding from where it is scheduled to be today? And the answer is: no, not yet. Therefore, we are steady state on the technology mix—

and then you went on to say:

Remember that the board is also charged by the statement of expectations to do this as fast as possible, at the least possible cost—

and then Mr Rue went on to say:

… we would be very enthusiastic in using DP technology when it fits in to the statement of expectations that we abide by.

So Mr Morrow, reading between the lines, it appears that you are saying that the fibre to the distribution point is something that the NBN is quite interested in but feels constrained by the government's statement of expectations.

Mr Morrow : Being a technologist, I do get excited about technology and I do like fibre to the curb technology. I think it solves problems that we have had in the past where we were not sure how we were going to get the speeds up to 25 megabits per second, where we were not sure how we were going to get the cost down on those homes that are not as dense as the others surrounding a node and fibre to the node technology. Therefore, this technology came along and brought us a very elegant good solution for those problems.

As management, I can tell you—in my seventh gig of being a CEO of a company—I am always constrained by some sort of budget or other requirements, and that budget, therefore, says, 'All right, we have to find the least possible cost to get these technologies in to meet that criteria.' If it was a free-for-all and said, 'Go ahead and a build a golden-laced network,' then sure, we would be deploying more fibre to the curb, but unfortunately the gentleman to my side here does not allow the board to do that.

Senator CHISHOLM: Specifically around the statement of expectations, does that constrain at this stage the rollout of the fibre to the distribution point?

Mr Morrow : Yes, it constrains us in terms of putting out more expensive technology; yes, it does.

Senator CHISHOLM: In terms of the decision criteria for choosing a particular technology, is it the option that delivers the greatest commercial rate of return over the life of the asset or the greatest economic rate of return, or the option that most closely minimises the peak funding through cheaper and faster deployment?

Mr Rue : We look at a range of factors, actually. As Mr Morrow said earlier, we look at upgrade parts, we look at net present value, we look at cash flow, we look at operating costs and we look at contiguous areas and therefore what DPs are doing in various areas. There is a range of things that we take into account.

Dr Switkowski : Perhaps I can contribute, Senator Chisholm, because I think that is a great question and it is the sort of discussion that the board has. The statement of expectation is the guiding document that shapes our strategies. You have seen that translated into the corporate plan, and the corporate plan has some headline expectations: $50 billion or $49 billion, the 2020 date, 50 megabits per second and 25 minimum megabits per second across the continent, and a network that is fit for purpose. That is what we are operating against and, as the CEO has indicated, he really has little room to vary or propose variations around any of those dimensions. However, if we were persuaded that there was another strategy that served the country better—however 'better' is defined—we would make the case to the government through the minister. We do not feel inhibited about doing that. At this stage, the strategy is as captured and reflected in the corporate plan. We think it is the right one.

Senator CHISHOLM: Yes, but in terms of the statement of expectations and, I suppose, the policy that has been set out by the Liberal Party—they are the government—it seems that it is putting a limit on, I suppose, what Mr Morrow thinks can be achieved by the NBN. I think if you look at the evidence that Mr Morrow gave in March, he was quite excited about the distribution point technology, and he has had to sort of rein himself in, in terms of the ability of that to be rolled out across Australia.

Dr Switkowski : Well, he has had to make judgements about the readiness of the technology and the ability of vendors to supply these multiport boxes et cetera, which were still in that formative stage in the early part of this year, and then he has had to form judgements where he—along with Stephen Rue—balances a whole lot of considerations, as we always do in every business. So that has led to the plan as it is described at the moment. As I say: if, down the line, a view was formed that there was another path forward that made a lot more sense, however that is defined, that would be a conversation we would quickly have with the minister.

Senator CHISHOLM: But doesn't the government's statement of expectations limit your ability to do that?

Dr Switkowski : The statement of expectations, as I understand it, is an important document, but it is a document that can be discussed from time to time.

Senator CHISHOLM: Is there any plan to discuss it at the moment?

Dr Switkowski : Not at the moment. It is now November. We have issued the '16-17 corporate plan, business plan, et cetera. As we go through the early part of 2017—firstly, with more confidence about how the rollout is going and what the endpoint is going to look like—and in the lead-up to producing an updated corporate plan, these sorts of questions will be, I would say, energetically debated at the board and with our shareholder ministers.

Senator CHISHOLM: So are you expecting the government's statement of expectations to change in the next 12 months?

Dr Switkowski : No. There is nothing in front of us to suggest it will change, but I do flag that, if it needs to change, we will ask for it to be changed.

Senator CHISHOLM: So, when you say it is 'discussed from time to time', what 'time to time' are you talking about?

Dr Switkowski : Whenever there is a change. Firstly, this is a field where there is change all of the time. One of the difficulties is in being confident in future forecasts—or, indeed, in being confident in a lot of technical decisions without an eye to what might be coming around the corner. So, if a technology arrives or if we learn from the experiences of other telcos around the world that there are ways to continue to build that are superior to what we are currently doing, then of course we will have a look at them. But there is nothing today, I would flag, that will lead to any kind of really directional change to what we are currently doing.

CHAIR: Would it be fair to say, then, that the plan is flexible, to the extent that you are looking for upside opportunities to change it?

Dr Switkowski : Exactly.

CHAIR: You do not expect changes to come along; you are confident that, with the knowledge you have at the moment, the plan will be delivered as it is currently set out, but what you are looking for is an awareness of what might change that allows you to do things better or more quickly?

Dr Switkowski : And we respect the fact that this is an industry where there is a lot of change and, frankly, we are all benefiting from the technical breakthroughs that are happening around us in every industry, but most particularly in this. I mean, for example, when the 2013 strategic plan was composed, the option of fibre to the distribution point or fibre to the curb was not realistic. Three years later, or two years later, all of a sudden that is becoming something well worth having a look at, and Bill Morrow and his team have done that. But, again, just to maybe share with you the way the board looks at this: there are very firm disciplines associated with the oversight of this company. They are often reduced to a small number of headline expectations. We have the insistence that this rollout be done by 2020. Bill has translated that into, 'Well, we will have eight million customers at that point.' At that point, most people or all will have 25 megabits per second, and 90 per cent of the fixed footprint will be 50 megabits per second or better. We will not spend more than $50 billion. So those things are set: a fit-for-purpose network; the deadline; the number of customers; this is how much money we are going to spend.

We really do not spend a lot of time saying: 'If we do this, it's going to take another five years. Why don't we consider it?' We would have to have an overwhelming case for the board to entertain that, and we do not. Given our starting point, and given the urgency of providing a high-quality broadband network to the country, we are very focused on getting this project completed successfully and economically.

Senator CHISHOLM: In terms of the board, how many proposals from management around fibre to the distribution point have you turned down?

Dr Switkowski : It does not work that way. My recollection is that the conversation around that technology began in the early part of this calendar year and has unfolded. The board's role has basically been to listen to management describe how the technology works and its position on the maturity curve and to talk about costs and the appropriateness for various parts of the network. So there has never been a situation where management has said, 'We recommend we do this,' and the board has said, 'No, you can't.' On the other hand, the way that commercial boards and most boards work—respecting the fact that NBN is a GBE—is that you have a continuing dialogue around these sorts of issues. By the time the board is asked to opine on a particular recommendation, it would be surprising for any board to decline the recommendation of a management team.

Senator DASTYARI: I take it we still do not have that figure?

Mr Morrow : It is coming soon.

Senator DASTYARI: That is fine. I will talk about a different matter—alarm systems. I know that is something the NBN has been working on. You are working through the challenges in that. In terms of background, my understanding—and correct me if this is wrong—is that there are two types of alarms. There are monitored alarms. When pressed, the system dials out to an operator—a 24-hour call-monitoring facility—who then calls a designated family member and/or 000. Then there are non-monitored alarms and when you press the button it automatically dials a number, be it family, 000 or whoever you have it programmed to call. The receiver hears a recorded message with the person's name, address and a code to a key safe to permit access to the premises. That is my understanding of the two different types. Is that right?

Mr Morrow : There are many more different types and ways in which people use the network for various alarm elements. The most common and recognised one was the first one that you described.

Senator DASTYARI: Yes, and that is the older one, effectively. That is the older technology? You press a button and it dials for you if you have a fall or something happens.

Mr Morrow : Yes.

Senator DASTYARI: Mr Morrow, you wrote a letter to the monitoring providers to advise that services over fibre to the node are not guaranteed to work in the event of a power outage or that there are some challenges around that. Is that correct?

Mr Morrow : That is correct.

Senator DASTYARI: When did you send that letter?

Mr Morrow : I do not recall the specifics. I can take that on notice and come back to you.

Senator DASTYARI: Was it this year or last year?

Mr Morrow : There was a letter that was sent this year.

Senator DASTYARI: It was sent this year. Again, you sent this out to a whole bunch of providers. I do not have a copy of it. Is that something you could provide the committee with, on notice?

Mr Morrow : I think we probably could. We will take that on notice and provide that. That was just a reminder. We have always been clear about how things work, and often we want to take extra precautions, especially when it comes to the safety and security of people across the country.

Senator DASTYARI: How many monitored alarm services does NBN estimate are currently active in Australia?

Mr Morrow : I do not have the number off the top of my head. Stephen, are you aware?

Mr Rue : No, I am not.

Senator DASTYARI: Is that a number you have but do not have with you, or is it a number you do not have?

Mr Morrow : It is a number we have but do not have with us.

Mr Rue : We do not have it with us. We would have that number.

Senator DASTYARI: Can you take that on notice? Can you also take on notice how many non-monitored alarm systems NBN estimates are currently active? Effectively, I want both the monitored and the non-monitored alarms. I do not know if you have information broken down to that level.

Mr Rue : We will look at that.

Senator DASTYARI: In July of this year, NBN Co established a medical alarm subsidy scheme to assist with the migration of services to the NBN—is that correct?

Mr Morrow : That is correct.

Senator DASTYARI: Is that what you were writing to these—

Mr Morrow : No, that was a different matter. The letter that you are referring to that we will get you a copy of, assuming that there are no issues for us or that it might fall into the non-disclosure category, was different. That was just a reminder. This medical alarm scheme was just, more broadly, about how this works—how over the top layers work, how our retailers and of course the portion that NBN Co steps in and fills in works. This was in consultation with policy with the government but something that is important for everybody and involves the entire industry.

Senator DASTYARI: I will come to that consultation in a moment. Where is information about the subsidy scheme available? Is that available on the website?

Mr Morrow : I believe there is information on the website. We will check for you.

Senator DASTYARI: What is the estimated level of subsidy per eligible user?

Mr Rue : We will have to take that away.

Senator DASTYARI: Okay. But you have done calculations on that obviously. How big is the envelope for the scheme?

Mr Rue : Again, we will take that on notice. I do not have it here. I will see if I can get it.

Senator DASTYARI: Do these types of matters go all the way up to the board or would this be deal with at a management level.

Dr Switkowski : The whole issue of the performance and importance of households with medical alarms is a matter that gets discussed with the board. The detailed mitigation et cetera gets worked through by management and they would give us periodic reports.

Senator DASTYARI: Mr Rue, I do not know if that information about the envelope is easily available and how much the scheme is for an average of for the scheme. Is that something you can back to us with today?

Mr Rue : I can certainly, yes. By the way, there is a whole section on the website on this, if you wish to look.

Senator DASTYARI: There is no information there about the questions I have in regard to the estimated subsidy per user, which would be your internal calculations, I assume.

Mr Morrow : The alarm scheme is not on the website, but what is there is where we encourage people to register if they any form of alarm monitor, just so we are aware. As we go through the rollout, to be sure, as the chairman said, we address safety as one of our top priorities.

Senator DASTYARI: Some of the information we want today include the funding envelope and the average subsidy per scheme that we anticipate.

CHAIR: I also have a question on alarms.

Senator DASTYARI: I have more on alarms.

CHAIR: Okay, when you are finished. It might get answered.

Senator DASTYARI: Is the subsidy provided to the user or their monitored alarm company?

Mr Morrow : The alarm company.

Senator DASTYARI: Explain to me how it works? Mr Morrow, I do not have one of these things, so they are new to me. What is it and what is the challenge?

Mr Morrow : Obviously, when you start changing the technology from the previous copper, voice-based system that had technology that was built over it to be able to offer that sort of monitoring and reporting capability, when we come through with new technology some of it works on the other end of the modem and sometimes it does not. Instead, given the proliferation of mobile devices and the mobile carriers' wireless coverage, we felt that that probably is in fact a better technology to use because it obviously roams even beyond the house where our network is. Recognising that the cost of that might be a bit more, we agreed that we would subsidise that portion of the cost where the end user does not see the increase, gets a better service and therefore does not require us to adapt our technology or the services to be able to provide something at an equivalent level.

Senator DASTYARI: My understanding of the non-monitored medical alarm services—and this is based on a few media reports, so feel free to correct me if I am wrong about this—is that they are not part of the scheme or are not eligible for access to your scheme; is that correct?

Mr Morrow : That is correct.

Senator DASTYARI: The NBN has publicly given the reason for this, that it determined it would be guided by the Australian standard AS 4607. So there is an Australian standard in this space. NBN Co, as I understand—and, again, correct me if I am wrong here, Mr Morrow—has looked at the Australian standard AS 4607 on personal response systems and said that, because this fits outside the Australian system, it will not be part of our subsidy scheme.

Mr Morrow : I am sure there are a lot of factors as to what qualifies and what does not. The first and foremost is we look to make sure that everybody is safe; second, we ensure that we are compliant with policy issued by the government; and, then third, what is reasonable. We have taken all of that into account in the decision as to what qualifies and what does not. Naturally, there will always be companies interested in if there is something else that, perhaps, we can pay for for them to be able to continue or enhance their business. But we have to draw the line somewhere.

Senator DASTYARI: And the line you have drawn is the standard AS 4607?

Mr Morrow : The team has the details on that. I am not sure that that would be a correct statement, so we are happy to check, if that is what you would like.

Senator URQUHART: Sorry. Can I just ask one thing? Mr Rue, you indicated that there was information on the website. Is that about the Medical Alarm Register or the alarm subsidy scheme?

Mr Morrow : The register.

Senator URQUHART: It is just that?

Mr Rue : The registry.

Senator URQUHART: So there is nothing about the subsidy on the—

Mr Morrow : Correct.

Senator URQUHART: Yes—I could not find anything.

Senator DASTYARI: On the standard, Mr Morrow—and, again, I am not expecting you to be an expert on Australian standards—AS 4607 was the standard. It has not been updated since 1999. That was the last time that standard was updated, which was 17 or so years ago now. That was well before reliable smart technology was introduced into non-monitored alarms. My understanding of your scheme is it does not extend to non-monitored alarms.

Mr Morrow : Again, I am not certain whether or not it is that particular document you are quoting that defines what we do and do not do in terms of offering the subsidy. I am happy to have that looked into, if you would like. But, again, as I said before—

Senator DASTYARI: My understanding—and, again, I am very happy for you to take this—is that, broadly, your evidence is that at some point you draw the line. Previous information provided on the public record has been that the reason that you drew the line where it was was because of the Australian standard. You can check that. The observation I am making in the frame of a question is that the standard that you have used related to a standard that was set 17 years ago, and perhaps it is time for a review. Regarding the final decision-maker—when you said about where you draw the line, Mr Morrow—does that rest with NBN? Dr Switkowski seemed to be of the view fairly enough that the board sets the parameters and the implementation is done at an executive level. Regarding the final line about what is and what is not out of the subsidy scheme, was that made at an executive level?

Mr Morrow : It is. Ensuring that, again, all elements are compliant, the board insists that management naturally holds to its ethical and legal obligations that we have within the country and as a corporation, particularly as a GBE. I was just looking at a note that said that we are guided by the document that you referred to—naturally, as you would. But 'guided by' means that, therefore, we take latitude that may be more liberal or more generous than what that guideline is.

Senator DASTYARI: Minister, Mr Morrow mentioned in passing in the evidence he was giving earlier that these things were made in consultation—I think that was the term that you used. Was the consultation process about who would and would not get this subsidy scheme?

Senator Fifield: I will ask NBN officers to talk to the consultation that they engaged in. Obviously, I receive briefing notes on a range of subjects from time to time. I have received briefing notes in relation to the medical alarm subsidy scheme and the Medical Alarm Register. There may well have been elements of this which were in place prior to me resuming office. But I am happy for officers to talk to the consultation that they engaged in—whether that included the department, for instance.

Senator DASTYARI: Minister, are you aware that the scheme as it currently exists does not extend to the non-monitored alarms?

Senator Fifield: Yes, I am.

Senator DASTYARI: And when were you made aware of that?

Senator Fifield: I could not tell you precisely, but it would have been quite some time ago. I will not put a time frame on it.

Senator DASTYARI: Did you know prior to the implementation of the scheme or after the scheme was implemented?

Senator Fifield: I will just ask NBN when the scheme came into being.

Mr Morrow : The scheme has been discussed with the Department of Communications and the Arts for some time. But, as you pointed out, recently it was concluded. So it would have been happening over the last six to 12 months.

Senator DASTYARI: So when was it set up—July?

Mr Morrow : Of this year. Is that right?

Senator DASTYARI: So the scheme was available from July?

Mr Morrow : There was a form of policy that we had taken prior to that. Then, working with the industry and also in discussions with the department of communications, we concluded that earlier this year.

Senator DASTYARI: Minister, were you aware before the implementation of the scheme or after?

Senator Fifield: I would have to check.

Senator DASTYARI: Okay. Mr Morrow, were you in touch with the department about what would be included in the scheme before or after the implementation of the scheme?

Mr Morrow : I was not involved personally in it—

Senator DASTYARI: Sure.

Mr Morrow : but I can be certain that there were discussions before—

Senator DASTYARI: So the department was advised. Was the minister's office advised, or the department, or how—

Mr Morrow : Normally we rely on the department to have that communication with the minister's office, so it is possible that—

Senator DASTYARI: So the department was consulted in the development of who is and who is not included in this—correct?

Mr Morrow : I would think that is natural. I would like to have a chance to confirm that, but that seems reasonable.

Senator DASTYARI: Yes, and you are saying that the basis you took for this was largely—maybe not exclusively but largely—AS 4607, which is the standard?

Mr Morrow : Guided by.

Senator DASTYARI: Guided by.

Senator DASTYARI: Minister, you can understand the concerns here that many elderly or low-income consumers would opt for a non-monitored solution instead of a monitored solution. My understanding—and I do not have one of these—is that the non-monitored solution is the cheaper option than the monitored solution.

Senator Fifield: I am aware of the issues that have been raised by some of the organisations that sell non-monitored alarms.

Senator DASTYARI: And you would agree that both monitored and non-monitored alarms are designed to save and protect the lives? Obviously that is the purpose of these devices—correct?

Senator Fifield: The purpose for which a non-monitored alarm is used is up to the person who chooses it. They could be used for an array of circumstances.

Senator DASTYARI: Sure, but the basic use of them, and what they are marketed for, is obviously to allow elderly and older Australians or those with serious disabilities to live at home alone, in private scenarios. These are matters of fact—correct?

Senator Fifield: Sure. I would assume that those devices are used when people need to indicate that they require assistance. Also, I have just been advised that the register was announced in March 2014.

Senator DASTYARI: So the register was announced in March 2014—

Senator Fifield: The register was announced then.

Senator DASTYARI: but the scheme itself started two years later.

Senator Fifield: The scheme is separate to that.

Mr Morrow : The scheme began in September 2015.

Senator DASTYARI: Minister, the parameters of this subsidy scheme have been guided by a standard which has not been updated for 17 years and with a scope that does not account for the standard. It strikes me, to be frank, that standards that are set by governments are perhaps not the most up to date. They do not necessarily move as fast as technology moves in this space. I do not understand why, when there are two different types of technology that would be used for a very similar purpose, the technology that is cheaper because of the nature of its automation does not receive eligibility for a subsidy scheme but the other technology does. Minister, if you are saying to me that it is something that you are aware of or that has been raised with you or that you know about, what is the government doing about it?

Senator Fifield: I am aware of the issue. As I say, it is one that has been raised by the people who sell non-monitored medical alarms. NBN's Medical Alarm Register is designed to ensure that they have the best possible information about who has alarms and the circumstances in which they have them. NBN does have the subsidy scheme. As Mr Morrow has indicated, there are different factors that go into determining eligibility, and the Australian standard is one of those. Obviously, NBN does not set the Australian standard in these matters, and NBN has been having ongoing discussions with those who have concerns. I am intending as well to have ongoing discussions. I have corresponded with those who have raised these issues. I will still be talking to them. So NBN has not been absolutely definitive about the subsidy. As Mr Morrow said, circumstances are being looked at.

Senator DASTYARI: Minister—

CHAIR: Senator, just before you go on, it is just a bit after a quarter to 10. I just remind all senators that Dr Switkowski is only available until 10. So if there are any further questions that you do want to ask in his presence, then I am just giving you that opportunity.

Senator DASTYARI: There was something that I wanted to ask about that figure. I think we will have to do that on notice.

Mr Morrow : Perhaps I could just add a little bit more data for you on this, Senator. We know the alarm industry has suggested there are about 300,000 of these types of alarms around the country. We are pleading with people to get registered. That way it can be managed between us and the retailers and that alarm provider. We have about 170,000 people that have registered thus far. So, again, that is why you see a lot of communication out asking for people to please register.

Senator DASTYARI: I think this is above politics here. I am sure there are many different types, but there seems to be two main types of technology. One type of technology is eligible for the subsidy scheme as it has currently been created. One type of technology is not. I am generalising here when I say that the nature of the two types of technology appears to be that the non-monitored type tends to be the cheaper of the two options. The anecdotal evidence is that perhaps that is the type that is used by those on lower incomes who are struggling, the type of people—and, again, I am making some broad assumptions here—who would be more in need of the assistance of a subsidy than others. Minister, on 13 October 2016 you were asked questions about this on a radio interview on FIVEaa in Adelaide with Mr Leon Byner and, at that point in time, you had a discussion with him about this. You have given evidence that you have also been aware of this as an ongoing issue. Is seems that the evidence is that this is a subsidy scheme that has been developed by NBN Co in consultation with the department using government standards or guided by government standards.

Senator Fifield: No. The Australian standards are not set by the department of communications. Australian standards are something that apply across a range of portfolios. In fact, I am not even sure that Standards Australia—and I stand to be corrected—is a government body. There are various standard-setting bodies—

Senator DASTYARI: That was not where I was going with the question.

Senator Fifield: so the government has not set the standard. NBN, across a range of internal NBN policies, consults with stakeholders, and the department of communications, obviously, is a stakeholder.

Senator DASTYARI: Minister, have you called on or asked the NBN Co—and, again, I do not know where your powers do you do not lie on this—to extend the subsidy scheme to include non-monitored alarms?

Senator Fifield: I have not asked NBN to do that. I have asked for information to better inform myself about how the scheme will operate. It is something I continue to seek advice on. In relation to some of the issues you have raised about the profiles of people who use different sorts of technologies, as I say, it is something that continues to be raised with me. It is something that I seek advice on. We are happy to come back to the committee with further information that addresses some of the questions you have raised.

Senator DASTYARI: Dr Switkowski, before you go I have a final question. This is going to show my ignorance, so I apologise. In terms of directions that can be provided by government on these matters, I assume you take requests from government, from a public policy perspective, as any public corporation would, quite seriously. Is that correct?

Dr Switkowski : Of course.

Senator DASTYARI: Does the government have the power to give a direction, for instance, that a subsidy scheme should be extended or is that outside their powers? I genuinely do not know how that works.

Dr Switkowski : I am sure they have the power, but I am not sure we would ever get to a position where the government would say, 'I've heard what your argument is. Just do it.' There are often issues where you have those discussions and you will always end up at the right spot between the two parties. It is not a question of what the government's power is, in my mind.

CHAIR: How is the subsidy applied? What is it applied against?

Mr Morrow : We typically know what the incremental cost would be for the mobile carrier to provide that service to the alarm company. So we therefore give the alarm company this portion of the subsidy, depending on how many bona fide, registered people are having the monitored alarm.

CHAIR: That is because with a monitored system there are ongoing monthly costs applying. I have just been quickly googling the non-monitored ones. Often there is an initial set-up cost. You can get ones where there are no ongoing monthly costs. Could that be part of the thinking?

Mr Morrow : The problem is that you get into the massive grey area of autodiallers. With the autodialler I have in my house when I go out on a voice response call, does that suddenly get into a monitored situation that in the end needs to subsidise the cost of converting that autodialler capability? That is just one example of many that the team have to go through.

CHAIR: It is not a simple case of monitored or nonmonitored. There are complex arrangements that work across both of them. Some will have ongoing costs; some will not. It is not a simple thing. It is not that there are two types of technologies and asking, 'Why are we subsidising one and not the other?'

Mr Morrow : Indeed. We know both from the ministers and government and from the board that safety is paramount. There has been a lot of attention and discussion on this. There is a lot of precaution taken on this. Again, I think we are in a different area at the end of the curve here on what really constitutes subsidising somebody for the change in the network.

CHAIR: I want to come back to my broader question. It is true, is it not, that this first became an issue under the previous government when it announced its broad NBN plan of fibre to the premises, but the issue of the register and the subsidy has happened under this government as it has looked to the issue of how you appropriately deal with medical alarms in the way that you have outlined?

Mr Morrow : That is my understanding as well.

Senator DASTYARI: Minister, I just wanted to get some clarification on this. When did you become aware of the scheme, to the best of your recollection? You are obviously aware of the scheme now. When did you become aware of the scheme?

Senator Fifield: The scheme has been in place since September 2015, which was about the time I became a minister. I cannot tell you precisely when. Issues come to you day by day. There would have been a point fairly early in my time as minister that I would have become aware of the scheme, but I cannot tell you precisely when.

Senator DASTYARI: But you were aware of the scheme before its implementation on 1 July?

Senator Fifield: Absolutely.

Senator DASTYARI: I thought the subsidy scheme came into place on 1 July?

Mr Morrow : There was a scheme that was in that we were constantly updating and trying to get people to register as we learned more and more about—

Senator DASTYARI: Okay, so the registration process started in 2014?

Mr Morrow : In September 2015, again, this scheme came into effect. It has been known for some time, since the beginning of NBN, that there was going to be an alarm issue that had to be dealt with, but again, at that point, there was not much happening in terms of the number of homes that were on NBN at the time.

Senator DASTYARI: Again, this is something I am new to. If it has been a known issue for a long period of time, and this issue with monitored and non-monitored alarms seems to have come up before—again, going through some of the media clippings and whatnot, it is obviously a point of contention—how has it not been fixed?

Mr Morrow : It has been fixed. I think this is a point of difference here. Remember, with the alarm standard, the difference between monitored and non-monitored, in the way I think that you are referring to this, is that the monitored alarms require 40 hours backup in a power outage. That is the reason: without us putting a battery unit inside the home next to a fibre-to-the-prem NTD, if you do not have that then you are not providing that equivalent of service. Remember, the old telephone voice system had the battery backup in the exchange, so you did not need local power in the house.

Senator DASTYARI: Okay. Is that why when there was a blackout your phone would keep working?

Mr Morrow : That is correct, and fibre to the prem changed all of that as soon as NBN came along. Now, when you look at the monitoring, what we have said is a more clever approach is to rely on the mobile phones, which obviously have a large degree of battery backup already within them, and the mobile carriers already have a network that is set up to be able to deal with that. That is the reason why the mobile solution has its attractions.

I said something earlier I would make sure that I do not mislead the committee on: in terms of the subsidy, it is for the installation of the initial hardware. It is not for ongoing costs that the alarm company pays the carrier. It is just to subsidise that initial getting it set up to where you have the equivalent—in terms of this, with the battery backup—to what they had had before.

Senator DASTYARI: Who signed off on the decision?

Mr Morrow : In terms of what?

Senator DASTYARI: Who would be eligible and not be eligible?

Mr Morrow : It would be within management. I will take the responsibility for that.

Senator DASTYARI: So you signed off on who does and does not get it. Minister, on the subsidy scheme itself, I thought the register was around but the subsidies were not available until 1 July. But that is not the case—subsidies were available from September 2015?

Mr Morrow : The scheme went into effect in September 2015. When the actual subsidies started paying—I am happy to take that on notice and come back with it.

Senator DASTYARI: Minister, you are saying that you were aware of the scheme from around the time you became minister?

Senator Fifield: I assume it would have been relatively early in my time as minister, but I cannot tell you exactly.

Senator DASTYARI: But definitely prior to—

Senator Fifield: I cannot tell you an exact month.

Senator DASTYARI: But definitely prior to 1 July?

Senator Fifield: Yes.

Dr Switkowski : Can I contribute, because I have been at it longer than others at this table. When the government changed and the management changed in September 2013, the state of the network development was early and there were many issues. While there was a low-level appreciation of two issues, medical alarms and the consequences of the disconnection process, there were no solutions in place and there were no processes in place—as I say, perhaps understandable given higher priorities at that point. Very early on, the then Minister for Communications said, 'On medical alarms, we have to start understanding the nature of the problem,' so data were collected and in March, I am reminded, a register was set up. What we discovered, firstly, was that there were a large number of different technologies at work and that the industry was itself not that well organised and it was unclear how each of the technologies was going to transition into an NBN world. At that point the feeling was that there were between 200,000 and 300,000 residences that might be affected. Even at that point, there was no clear understanding that a wireless alternative would be the preferred solution, as it is turning out to be in many areas for emergency backup. So since then, the bill arrived in a April and the management team has worked their way through: talking to the equipment suppliers, to the households; evaluating different technologies; and also determining the level of costs that will be associated with appropriate subsidies to ensure the transition. As we are finding with the disconnection process, we need to ensure that the performance leaves nobody behind because there is a very high concern for the safety and wellbeing of people who are, as you described, already in a difficult circumstance.

Senator DASTYARI: They are vulnerable people. It is the nature of people who have these things.

Dr Switkowski : It has gone from the bill's arrival into being designed into a process, and technology choices have been made. I recall a proposal coming to the board indicating that the cost of the scheme and the transition from these households would be some millions of dollars. The department was involved and informed as to the cost and what was happening. Frankly, since the end of 2015, I have not followed it very closely but it sounds as though progress continues to be made.

Senator DASTYARI: I think this is an ongoing issue. You can understand why from a public safety perspective there would be concern around this, and I think we have covered it quite well.

CHAIR: Thank you very much for assisting us today and we may well see you at another hearing in the future. One final question on the alarm, if I may. Mr Morrow, you mentioned that you had actually interacted with the people who are on the register.

Mr Morrow : Yes.

CHAIR: Is that to try and find a tailored solution to deal with their needs?

Mr Morrow : We just want to be sure that if we know that they have a monitored alarm, we can take the necessary steps to follow.

CHAIR: So you are only dealing with people who have monitored alarms?

Mr Morrow : People who fall under this classification.

CHAIR: Is the register only for monitored alarms?

Mr Morrow : It is predominantly for monitored alarms. Again, we get people that may register and say 'I think I am on a monitored alarm' but it does not technically fall into this category. The whole point is to make sure that they are therefore informed before we come out and offer their service on NBN that they work with their alarm provider to make that choice. We inform the alarm providers and we inform the retailers that these are the people. Many things have improved and changed. The industry is far more collaborative about protecting the safety and security of these people.

Senator URQUHART: I have some questions around the Sky Muster. I want to talk about the capacity of Sky Muster in terms of the growing needs of regional Australia, particularly with businesses increasing the use of technology. Does it have enough capacity? What are your estimates for that?

Mr Morrow : As you recall, when the design was built for satellite and for those people that would receive satellite, it was assumed that the majority would use 12 megabits per second and it would be far better than what anyone was receiving today. There were a lot of assumptions made in 2009 and 2010 in terms of the amount of capacity that would be needed depending on the area, depending on a number of other factors. The satellite was built and designed to be able to offer that.

Satellite constraint is basically where you have a fixed amount of speed or bits per second that can run at its maximum at any given time. What we did a couple of years ago, with the permission of the government, was to repurpose the second satellite that was just recently launched to almost double the capacity to these people because we could see a demand that would be greater than what the initial design had allowed for. The reality is that the cost per prem on average is about $8,000 so to be able to cover the roughly 400,000 homes that this satellite will oversee will be quite expensive, more expensive than any other technology option available than we use around the country and that $8,000 is less expensive than any other choice that we have about providing broadband service to these homes and businesses. What we do know is that, as a result of that constrained capacity, it is going to be different from those people that live in the capital cities and sit on a fixed-line business. That is a fact of life that was always foreseen to be from the get-go of the design of the NBN and still remains the case today. We have eased that pain with the doubling of capacity with repurposing the second satellite, and we are constantly looking at technology enhancements of on-the-ground equipment that can give even greater capacity than what these two satellites can provide.

Senator URQUHART: What sort of enhancements?

Mr Morrow : The way the satellite is built, it is divided into 101 beams that target a particular area. We think there might be enhancements that we can do to actually get more efficiency out of those beams—new modems that might offer some enhancements. We can look at what we call 'caching information': if you are a Netflix user and there is a common show that is often watched, we can download that at an off-peak time and put it on your box in your house, and therefore you are not relying on the satellite network in busy hours when other people are using it for other things. We are constantly looking to see how we can expand that capacity, but it does have its limits and those limits are mostly in the fixed-line network.

Senator URQUHART: Have you done any estimates on what the required increase might be for growing businesses?

Mr Morrow : One is that you have to predict what you think the future demand will be—which is almost a guess—and then, two, in terms of the early stages of looking at this, it would be too early to quote a number, but we do believe we can get materially more capacity than what is there today with how these scientists are saying they can modify the equipment to perhaps get more capacity.

Senator URQUHART: I know that there have been some discussions around the use of the Sky Muster satellite data on Qantas aircraft. What percentage of the overall data will be allocated under that agreement that you have got with Qantas?

Mr Morrow : It is not an allocation of data that we would offer for aviation-based services. It is only the use of idle capacity when it is sitting there not being used at all. Our intent is that the priority services are for the ground-based homes and businesses that are targeted with satellite. If they are using all the capacity and a plane flies through that beam, the plane does not get any sort of internet connectivity. If, however, there is available and idle capacity, the plane can download or upload, depending.

Senator URQUHART: So there is no agreement for the amount of data that Qantas can use; it is just if they happen to fly around and not everyone is using the data. It may depend on the time of day.

Mr Morrow : That is correct. This is actually why it is a very favourable thing for the nation. It does not take away anything from anybody else because of that priority scheme that allows anybody that is travelling to be more productive, more engaged and more connected while they are up in the air. It is an asset that is already spent via taxpayer money, so it is just a wonderful use of that asset.

Senator URQUHART: Is NBN anticipating similar deals with other airlines?

Mr Morrow : It would not be us directly with it. As you know, we are set up to be a wholesaler, and then retailers in turn sell to others. If we do this, it would be going through a third-party company where we would set up all of the arrangements, and they would in turn have a contract relationship with Qantas or any other airline. There is potential that the airline could say, 'I want a retailer contract with NBN where I can be a retailer of NBN's broadband services using this data service in the sky,' but that is up to them. We stay out of the direct connection with the user and consumer.

Senator URQUHART: In terms of the deal with Qantas—if I can use that term—how did that come about? Given that you cannot guarantee any data for the passengers, how can you then sell data to Qantas? How does that work?

Mr Morrow : Because we sell what they use, and there are statistics—

Senator URQUHART: So it is on a 'user pays' basis. Is that how it runs?

Mr Morrow : Again, we will sell to the retailer. What they sell to Qantas is up to them. But remember that statistically there is going to be a whole lot of data. These aeroplanes fly quite fast and go through the beams pretty quickly, so even if one beam is prioritised for the homes down below it, if it goes to the next beam, there might be capacity available. Many people on the aeroplane would not notice the difference, because it is flying so fast through these beams. Again, this is something where scientists and statisticians have been involved to say it is still a viable service for aviation, and it is still nothing that will detract from those people on the ground.

Senator URQUHART: Just to be really clear—because there have been a number of issues through media where there have been concerns raised, and the NSW Farmers Walcha chapter raised some real concerns about that—you have not set aside any of that capacity simply for use for airlines?

Mr Morrow : That is correct.

Senator URQUHART: If an airline is flying through and using some of that capacity, how do you know that it is not affecting the on-the-ground people?

Mr Morrow : Because monitoring is taking place on a regular basis.

Senator URQUHART: How is that monitored?

Mr Morrow : We can see the data flow that goes through our ground stations and the equipment that is in the field.

Senator URQUHART: Then how do you control that?

Mr Morrow : There is an allocation based on almost an IP address that says, 'Okay, this one looks like it's getting congested; stop sending it down this address, and only let it go to these other IP addresses.' That is why the aviation, during that beam, would get shut off but the data would continue to flow for all else.

Senator URQUHART: But given that, as you said earlier, planes fly so fast, how is that going to be managed?

Mr Morrow : The electronics and the processors operate in milli-speeds—microsecond speed capability.

Senator URQUHART: So it is all electronically monitored.

Mr Morrow : It is, yes.

Senator URQUHART: How many premises are currently connected to the Sky Muster service?

Mr Morrow : Roughly 60,000 connections are now on Sky Muster.

Senator URQUHART: Sixty thousand?

Mr Morrow : Is that right, Stephen?

Mr Rue : Let me answer that in one second if you do not mind. That is the total built.

Senator URQUHART: Okay, so I will come back to that. What is the current customer experience metric, the CEM, for Sky Muster?

Mr Morrow : I am sorry. What are you asking?

Senator URQUHART: The current customer experience metric for Sky Muster.

Mr Morrow : The customer experience metric? I am not sure what—

Senator URQUHART: You do not know what that is?

Mr Morrow : No. We have a customer experience metric that is for our RSPs.

Senator URQUHART: So you do not have a separate CEM for Sky Muster?

Mr Morrow : I do not know what CEM is. Again, we use that for our retailers. We look at NPS and overall satisfaction and what customers' experience was like on installation, but nothing to the tune of CEM.

Mr Rue : Senator, it is about 45,000 people connected.

CHAIR: Can you break that down by state for us?

Mr Rue : We could look it up.

Mr Morrow : We can. We can provide that on notice.

CHAIR: On notice will be fine.

Senator URQUHART: So you do not have a customer experience metric at all. You do not know what that is. You do not use it. It is the retailers that—

Mr Morrow : No, we have a CEM that monitors what our retailers think of us and the service we provide to them. We try to suss out and monitor what the end user feels about the satellite service, and that is where we use a metric called NPS and we use overall satisfaction scores. Those are things that we look at. We will go out and poll and ask people their opinion of them.

Senator URQUHART: How many dropouts each day are considered by NBN as meeting an acceptable customer service standard on the Sky Muster service? How many dropouts do you expect is a reasonable, acceptable measure?

Mr Morrow : We do not want any dropouts to occur for anybody.

Senator URQUHART: I am not suggesting you do, Mr Morrow. It is just a question about—

Mr Morrow : I understand.

Senator URQUHART: Obviously they happen. When does that start to ring alarm bells for NBN?

Mr Morrow : We have a number of different measures that we put in place about standards of what fault rates actually occur. For the satellite service, I do not recall the specifics offhand. I can find that for you very quickly, though, in terms of what the target actually is.

Senator URQUHART: When did NBN Co's satellite service improvement program begin?

Mr Morrow : With any new technology, when we roll it out, there is always a maturity curve that you have to follow. This satellite that we have put up above Australia is the first of its kind; no-one else has ever done this. So it was new in so many different respects. While the engineers and the scientists can design as much as they can at the desktop before this stuff gets built and actually deployed, there are always going to be issues. We have put in monitors and monitoring capability to have early detection on it. As we began to load up these customers the demand was much greater than we expected, which is good news. Unfortunately, it has started to creak the system, and cracks in the foundations started to emerge. That is when we involved the equipment carriers, our third party suppliers, to help resolve that quite quickly. That improvement has been steady for the last couple of weeks, and we think it is back within the levels that we would expect. But I will acknowledge that there were issues. September was a bad month in terms of the experience with people on our long-term Sky Muster satellite service. But the good news is that a lot of that has been redressed. We are hearing positive commentary coming from the retailers. We see it in the metrics that we monitor from an end-user point of view.

Senator URQUHART: You said September was a bad time, but when do you start to think that the number of dropouts is really just bad and you need to deal with this? When does that start to flag an interest?

Mr Morrow : I do not have the specific threshold at hand. But the executive and I monitor it on a weekly basis. The teams responsible are monitored on a daily basis, and even an hourly basis, behind this. When you look at the month of September, there were occasions when there were at least three dropouts per customer. That is flat out unacceptable.

Senator URQUHART: Three?

Mr Morrow : Yes, on average. The outage time was close to an hour, or even longer, before that network would come up. We are testing the system and trying to understand what was going on. We brought in the people who designed and manufactured this. They identified a number of different root causes behind it. Those fixes have gone in. When we went from September to October, it was far better. When we look at the early signs of November, it is back within the threshold—an average every four to six months, not every month—and that is continuing to get better and better as we go forward. So we know the experience is better. We know that there were problems created for the end users. To all of those people, we have deep regret over that. To the retailers, who are quite small in those areas—the number of calls coming in was much greater than their call centres could handle—we offered relief and had the calls diverted to our call centres so that they were able to handle that. We want everybody to have a wonderful experience on this, but the fact is that with new technology, uncharted territory, we are going to see this being experienced. Quick detection and immediate response are really critical for us. The good news, as I said, is that this continues to get better and better.

Senator URQUHART: I understand that NBN has a satellite service improvement program.

Mr Morrow : Yes, that is correct.

Senator URQUHART: When did that begin?

Mr Morrow : In September, when we started seeing the data.

Senator URQUHART: Was that because of the problems that were created when it started?

Mr Morrow : Indeed, yes.

Senator URQUHART: How many people are working on the program?

Mr Morrow : It is not an amount of people; an organisation is responsible for it. The total organisation is close to 2,000 people. They are very focused on this; we take this quite seriously. Those people obviously have other responsibilities than just satellite.

Senator URQUHART: Where are they located?

Mr Morrow : Between Melbourne and Sydney—and a few scattered out across the nation.

Senator URQUHART: In terms of that program, what are the main issues that have been identified?

Mr Morrow : It is not any one particular issue—

Senator URQUHART: What are the main issues?

Mr Morrow : One of the key routers and controls within the network system was not able to handle the volume and the capacity coming through. There were issues with the modems that were in the customers' premises. The software within those modems was not allowing them to reboot as quickly as they should have; that is the sync-ing back with the ground station and the satellite equipment. All of these issues have since been corrected and that is where we have seen the massive improvements in performance.

Senator URQUHART: So the action that has been taken has resolved a lot of those issues?

Mr Morrow : Indeed, yes. It is a very thorough process about assessing the root causes, finding countermeasures to address those root causes, looking at how quickly we can get them in and then doing testing thereafter to ensure everything is up and working properly.

Senator URQUHART: You talked a minute ago about the call centre and dealing with the problems. Has NBN Co made any changes to the call centre to deal with those problems? If so, what are they?

Mr Morrow : Typically, if there is a service outage, you call your retailer because that is the way the system is set up. The retailer will be informed if there is an NBN Co related issue and/or if it is something to do with their network, their provisioning or the service level that they offer. In this particular case, because the demand was much greater than what we had expected, the outages were much greater than what we had expected. The retailers in these areas are typically quite small—they are not the big volume Telstras, for example, able to handle that sort of thing. So that is when we stepped in. Listening to their concerns and recognising that we want everybody to be happy and informed, we allocated a portion of our call centre to deal directly with the satellite related calls, to inform the end users as to what happened and is happening and to keep them up to date.

Senator URQUHART: I understand a regional support team was established in your call centre. Is that correct?

Mr Morrow : That is correct.

Senator URQUHART: When was that set up? Was that around September?

Mr Morrow : It was last month, I believe, that it was put together—early last month.

Senator URQUHART: October?

Mr Morrow : Yes.

Senator URQUHART: How many people work in that team?

Mr Morrow : I do not know the exact number. Remember, it is a call centre that takes calls in a lot of different areas.

Senator URQUHART: But if you have got a regional support team that was set up last month, you must have a number of people dedicated to that team.

Mr Morrow : Again, they share workloads. A technician or a consultant that is in there may be working on this for 80 per cent of the time and something else for 20 per cent of the time. There are, I am sure, a number of dedicated people that are also in there. But the point is that we are willing to take the calls and we are handling all the calls that are coming through.

Senator URQUHART: I understand that. But last month you set up a regional support team. How does that differ from just having a call centre if you have specially set up a team?

Mr Morrow : We dedicate a portion of the call centre to say—

Senator URQUHART: Roughly how many people within that?

Mr Morrow : I do not know. Would you like me to take that on notice?

Senator URQUHART: Yes, please. I want to take you back to the customer experience metric. You said you did not know what that was.

Mr Morrow : No, I said the customer experience metric is where we monitor the retailers' opinion of the service that they get. I do know very much what that is.

Senator URQUHART: Can you tell me what the current customer experience metric is for Sky Muster and why that has been set as the target? What is that target?

Mr Morrow : Again, the customer experience metric is for retailers. That does not relate to LTSS. It is an aggregate of all the retailers given as a question on a survey. To be able to help, I am going to guess at what you are interested in. We do monitor the opinion of the end users using the satellite—is that what you are interested in? That is not a customer experience metric. A different terminology is used. I want to help you and get you the answers that you are looking for. This goes back to what we call net promoter score, overall satisfaction—

Senator URQUHART: My understanding is that the customer experience metric is a measure of retail and wholesale services that provide customers with their experience of NBN. Is that correct?

Mr Morrow : No, that is incorrect.

Senator URQUHART: Then why is that written in your annual report?

Mr Morrow : The customer experience metric is against what our retailers are telling us of what their experience is. It is not about the end user.

Senator URQUHART: I am reading from your annual report, which says:

The Customer Experience Metric … is a measure of retail and wholesale service provider customers' experience with nbn.

Mr Morrow : Yes, that is correct. It is exactly what I said earlier. Let me explain, because again I think there is some confusion on this. We have retailers that resell NBN service. We want to know what their opinion is of us in terms of the service that we provide to them so they can in turn have a good business. Those retailers have wholesalers as well that they turn around and resell the service to. That is all that CEM is dealing with. It does not ask the end user a question at all. Think of it only as the direct relationship that we have, which is not with an end user but only with those companies that are reselling the service. That is all that—

Senator URQUHART: So you deal with the retailer rather than with the customer?

Mr Morrow : Yes.

Senator URQUHART: So that metric is the bridge between you and the retailer?

Mr Morrow : Correct, yes.

Senator URQUHART: Is there a target for Sky Muster in terms of the customer experience metric?

Mr Morrow : No, because that is not what we would monitor with the retailers. But we do have a target for—

Senator URQUHART: So is it not set at 6.9 at the moment?

Mr Morrow : It is, but—

Senator URQUHART: That is the target?

Mr Morrow : Yes.

Senator URQUHART: So that is out of 10?

Mr Morrow : It is well benchmarked on there: 6.7 is actually a very high score. Typically, it is very seldom—

Senator URQUHART: Sorry; I am just trying to understand: it is out of 10, so it is a score out of 10?

Mr Morrow : I believe it is even out of eight. It is possible that it is 10, but I am happy to go back and look at that and provide you with some information.

Senator URQUHART: So it is 6.9 out of eight?

Mr Morrow : Again, let me come back to you and tell you what that is against. We benchmark against it. These are happy people—happy companies—dealing with NBN; that is a dramatic improvement from where we have been over the last couple of years.

Senator URQUHART: In terms of the annual report, the 2015-16 one says that you have 600 field technicians activating homes. Is that still correct? Is that the current number?

Mr Morrow : Stephen, I suspect it is higher now.

Mr Rue : It would have gone up since then because the actual network has gone up and the activations have gone up, so it would be more than—

Senator URQUHART: Do you know how many? Do you know what that number is?

Mr Rue : I do not have that. I can find out.

Senator URQUHART: Is NBN still expecting that it will take up to 2020 for you to connect the 240,000 premises to Sky Muster?

Mr Morrow : Ultimately, it gets up to the 240,000.

Senator URQUHART: Yes. So that is still the number for 2020?

Mr Morrow : Correct.

Senator URQUHART: I know that—

Mr Morrow : In 2020, there is a period after, Stephen. Correct me on this if I am wrong: 2020 is when everybody gets built, I think, and there is a period of time thereafter when it gets up to the full allocation of what we expect that take-up rate to be there. I do not believe that is—

Mr Rue : It is in the corporate plan. Let me just—

Mr Morrow : While you are asking the next question, Stephen will just verify that.

Senator URQUHART: I know there has been a number of complaints; we have actually heard reports saying that people have had problems with data usage and customers using much higher amounts of data than they expected. I guess you are aware of that. So does NBN monitor the data usage on the Sky Muster service? And, if you do, how do you do that?

Mr Morrow : I am sure with the layer 2 service that we provide that we can see how much consumption is going on, on a per-end-user basis. This is what I have reported on a number of times: when you look at the average download across all of the NBN services, which is a million and a half customers, the average is 135 gigabytes per end user per month.

Senator URQUHART: You do not separate the Sky Muster—

Mr Morrow : We cannot see the difference between the technologies, yes. It is really important, I think, when you think about what the Sky Muster users can have versus this average, that if you pull out some of these extreme high users that average then falls back into the 75 or 80 gigabytes a month. The way Sky Muster is set up, people can actually get close to that, depending on what the rate plan is with their retailer.

Senator URQUHART: Have any of the retail service providers raised issues with NBN Co about the data usage issues?

Mr Morrow : No. I mean, they are well aware of what the constraints are and—

Senator URQUHART: But you have not had any retailers—

Mr Morrow : There have been no complaints.

Senator URQUHART: Do all of the retail service providers have their own data counters, or do they rely on you providing that?

Mr Morrow : I would suspect they have their own counters.

Senator URQUHART: You do not know, though?

Mr Morrow : I do not know, no.

Senator URQUHART: Can you take that on notice?

Mr Morrow : To ask the retailers if they do count that?

Senator URQUHART: If they do, yes, or whether they rely on your data.

Mr Morrow : Well, I am happy to ask; if they do not want to provide it, it is up to them. But I am happy to ask.

Senator URQUHART: Yes. Do you know if there have been any disputes between NBN and the retail service providers on the issue of the data?

Mr Morrow : No, I am not aware of anything on the issue of data consumption—no.

Senator URQUHART: Okay. Are there any current outages of Sky Muster beams?

Mr Morrow : I do not believe so, no.

Senator URQUHART: And how many outages of beams have occurred since the satellites were launched?

Mr Morrow : I do not have the specific number.

Senator URQUHART: Are you able to get that? I would also like to know roughly how long the outages were for.

Mr Morrow : Yes, we can get that.

Senator URQUHART: What is the process that you go through for notifying customers when there is an outage?

Mr Morrow : We notify our retailer straightaway.

Senator URQUHART: Do you know what the retailer does in turn? Do they notify the customers?

Mr Morrow : I do not know. We do things by putting stuff on our web. Given the recent circumstances with the concerns around Sky Muster and the early issues that we have on the maturity curve, we do far more with this. We make sure the call centre is very well aware. We take the calls, should people have questions. We cooperate with organisations such as BIRRR, who are well connected to many of these people, to inform them so they can put it on their website and people can blog about it. We want to make sure everybody is aware when there is an outage, what it is, roughly how long it is going to be and what they can do in the interim.

Senator URQUHART: I know that process, but the reason I am asking whether you guys have any involvement in telling them is that I have heard a lot of complaints from people who, when outages occur for any length of time, generally do not blame the retailer; they blame NBN. That is where the buck stops for them. You obviously put stuff on your website, but you notify the retailer. Is it your expectation that they would then let their customers know? Do you have any arrangements with them to do that?

Mr Morrow : It is a good practice, but no. We are not allowed to dictate service levels by the retailers to the end users.

Mr Rue : I can answer some questions that were asked. There were approximately a thousand field technicians. There will be just under 240,000 connected by 2020. In answer to your question about the breakdown, Chair, there are almost 16,000 in New South Wales, just over 7,000 in Victoria, almost 10,000 in Queensland, just over 3,000 in South Australia, almost 5,000 in Western Australia, 2,000 in Tasmania, almost a thousand in the Northern Territory and 31 in the ACT.

CHAIR: Thirty-one in the ACT? They would all get fibre-to-the-premises, being in Canberra. Canberra gets everything.

Senator URQUHART: Mr Morrow, you will take the outages on notice and provide that back to us?

Mr Morrow : Yes. Stephen, did you mention there are 21 people in the call centre?

Mr Rue : Sorry: there are 21 people in the regional call centre.

Proceedings suspended from 10:32 to 10 : 43

Senator DASTYARI: Mr Morrow, I just want to talk through the issue regarding Standard & Poor's and Moody's and the conference call that was made on, I understand, 8 November. On 8 November—and again I am going on what has been on the public record—there was a Q1 results conference call that was had with—

Mr Morrow : Stephen and me, yes.

Senator DASTYARI: Who else would have been on that line?

Mr Morrow : Typically, analysts, journalists and other interested parties.

Senator DASTYARI: Sorry, I am new to this. How does it work? You effectively advertise it to relevant parties and people can call in?

Ms Keisler : We send an invitation out to a distribution list of press and analysts.

Senator DASTYARI: People who are interested ask to be put on the list, I imagine.

Ms Keisler : Exactly.

Senator DASTYARI: And you do four of them a year?

Mr Morrow : Yes. We do two stand-up face-to-face ones and two calls.

Senator DASTYARI: And you get to do this as well!

Mr Morrow : Yes—lovely!

Senator URQUHART: I bet you enjoy this more!

Mr Morrow : I do indeed!

Senator DASTYARI: Again, I am just going over what I understand you said on the call; I obviously was not on the call, so I may be wrong here. I understand NBN received a credit rating from Standard & Poor's and Moody's, and you outlined that on the call. Is that correct?

Mr Morrow : Yes.

Senator DASTYARI: When did NBN first approach the ratings agencies and when were the ratings received?

Mr Rue : I think we approached them—it was either June or July, I believe.

Senator DASTYARI: How does that work? How does the process work for that?

Mr Rue : We got requested by the government to go and approach credit ratings agencies and get credit ratings. Therefore, you ring them up, you enter into an agreement with them and you prepare a presentation of the business. They then asked a series of questions. They go to a committee eventually and they come up with a credit rating.

Senator DASTYARI: Is it the same way—again, in a language that I understand—as hiring an accounting firm or a private company, or like a Boston Consulting, or someone, to do a report? Is it that kind of thing—where, effectively, you enter into a contract with them for a fee and they provide you a paper at the end which is rating?

Mr Rue : Effectively, you enter into an agreement with the bodies to come and provide, in this case, a private credit rating. As I said, they then have presentations from management. They ask a series of questions and then they come back with a pretty short letter to say what they believe the credit rating is. A 'report' is probably too strong of a word; it is more a letter.

Senator DASTYARI: On the telephone call, or hook-up, or whatever we call it, on 8 November, you would not reveal what the credit rating was. It is the correct?

Mr Rue : That is correct.

Senator DASTYARI: Could you explain to me why? What is the decision behind not revealing it?

Mr Rue : Sure. There are two types of credit ratings that you can get. You can get a public credit rating and a private credit rating. A public credit rating is one that the credit agencies are happy for you to make public. But their requirement then is to continue to monitor the company, because, clearly, any outside body can use that credit rating as a way to make decisions. Therefore, the credit rating agencies want to have an ongoing monitoring arrangement with you. That is opposed to a private credit rating, which is clearly one that is kept between the rating agencies and the company and which is used for the company to make various decisions—in this case, to talk about debt.

Senator DASTYARI: And it was on the request of the government?

Mr Rue : It was on the request of government—yes.

Senator DASTYARI: And when you say government, does that mean a request from Treasury? Minister, you might want to jump—when you say government—

Mr Rue : I believe it was a request from both shareholder ministers.

Mr Morrow : So it would be the Department of Finance and the department of communications.

Senator DASTYARI: Minister, was this a cabinet decision or was it done at sub-cabinet level?

Senator Fifield: It was a decision of government which was conveyed to NBN. The mechanism of transmitting that we can take on notice.

Mr Morrow : We were going after debt in the markets, and this is a pre-requisite. You have to have this if you are going to get any money from the banks outside. So it would have been something that we would have done regardless of—

Senator DASTYARI: But if it is private, do you tell the people who you are borrowing from what the credit rating is? Do they know in confidential agreements?

Mr Rue : But that would have been the next process.

Senator DASTYARI: So, when you say that it is confidential, you mean that it is not public, but it is not just for NBN. You have obviously let government know what that is—

Mr Rue : Yes.

Senator DASTYARI: the shareholding ministers, or your owners, effectively. I know that it is more complicated than that, but for all intents and purposes. And let us say you are going to bank X or credit fund X. The amounts of money that you raise are quite large, so it is not like walking into your local bank. You then would reveal to them as part of their disclosure within confidentiality—

Mr Rue : Yes.

Senator DASTYARI: When they are doing their due diligence, they will look at that. Is that correct?

Mr Rue : That is exactly the process that you would have gone through. Eventually, you would have ended up with a public credit rating because you would need that for ongoing debt.

Senator DASTYARI: The 2016-2017 budget papers indicated that $29.5 billion of public equity funding would have been fully committed by July 2017. Minister, that is from Budget Paper No. 1, as I understand. I understand there was a range of potential scenarios as the how NBN could have funded and what guarantees were provided going forward. Did the NBN seek a rating for a single funding scenario or a range of scenarios?

Mr Rue : We sought a credit rating based on a $19.5 billion public borrowing. Public borrowing meaning—

Mr Morrow : From the private banks. There is a lot of confusion on public/private depending on—

Senator DASTYARI: Can you explain it?

Mr Rue : That is a technical term—sorry. We sought a credit rating based on the fact that we needed to borrow just under $20 billion to be able to get to a point when we were self-funding, and that was on the basis that we would be seeking funds from banks or the various markets where you would go and receive private debt.

Senator DASTYARI: Is that with or without a Commonwealth guarantee?

Mr Rue : There was no Commonwealth guarantee. There was no explicit government guarantee.

Mr Morrow : First of all, for everybody's benefit, on the difference between the private and the public, as it stands in the way in which we use it here in Australia, public debt is met from the government and private debt is met from various banks, hopefully Australian banks, that would provide that. We had always been under the direction, and it was our assumption, that we were going to have to raise private debt to be able to get us to that peak cashflow level before we started making our own money. To do that you need a credit rating. The private rating that we received was the interim step. If we continued down the path that we assumed we were on for private debt, we would have had to have been able to work with the two rating agencies to say, 'Now it is time to be able to share this rating with the banks.' At that point it would have likely have been more public.

Senator DASTYARI: In shorthand, the rating you got was for one scenario, and that was a private debt of $19.5 billion?

Mr Rue : That is correct.

Senator DASTYARI: And without a government guarantee?

Mr Rue : That is correct.

Senator DASTYARI: Given that the government has announced the remainder of the rollout will not be funded through private debt but rather through government funding, that is no longer a confidential rating, or is it still?

Mr Rue : It is, because of an agreement between the NBN and the various rating agencies.

Senator DASTYARI: Are you claiming it is commercial-in-confidence?

Mr Rue : The terms of the arrangement mean that it is not something that can be disclosed.

Mr Morrow : We are under an obligation. I do not know about commercial-in-confidence now, but we are under an obligation.

Senator DASTYARI: Okay. Minister, earlier this week in the Senate you said that one is equity and one is a loan but you did not go on to explain it. Can you explain your understanding of what equity is?

Senator Fifield: Equity is money that the government contributes to an organisation that, I guess, results in ownership of the company. So, equity is an indicator of ownership. A loan is something that has to be repaid. Equity is not something that is repaid.

Senator DASTYARI: What is your understanding of debt?

Senator Fifield: A debt is something that is repaid, a loan is something that is repaid. Equity is something that is not repaid.

Senator DASTYARI: And that is your definition of the difference between equity and debt?

Senator Fifield: I think it serves the purpose.

Senator DASTYARI: Can you explain to me the different risk allocation between equity and debt, when it comes to a project like this?

Mr Morrow : I can help there, from just a—

Senator DASTYARI: No, I would love it if the minister answered it.

Senator Fifield: It would be for Mr Morrow.

Mr Morrow : On the tiers of ownership and who is at risk, when you put equity into a company you own it and you have an upside risk and a downside risk. If you add debt to that equity the lenders are going to say that you have to pay me back regardless of the value of the company, and it is a term—that over a period of time I will be paid back all my money with interest and that is how I am going to make money out of it. If a company continues to grow in its value—think of market cap value—the loaning institutes do not get to prosper from that but the equity holders do. Equally, on the downside, if the company turns out to be worth less than what was imagined the rights of the loaners—they get their money back first before anybody who owns Equity has. So it is an investment in a firm versus a loan. That is a classic definitional difference that exists across all companies out there. It is quite common in the marketplace. So there is a different risk profile and a different definition that is widely accepted.

Senator DASTYARI: Minister, would you expect a higher rate of return on equity or debt? That is a question for the minister.

Senator Fifield: I will—

Mr Morrow : There is no greater return on a debt—

Senator DASTYARI: No, it was a question for the minister, Mr Morrow.

Senator Fifield:   I will call Mr Ian Robinson from the department of communications to the table.

Mr Robinson :  Senator, would you mind repeating the question?

Senator DASTYARI:   Would you expect a higher rate of return on equity or debt?

Mr Robinson :  In this case, the NBN's corporate plan has an internal rate of return range specified in it, which I would have to check, but I think it is 3.2 per cent to—

Mr Morrow :  It is a range—roughly around 3½.

Mr Robinson :  3½ per cent. In relation to the loan, the arrangements still have to be settled but the finance minister has indicated that the current estimate is approximately 3.7 per cent.

Senator DASTYARI:   So, Minister, if I understand what is being said correctly, the Commonwealth has 100 per cent of both the equity and debt of this business. Is that correct?

Senator Fifield:   Correct.

Senator DASTYARI:   Do you know of any other situation where the government has 100 per cent of debt and equity of a similar business?

Senator Fifield:   I would have to check across portfolios.

Senator DASTYARI:   Mr Robinson, are you aware?

Mr Robinson :  I think, firstly, I would say NBN is an unusual entity. But, as an example, just in the portfolio, the government has loan arrangements in place with the ABC. NBN is definitely a different sort of organisation because it is such a big infrastructure entity and it is in the relatively early stages of its establishment. There are other examples but, just within the portfolio, there is the ABC.

Senator DASTYARI:   Minister, you have said in the Senate a couple of times in criticism that those of us on the other side of the chamber perhaps do not understand, so this would be your opportunity to explain this to us. What does this mean for the allocation of risk?

Senator Fifield:   Could you expand on your question, Senator Dastyari?

Senator DASTYARI:   Sure. The Commonwealth owns 100 per cent of both the equity and the debt of a single business. What does this mean for the allocation of risk?

Senator Fifield:   I will ask the officers at the table.

Senator DASTYARI:   But, Minister, you are the one who keeps saying that we do not understand. I am asking you if you understand.

Senator Fifield:   Well, I am asking officers at the table to contribute.

Mr Morrow :  I would be happy to deal with that. In terms of—

Senator DASTYARI:   I am sure you can answer. I do not think the minister can answer. I am asking the minister, and the minister is within his rights to pass it on to the chief executive officer.

CHAIR:  It is open to anybody at the table to answer the question, with the agreement of the minister.

Senator DASTYARI:   I would love to see the minister answer, but sure.

Mr Morrow :  Typically, the risk profile is different for equity holders than for debt holders. The debt holders have far less risk involved in a company, that is why they get their payment immediately, and they have other protections in place behind this. In this particular case, if I can draw a very similar pattern to what exists in the private industry—and my most recent experience before NBN—at Vodafone Australia, owned by two prominent shareholders outside of Australia, when we needed to raise debt, they said, 'I can raise the debt cheaper than what you can, Bill, in Australia, so I will raise the debt for you, loan it back to you and therefore it makes more economic sense with no difference in terms of the risk profile.'

I see a similar analogy here with NBN and the government stepping in saying, 'I know you can go get the debt on your own, NBN, but you are going to pay more money on an interest rate outside, in the private banking world, than you will with the rate to which you can borrow, so why not be more prudent for the taxpayer and we will loan you the money directly.' It does not change the risk profile whatsoever, because this has an indirect relationship; if the company is going down, the government is likely to step in any way. There are no signs of the company going down at all, but that is the way in which all companies look at it. Again, I can draw a direct analogy to my previous—

Senator DASTYARI:   Okay. A moment ago you made the observation that the government would likely step in anyway. Mr Rue, while that was not a specific part of the credit rating, I assume they factor in those kinds of things, the risk—

Mr Rue :  I would have assumed that the rating agencies would have factored in the ownership structure, yes, but there was no explicit guarantee.

Senator DASTYARI: But it would have been priced in?

Mr Rue : I am sure the rating agencies took it into account.

Senator DASTYARI: It is a matter for the rating agencies.

Mr Rue : It is a matter for the rating agencies. I am sure they took into account the ownership structure.

Senator DASTYARI: The ownership structure being both all the debt and all the equity being held by the government?

Mr Rue : No. Remember, the rating agencies was based on going to get private market debt. But the rating agencies, as a matter of course, as they would with any business, would have taken into account who the shareholders were.

Senator DASTYARI: Thank you for that. That was actually a very impressive answer. Minister, considering the answer that was just given by Mr Morrow, would you expect a higher rate of return on equity or debt?

Senator Fifield: I am not here to provide a tute, Senator Dastyari.

Senator DASTYARI: You do not know, do you?

Senator Fifield: There is an internal rate of return which is in NBN's corporate plan. The rate of return for debt is the interest rate. So the answer, in general, would be: it depends. It depends what the internal rate of return is and it would depend what the interest rate is. That is the way these things work.

Senator DASTYARI: What is the NBN's rate of return? Do you know the answer to that, Minister?

Senator Fifield: Three point—

Mr Morrow : Three point two to 3.7.

Senator DASTYARI: That is from the corporate plan, correct?

Mr Morrow : Yes.

Senator DASTYARI: Minister, on the Prime Minister's website—I am quoting it here if you do not have it in front of you, and I am sure you will not dispute this, though you can if you want—it says, 'Public funding of $29.5 billion will be required for a Coalition NBN.' Is that correct?

Senator Fifield: There is an equity cap of $29.5 billion.

Senator DASTYARI: Is there any possibility the government will reverse its position and raise debt from private markets in 2018-19?

Senator Fifield: We have already indicated that the expectation is that NBN will refinance in 2020-21 using external markets.

Senator DASTYARI: Talk me through that.

Senator Fifield: We have indicated that it is our expectation that NBN will refinance the loan by 2020-21 using external markets.

Senator DASTYARI: But that is 2020-21. The question I am asking is: from 2018-19, is there still a window of opportunity for the government to reverse its position and have the NBN raise debt from private markets?

Senator Fifield: Sorry, could you restate the question? I am not sure I am following you. I have told you what our intent is. Are you asking if we have a different proposition in mind?

Senator DASTYARI: I think we are talking about different years here. My question is: is there any possibility that the government will reverse its position and have NBN raise debt from private markets in 2018-19?

Senator Fifield: There is not anything being looked at at the moment.

Senator DASTYARI: But you are not ruling it out?

Senator Fifield: It is not something we are looking at at the moment.

Senator DASTYARI: Will you rule it out?

Senator Fifield: All I can tell you is that it is not something that we are looking at at the moment.

Senator DASTYARI: Let me take a step back for a moment. Mr Rue, you went out and got a private credit rating.

Mr Rue : That is correct.

Senator DASTYARI: I assume NBN paid for that.

Mr Rue : That is correct.

Senator DASTYARI: On instruction from the shareholder ministers?

Mr Rue : That is correct.

Senator DASTYARI: Your owners effectively said, 'Get a credit rating.'

Mr Rue : That is correct, although, as Mr Morrow said, it is a process we would have done anyway. That is correct.

Senator DASTYARI: So NBN pays for it?

Mr Rue : That is correct.

Senator DASTYARI: Is that amount a public or private amount? What does that cost? What does it cost to get a credit rating?

Mr Rue : Again, there are arrangements that are commercial in confidence, Senator, but it is not a significant amount of money.

Senator DASTYARI: I imagine it is a common thing to do.

Mr Rue : It is a common thing to do, and we would have done it anyway.

Senator DASTYARI: So you get a rating. If you were going to banks and raising that money privately you would have used that rating. If I am a bank or an institution and I am going to be giving you a substantial amount of money—you are a big organisation, so this is not a home loan—you are going to do due diligence.

Mr Rue : That was the intention. Yes.

Senator DASTYARI: Explain to me, why wasn't that process followed? Why wasn't the money raised in the private markets?

Senator Fifield: Because the government looked at the options available to raise the funds. It was manifest that funds could be raised more cheaply by going down the path that we have, and that is what occurred.

Senator DASTYARI: So, Mr Morrow, you tested that? You went out to markets, saw what people would offer you money for, and—

Mr Morrow : We have a pretty good idea based on the credit rating that we have and what kind of interest rates we would have.

Senator DASTYARI: Because it is a market. You know the market.

Mr Morrow : Yes. And we know what the government can pull, and we can see the logic behind the decision that was taken.

Senator DASTYARI: I am maybe being quite simplistic here: you went with government because it was cheaper for the government to raise the money for you, as a private company.

Mr Robinson : As part of the background: I think NBN Co, pretty much from inception, had the assumption that at about this point it would always move to private debt funding. In the budget papers this year there was a signal that options were being looked at. The government asked NBN Co to get the indicative credit ratings with a view to informing the various options on where they were.

In the end, the decision from the government was to borrow the money directly from the government and provide it as a loan to NBN Co, basically for a period of four years, and that it would be refinanced at the end of that. The basic reason for that is that there is an opportunity for the government to borrow at a cheaper rate. That is pretty much the story of what has happened here. It was always on the program for consideration as to how NBN Co would go to the post-equity stage at about this point.

Senator DASTYARI: Effectively, you are saying that the decision that was made and indicated in Budget Paper No. 1 for 2016-17 was changed?

Mr Robinson : No. Which decision are you referring to?

Senator DASTYARI: Budget Paper No. 1 for 2016-17 notes the NBN:

… is expected to raise debt from external markets of between $16.5 billion and $26.5 billion (with a base case of $19.5 billion) to complete the rollout of the network.

I would have thought 'external markets' meant private.

Mr Robinson : Yes. It was also in the statement of risk, which is what I am referring to. It essentially says that NBN Co:

… is undertaking the necessary preparatory work … In the event that nbn is initially unable to raise the necessary debt on acceptable terms—

and I might say that they were able to raise the debt, but the government found more acceptable terms—

interim funding support may be required.

Then it refers to a range of options for doing this.

Senator DASTYARI: Minister, from the evidence Mr Robinson has given, it sounds like it is cheaper for the government to borrow money than a company that has risk?

Senator Fifield: The government can borrow at better rates.

Senator DASTYARI: Then why wasn't this the case five years ago or three years ago or two years ago? I am just reading Budget Paper No. 1—

Senator Fifield: As the budget papers said, it was expected that NBN would be in a position where they could borrow from external markets. NBN demonstrated, through the non-public, indicative credit ratings, that they were in a position to borrow on acceptable terms from external markets. That is entirely consistent with the budget papers. But government looked at options and decided that it would take the path it did.

Senator DASTYARI: To me, it makes sense that the government is going to be able to borrow more cheaply as a rule than a company that has risk, especially with a new infrastructure project. I don't know why, then, there was ever this path going down to actually raise the money privately, through private markets, if it was always going to be cheaper for government to raise the money themselves.

Senator Fifield: That is what was in the budget. It is consistent with what was in the corporate plan. But, government took a decision and we know what that decision is.

Senator DASTYARI: Even in the statement of risks it says that the NBN is expected to raise debt from external markets. It states:

In the event that nbn is initially unable to raise the necessary debt on acceptable terms, interim funding support may be required.

Are you saying that nbn co was unable to raise the necessary debt on acceptable terms?

Mr Robinson : The credit rating indicated that nbn co could raise the funding on terms that were improved from their corporate plan assumptions. But there was a more acceptable arrangement, in the view of the government, by taking the benefit of the government's borrowing capacity. So, there are more-acceptable terms available to the government—

Senator DASTYARI: Either the terms are acceptable or they are not.

Mr Robinson : There are more-acceptable terms available to the government, because the government effectively can borrow at the cheapest possible rate.

Senator DASTYARI: What, then, has changed? The government could borrow as cheap as possible three years ago as well.

Mr Robinson : I have been doing NBN stuff longer than most. I think that under consecutive corporate plans—it being the base assumption for what would occur, because nbn co is a government business enterprise. But it was always the point that the actual arrangements would have to be considered just prior to nbn co needing to have the debt.

Senator DASTYARI: The only thing that seems to have changed is getting the credit rating. Is that the first time you have got a credit rating?

Mr Rue : Yes.

Senator DASTYARI: You are saying that the terms were acceptable but you chose not to take acceptable terms?

Mr Robinson : I think they were acceptable because they were improved on the corporate plan and nbn co could raise the finance by itself. But there was a better arrangement available.

Senator DASTYARI: Minister, what changed?

Senator Fifield: The government took a decision.

Senator DASTYARI: Why?

Senator Fifield: The government took a decision within the interests of the organisation and taxpayers.

Senator DASTYARI: What was the decision that was made?

Senator Fifield: The decision that was made was that the government would provide a loan to nbn on commercial terms.

Senator DASTYARI: Because you could borrow cheaper than they could borrow?

Senator Fifield: Yes.

Senator DASTYARI: But you could borrow cheaper than they could borrow when Budget Paper No. 1 was being prepared. That has not changed has it? What has changed?

Senator Fifield: It was expressed and made clear in the budget papers and in the corporate plan that the expectation was that nbn would be in a position where it could borrow on external markets. The government looked at the options and decided to do what it has indicated.

Senator DASTYARI: What are the implications for the fiscal position of having done this?

Senator Fifield: There will be a positive impact on the Commonwealth budget, on the underlying cash balance, and no impact on government net debt.

Senator DASTYARI: Can you explain that to me again?

Senator Fifield: There will be a positive impact on the Commonwealth budget—

Senator DASTYARI: By lending your own organisation money?

Senator Fifield: The government will get a return and there will not be an impact on government net debt.

Senator DASTYARI: You are also increasing liabilities, or aren't you?

Senator Fifield: Increasing liabilities? Of course—

Senator DASTYARI: I will read from Budget Paper No. 1

Senator Fifield: There are gross debt and net debt but there will not be an increase in—

Senator DASTYARI: Budget Paper No. 1 says:

Were it required, additional Government financial support for nbn would have implications for the fiscal position, for example by increasing assets and liabilities on the balance sheet and, depending on the nature of support, could have positive or negative impacts on the underlying cash balance.Is that correct?

Senator Fifield: Yes.

Senator DASTYARI: Can you explain to me how this fits into that.

Senator Fifield: I will ask Mr Robinson.

Senator DASTYARI: No, I would love you to answer it, Minister.

Senator Fifield: I have explained the effects to you in the broad and I will ask Mr Robinson to go into further detail for you.

Mr Robinson : The arrangement has a positive impact on underlying cash and fiscal balance because the government will essentially earn interest on the difference between the government's borrowing rate and the loan to nbn co. There will be a temporary increase in gross debt but no increase in net debt. That reference you read out said that there is a range of options that could have a positive or negative impact. This particular arrangement has a positive impact.

Senator DASTYARI: Mr Robinson, you are saying that, by loaning money to a company where the government owns all of the debt, all of the equity and all of the risk, you improve your budget position.

Mr Robinson : Yes. That is because—

Senator DASTYARI: That is a very clever accounting trick!

Mr Robinson : Well, it is consistent with the accounting standards, and it is because NBN Co is outside the general government sector. It is a similar sort of issue to why equity payments do not go to underlying cash. In this case, the loan will have a return on it, and that return is credited to the budget.

Senator DASTYARI: Minister, you said that your expectation—I think that was the word; I do not want to misquote you here—was, I think, that it was in 2020-21 that that loan would start to be repaid.

Senator Fifield: Or that it would be refinanced.

Senator DASTYARI: Refinanced?

Senator Fifield: Yes.

Senator DASTYARI: Which would be NBN Co going out and borrowing?

Senator Fifield: Correct.

Senator DASTYARI: But, if you can always borrow more cheaply than they can in the private sector, why would you do that?

Senator Fifield: As we expressed at the time we made this announcement, it is part of putting NBN in a position where, in the future, it could be privatised.

Senator DASTYARI: And it cannot be privatised while you own the—

Senator Fifield: Well—

Senator DASTYARI: How does that have anything to do with privatisation? It is either profitable or not.

Mr Robinson : I think that normally most privatisations that would happen would require the new owners to have private finance in place, so I think that, in anticipation of the decision referred to, it would be putting in place debt arrangements that are more standard for a privatised entity.

Senator DASTYARI: Okay. So, Minister, the plan is—and things change—that they will borrow money from the private market and repay the money that the government has given to them at a cheaper rate as part of a process for privatisation.

Senator Fifield: As you know, Senator, for a privatisation to occur, there is provision in the legislation for a number of things to happen, including a Productivity Commission inquiry.

Senator DASTYARI: Yes, there is a long process.

Senator Fifield: But we would want to have NBN in a position where that option is there.

Senator DASTYARI: If that were the reason, why not do that now?

Senator Fifield: For the reasons that I have explained.

Senator DASTYARI: That it is cheaper?

Senator Fifield: Correct.

Senator DASTYARI: But it was always cheaper.

Senator Fifield: I am not sure how much clearer I can be. We all know what the corporate plan said. We all know what the budget papers said and what the expectation was. Government looked at the options in the time frame that you would expect it to, prior to NBN having that borrowing requirement, and decided to go down the path we have.

Senator DASTYARI: The bit that I cannot understand—and maybe the Department of Finance will have their views on this, and I note the Minister for Finance is a shareholder minister and this is in many ways their space at times—is: if the real reason, or the only reasonable reason, for using private equity is as part of a process of privatisation which may be looked at in the future, why would Mr Rue and others, and the plan that was provided by government, at any point have been looking at private markets for the funding if it was always going to be cheaper for government to provide that? I just do not understand why we would have gone through the charade of raising the money, or looking at raising the money, if it was going to be cheaper for government to do it.

Senator Fifield: It was not as you characterise it.

Senator DASTYARI: What was it?

Senator Fifield: It was what was contained in the corporate plan. It was what was in the budget papers. It was the expectation that NBN would be in a position to raise those funds. The government took a decision to provide those funds in the manner which we have indicated. You mentioned the refinancing in 2020-21 and why we would do that, and I have indicated that having NBN in a position where future change in ownership operations is an option is one of the reasons. It is related to the fact that the NBN will have been completed by then, that peak funding will have been reached and that the NBN will be cash flow positive. There are other factors in that consideration. Obviously, NBN will be in an even better position to take on—

Senator DASTYARI: Minister, are you aware of the credit rating?

Senator Fifield: I am. Also, let me make clear that we do not have an intention to look at privatisation prior to completion of the NBN. We are well aware of the legislative requirements and things that need to be looked at.

Senator DASTYARI: How was the credit rating provided? Were you given a briefing note or a verbal briefing? Was the documentation that was provided to NBN Co provided to you? How were you made aware of the credit rating?

Senator Fifield: I think it was probably initially verbally and then in briefing notes.

Senator DASTYARI: Do you know when that was? When were you made aware? When did you receive the credit rating, Mr Rue?

Mr Rue : I believe it was the first week in September.

Senator DASTYARI: So you received the credit rating in the first week of September.

Mr Rue : Approximately.

Senator DASTYARI: At around that time, at the request of the two shareholding ministers, you informed the shareholding ministers?

Mr Rue : I would have informed the department; yes.

Senator DASTYARI: You would have informed the Department of Finance, and it is their job to talk to the minister. Correct?

Mr Rue : That is correct.

Senator DASTYARI: That was on 1 September.

Mr Rue : No. It was around the first week.

Senator DASTYARI: Minister, when did the government make the decision to provide the funding themselves?

Senator Fifield: We made it before the announcement.

Senator DASTYARI: When was the announcement?

Senator Fifield: The announcement was on 18 November.

Senator DASTYARI: I assume that the decision was not made prior to receiving the credit rating? Did the credit rating help inform the decision?

Senator Fifield: The credit rating was fed into our understanding of the options.

Senator DASTYARI: So at some point before 18 November but after early September the decision was made?

Senator Fifield: That would be a fair deduction.

Senator DASTYARI: Is it a cabinet decision?

Senator Fifield: It is a decision of government.

Senator DASTYARI: I have never been in cabinet. Are these types of decisions typically made at a cabinet level?

Senator Fifield: It is a decision of government, but—

Senator DASTYARI: That is a secret.

Senator Fifield: That is not an unreasonable assumption.

Senator DASTYARI: Obviously an announcement was made on 18 November. What was the figure? What is the amount we are talking about?

Mr Robinson : $19.5 billion.

Senator DASTYARI: Minister, if I were to ask you for the credit rating, what would you say?

Senator Fifield: I would say that it was a non-public, indicative credit rating, and the credit rating was provided by the agencies on the basis that it is not public.

Senator DASTYARI: We may as well be formal about this. Are you claiming public interest immunity?

Senator Fifield: I am telling you the basis upon which the credit rating was provided.

Senator DASTYARI: I am formally asking for the credit rating.

Senator Fifield: If you are formally asking then we will take that on notice.

Mr Morrow : I would remind the senator that, of course, we are allowed, within our agreement with the credit rating agencies, of keeping this private to share with our immediate shareholders. That agreement is, again, something between NBN and the credit rating agencies.

Senator Fifield: I will take it on notice, because there are two shareholder ministers here. I have indicated to you the basis upon which it has been provided, but you have asked a question, so we will take that on notice.

Senator DASTYARI: Mr Morrow, the point I would make is: it is up to the minister whether or not information is provided or not. There are grounds of public interest immunity that the minister, when in review, can or cannot take, and commercial matters fall within that. That is a matter for the minister.

I do note, however, that contractual obligations are not prohibitive of people providing information through Senate processes. What are I have done, Minister, is I have asked you if you can either provide the credit rating or claim public interest immunity. You have taken that on notice.

Senator Fifield: I have indicated the basis upon which the credit rating was provided. You have asked me a question, so I am taking that on notice.

Senator DASTYARI: You said it was NBN who paid for the getting of the credit rating.

Mr Rue : That is correct.

Senator DASTYARI: Would you take on notice what it cost to get the credit rating?

Mr Rue : I can take that on notice.

Senator DASTYARI: If you are unable through your commercial terms to make the decision to give us the exact figure, could you provide us with how it works when you get a credit rating? Do you go to tender? Do you go straight to the same—

Mr Rue : There are already three people that you go to.

Senator DASTYARI: Who are they? Moody's—

Mr Rue : There are Moody's, there is S&P and there is Fitch.

Senator DASTYARI: And you went to two of those three?

Mr Rue : We went to two of those three, which is a pretty normal process to do.

Senator DASTYARI: Did you just pick two of them?

Mr Rue : We picked two of those three on the basis that we felt that they were the people who were in the best position to give us an informed—

Senator DASTYARI: Does that mean you have two different credit ratings?

Mr Rue : That is correct.

Senator DASTYARI: Were they the same or different?

Mr Rue : Once again, that is—

Senator DASTYARI: It was worth a try!

Mr Rue : I cannot really comment; but you can assume they were not far apart. We were pleased with them too. They were more than indicative. That was actually a credit rating that they gave us.

Mr Morrow : Only for educational purposes, I do not dabble in their business over here: the credit rating is really the indication of what kind of interest rate you are going to get from the banks. When you were asking the question, 'If I can,' on this earlier: really, without a credit rating no-one knew what the interest rates at NBN would be able to pull. When we wrote the corporate plan, without a credit rating we really had to take a guess. Only now is that interest rate known, based on the credit rating. Then again, if I look at my past private experience, the shareholders would say, 'Based on right now versus this rate I know what the spread is.' If the spread is big, you want to loan it from your shareholders. If the spread is small, you typically would not go there.

Senator DASTYARI: Mr Morrow, you run a very large corporation and you raise money in a very different way from what people like me experience. By knowing your credit rating, do you then go out to—I do not know if this is the right word—'tender', or out to market? Or do you not need to? Is it that the second you know your credit rating you effectively know what the market will pay for that at that point in time, and you can effectively look it up?

Mr Morrow : You have to negotiate with the banks, with each bank. But you know with the credit rating that you can probably get this at a market. If they say, 'I will even give you a little bit better than that,' then you say, 'Fantastic. You will get this much of what we need to borrow.' If somebody says, 'Well, I am going to charge you a little bit more because that is my own hurdle rate and I feel this element of risk on it,' you can make the decision, 'No, do I want that bank? Do I want to go somewhere else? Do I still like that?' You want somewhat to have a portfolio of banks coming in to—

Senator DASTYARI: You were saying that when you did the corporate plan, at that point in time you did not have a credit rating?

Mr Rue : That is correct.

Senator DASTYARI: So you were making assumptions based on what your spread would be?

Mr Rue : We were making assumptions on where we thought credit ratings could be. Obviously, it is at a point in time as well, because interest rates move. And we also made assumptions of what mix that we would go with in terms of banks and in terms of what the market—

Senator DASTYARI: How big was the spread?

Mr Morrow : Between what we thought versus what we received? Or what we would anticipate getting from the private markets?

Senator DASTYARI: No, Mr Morrow, you said if the spread is big then you go to your shareholders for funding. Was the spread big?

Mr Morrow : Again, it depends on what the tolerance level is of the shareholder behind this. But there are a couple of things here. Just to put the record straight on this: there is what we put in. We assumed a certain interest rate in our corporate plan that said with the $49 billion we could get everybody built and have this internal rate of return that is expected. The rating which we receive gives an indication of the interest rates that we would actually be able to or have to pay the banks. That interest rate is better than what we had put in the corporate plan. That is why Stephen was very pleased about this—this is going to help the credibility behind this. Now, do we go to the private market or do we rely on the shareholder from a public point of view? It is the government's decision on this, but the bigger the spread in this, why charge taxpayers extra money if they can get the rate, as Mr Robinson mentioned, lower and keep the money with the shareholders—which is the taxpayer—versus paying banks.

Senator DASTYARI: But, Mr Morrow, they can always get it cheaper.

Mr Morrow : That is not necessarily true. I know businesses—and I have been a part of them—that can get far better than what the government rate is. It depends on how profitable your business is and a number of other factors.

Senator DASTYARI: Let me reword this then. The corporate plan worked under an assumption that there would be a rate that would be offered that would be higher than what government could borrow at.

Mr Morrow : Yes.

Senator DASTYARI: And then once you went through that process, that was obviously confirmed?

Mr Morrow : Yes.

Senator DASTYARI: And a decision was announced on 18 November that $19.5 billion would be given to NBN under a contractual arrangement?

Senator Fifield: Loaned to.

Senator DASTYARI: Under a contractual arrangement. Again, how does that actually work? Is there a formal contract?

Senator Fifield: There will be a loan, which would be executed on terms agreed between the Department of Finance and it.

Senator DASTYARI: So there is a contract that exists?

Senator Fifield: Mr Robinson will be able to take you through that detail.

Mr Robinson : Before the loan is issued, there will be a loan agreement. We actually expect that from our department, the department of communications, with NBN Co.

Senator DASTYARI: When is that expected to happen? It might have been in the 18 November announcement.

Mr Robinson : It was not but it will be before any loan funds are issued, which will be July next year.

Senator DASTYARI: The loan funds are expected to be issued by July or starting from July?

Mr Robinson : Starting from July.

Senator DASTYARI: Starting from July next year, loan funds will be issued?

Mr Robinson : That is the expectation, yes.

Senator DASTYARI: Prior to that, there will obviously be a contractual arrangement?

Mr Robinson : Yes.

Senator DASTYARI: Who signs that contract? Or do they not get signed? Does the secretary sign it or do shareholder ministers sign it?

Mr Robinson : We have not settled on that yet. It may well be both shareholder ministers. In terms of the accounting of it, we expect it will be from the department of communications to NBN Co, just as the equity funding arrangements are—and there is an equity funding agreement. We have not settled that yet, but it could be signed by both shareholder ministers.

Senator DASTYARI: Minister, explain this point to me. Putting aside this $19.5 billion loan, how much government money at this point in time has been expended in terms of equity or debt with NBN Co?

Senator Fifield: In terms of equity, we are not yet at the $29.5 billion. There are draw-downs, which are moneys that are transferred from time to time, but I will ask Mr Robinson to give you the latest figures.

Senator DASTYARI: So $29.5 billion, you are saying, is the envelope.

Senator Fifield: That is the equity cap, but I will get Mr Robinson to give you the latest tally.

Mr Robinson : As of the end of October, $22.6 billion has been paid in equity.

Senator DASTYARI: Any other debt?

Mr Robinson : No.

Senator DASTYARI: So at this point there is no debt but there will be $19.5 billion?

Mr Robinson : Yes.

Senator DASTYARI: And that starts on 1 July. When do we expect all of that $19.5 billion to have been moved?

Mr Rue : My expectation is that the loan will be drawn down as and when we need it. It would be presumably on a monthly basis, although that is still to be arranged with the government. The expectation is that that loan will be borrowed on a monthly basis until such point in time when we are clearly making our own way, if you will, which I expect to be in and around the 2021 period.

Senator DASTYARI: In 2021.

Mr Rue : Which is when my job will be to go and refinance it, obviously.

Senator DASTYARI: Can I get that figure from you again?

Mr Rue : It is $22.6 billion.

Senator DASTYARI: That is the only money you have?

Mr Rue : That is correct, yes.

Senator DASTYARI: That can go with a cap of $29 billion.

Mr Rue : $29.5 billion.

Senator DASTYARI: And the loan arrangement with the government is going to be for $19.5 billion.

Mr Rue : That is correct.

Senator DASTYARI: Again I am generalising, but the exposure—both debt and equity—is looking at somewhere up to, but not necessarily hitting, $49 billion. Is that correct, Minister?

Senator Fifield: You can add numbers, and $49 billion is the base case funding for the organisation.

Senator DASTYARI: We would expect that that would peak in 2021.

Mr Rue : That is correct, yes.

Mr Morrow : Technically, for anybody who likes to get into the detail, it will not be quite $49 billion, because you are actually paying back some principal and interest between the initial debt that is given—the little bit in July of next year you are starting to already pay back interest.

Senator DASTYARI: $49 billion is the kind of cap. That is the government exposure. Is that correct, Minister?

Senator Fifield: We ultimately will have equity of $29.5 billion. That is equity; it is an ownership state. The $19.5 billion will be a loan to NBN which will be repayable to the government. As I said, we anticipate that that will be repaid in 2021.

Senator DASTYARI: I am happy with that. I think our debt and equity exposure combined will peak at 2021. It has an upper cap of $49 billion. But, Mr Morrow, you are saying probably not quite that.

Mr Morrow : It depends on the terms that we end up agreeing to between the government and the NBN.

Senator URQUHART: At the last hearing I put to you some questions about the budget for the NBN for the west coast of Tasmania but you did not have the details. I would like to go back over that to see if you can give me some of that. Can you give me some more information about how the federal figure was arrived at. From memory it was around 18.5.

Mr Morrow : We provide that figure on any kind of technology choice, extra network, being built at what we estimate it to be. We provided that to all of the government entities that were interested in this. As I believe you are aware now, the good news is that we have the commitment from the federal government for their share of this, the commitment from the local government and the use of the fibre. Therefore, we have conferred back that we are now kicking it into gear and starting the design process to where we will move that portion of the area from satellite to a fixed line FTTN technology.

Senator URQUHART: What line items does the 18.5 include? What sorts of things make that up?

Mr Rue : It is the primary transit NBN fibre from Rosebery to Zeehan. It is secondary transit fibre then from Railton to Rosebery, Zeehan and Queenstown. Then it is any incremental cost of building FTTN over what will be a satellite solution.

Senator URQUHART: Was there any allocated for contingency?

Mr Rue : Normally in these programs we would allocate a contingency. I think in this case it would have been just under 10 per cent, I would have thought.

Senator URQUHART: So around 10 per cent, a little under.

Mr Rue : I think it was nine, actually, to be precise, but I would have to check on that.

Senator URQUHART: What portion of the 18.5 was allocated to the remediation of the existing network?

Mr Rue : I do not have that number. Just to be clear on this, we have not actually done contracts on this. Once the design is completed, we will then go into doing actual commercial arrangements. I know you asked for a very detailed breakdown but, unfortunately, I would rather wait until we have negotiated everything and spent it, if that is okay.

Senator URQUHART: You do not have any idea what the remediation of the existing agreement is?

Mr Rue : Any of that would have been built in, but again—

Senator URQUHART: Is that built into the 18.5?

Mr Rue : If it was required, that would have been costed in, yes.

Senator URQUHART: Are you able to provide that to me?

Mr Rue : Once again, we have not done contracts on this and I would like to wait until we have actually completed contracts. Otherwise, it will compromise our negotiations.

Senator URQUHART: Okay. I want to talk about the timing. Obviously that has been a really hot issue down on the west coast—the move from fibre to premises and then back to satellite and now fibre to the node. So there is a lot of confusion around the community about what works are actually going to be done and I suppose the time frame. I would be interested to know who is taking the lead on the project and what role the stakeholders will play. Obviously we have the federal government, we have state government and we have NBN Co, and then I do not know whether there will be contractors involved or how that will operate. Are you able to clarify what role each of those major partners will undertake?

Mr Morrow : Do you mean outside, in terms of providing access, for example, to the harbour?

Senator URQUHART: Nobody knows what is happening down there at the moment. Apart from the state government offering to cough up $4.5 million and the federal government 18.5, there is very little information about the role that each of those parties will have and what the process will be. Are you able to shed any light on that?

Mr Morrow : It is a matter for government as to what they reveal as far as what they forward in this.

Senator URQUHART: What role will NBN play then?

Mr Morrow : We are going to build it. We are going to design and build it to—

Senator URQUHART: But you cannot do any of that until state and federal work out what they are doing?

Mr Morrow : No—that is all cleared up. There is no question as to whether or not we have moved from satellite to fixed-footprint solution. The designs are now going to kick in. We have the teams and we have told them: 'All right, the decision is made. We'll worry about collecting the money in due course in this.' I have letters—Fiona Nash, in particular, was the one who had given me the intent and assurance at the federal government level and of course there are a lot of things at the state level. All that has been arranged. I have sent a letter back saying that it is—

Senator URQUHART: Sorry, there are some tiny people outside the door. They are so cute.

Mr Morrow : That is okay. Bring them in here. They can answer some questions for me!

Senator URQUHART: They are a real distraction. They are cute. Sorry, Mr Morrow.

Mr Morrow : The great news here is, and I know you have been so interested in this, that the federal government, the local government—the cooperation with NBN is done. Sealed—we are moving forward on this. There is no question now as to whether the people of the west coast of Tassie are going to get—

Senator URQUHART: I think I get that. It took me several months to get a letter from the Tasmanian government, which I now have that I think locks in that 4.5. Can you now take me through the time lines and the project stages that are planned? What ready-for-service date are you working towards now? That is the big question from the people of the west coast. They know what they are going to get, but when they are going to get it? Can you step me through those time lines?

Mr Morrow : I believe we are looking at late '17—

Mr Rue : I think we start to design in a couple of weeks—

Mr Morrow : I thought it was late '17 before we get close to completion; so a late 2017 time frame is the initial estimate.

Senator URQUHART: Is that for the start of construction?

Mr Morrow : No, that is to actually get in to where we are complete and we can start to open up some of the area ready for service. Can I put a big disclaimer on this: as with all of this, we do not know until we physically get into the field to see this stuff; so many things can change.

Senator URQUHART: I understand that. What the people down there are saying is, 'Give me some time lines, give me some project stages that you are planning at the moment.' Obviously there are some contingencies around that depending on what happens, but they are interested to know what they can expect and when.

Mr Morrow : Of course, as everybody is around the nation. I understand that, and that is why we do try to produce a lot of information, with the caveat that it moves around. The best estimate at the time is all we can do.

Senator URQUHART: So you are saying late 2017 is when you will actually start?

Mr Morrow : That is our targeted time for starting to sell the service.

Senator URQUHART: Just explain exactly what 'start to sell' means. Tell the people on the West Coast what 'starting to sell the service' means for them.

Mr Morrow : That is when a retailer will be able to say, 'You can now offer up—

Senator URQUHART: You can now hook up?

Mr Morrow : That is right.

Senator URQUHART: I want to ask about the interim period or that time coming up to late 2017. I think I have raised with you the current difficulties that the West Coast has been going through for some time. I know that in some areas there have been opportunities for local workforce development within the region where NBN is being rolled out. The employment situation on the West Coast is pretty dire at the moment with the mine closure, and that does not look like improving in the short term. Who knows what the long-term holds for that? Is there an opportunity for that model of local employment to be offered to people on the West Coast?

Mr Morrow : One of the good news stories about this is that other parts of Tasmania will start to finish up and many of the jobs of those people that are doing construction would obviously end. We are going to try to keep this sequential to be able to redeploy those resources, those people, over to the West Coast of Tasmania, where they can continue with their jobs. Of course, they are quite skilled to be able to do this. I am getting a bit of a correction from the team who are saying that the construction stuff will be taking place in late 2017, with a ready-for-service, or when the retailer will be able to offer up to West Coast Tasmanians mid-2018.

Senator URQUHART: Are you saying in terms of local jobs or employment opportunities for people on the West Coast who are now currently unemployed that, because of the mine closure, there is not going to be that opportunity for them to be employed on this project, because you will carry the workforce that is currently laying the NBN cable or whatever they are doing around other parts of Tasmania?

Mr Morrow : There may be some opportunities. But, again, with the ramp-up time of the skill level and everything to be sure that we get the service to the West Coast Tasmanian population as soon as possible, we will be using the existing workforce that is in Tasmania. So it is a good news story for Tasmania as a state.

Senator URQUHART: I understand what you are saying. I guess the interest in the West Coast is whether or not there might be opportunities for people who live on the West Coast at the moment to become involved in it.

Mr Morrow : It could be. We hope so. They should look at the opportunities with the retailers, the delivery partners—

Senator URQUHART: That was my next question. If there is by any glimpse of the imagination an opportunity for people down there, how does that work? What do they need to do to participate in that?

Mr Morrow : First, they should contact all of the retailers that are there to see if there would be any job opportunities as a result of this decision and this change. Second, there is on our website a point which you can go to to look at, if you are interested in joining the construction workforce or the operations workforce to be a part of NBN. We use this database to be able to feed into all of our delivery partners and service-delivery partners. It has been quite active. That is where they have pulled most of their new employment opportunities. So we would encourage people to go to the website, log on and get their information. If they are successful in that, we will train them. We offer a lot of opportunity if they are a right fit with our delivery department.

Senator URQUHART: NBN trains them? Is that correct?

Mr Morrow : NBN is allocated a portion of the money, thanks to the approval from the government, to be able to train people on safety and telecom basics of installation.

Senator URQUHART: What is the time frame of the training program? How long does it take to put someone through a training program?

Mr Morrow : I think it is matter of weeks.

Mr Rue : It is a couple of weeks, I think.

Mr Morrow : We should take that on notice to make sure that we are accurate.

Mr Rue : We will get an answer to you.

Senator URQUHART: If I went to your website and went through that process, would that show the retailers in a particular state, or does it not go to that level?

Mr Morrow : Most of the websites for job opportunities will have that you apply, and when you apply you typically say where you live and where you would like to work. Then the retailer or most any company, if they feel that they have an opening or are going to have an opening, will say, 'I'd like to talk to you about the future prospects.'

Senator URQUHART: Does your website direct them to that?

Mr Morrow : No.

Senator URQUHART: Does it name the retailers?

Mr Morrow : No. On our website you can see what retailers are reselling NBN, and they can then, therefore, go to that retailer website to see about career opportunities.

Ms Keisler : We also do media releases locally when there is opportunity, and we promote through our Facebook page as well.

Senator URQUHART: My final one on the west coast is related back to the satellite. You may have answered it in some of the other questions that I asked around the satellite. There are more remote parts of the west coast that will still be reliant on satellite. Some of the locals right now are having huge difficulty gaining access. That is due to a number of factors, but particularly due to the weather down there. During the winter when there is lots of rain and snow they continually have dropouts and simply cannot do it. The times of access are really difficult now in remote areas of the west coast. I do not know whether that it just at a time in the day when more people are using the beam or whatever it is—I do not understand. Can you shed any light on what is happening there in terms of trying to improve that for those people on the west coast around their particular issues to do with weather, et cetera?

Mr Morrow : I think there are two separate issues. First of all, if you have a service and it is working, during a busy period you should not feel anything at all in terms of being restricted, from an NBN point of view. Remember, the architecture of NBN is: we provide capacity, and then the retailers plug their network into our network, and they have to dimension it in a size that is big enough to be able to handle the volume of their customers during the busy period. So if they do not provision it big enough, obviously there is going to be some decline in service.

Senator URQUHART: So that is a retailer issue?

Mr Morrow : It can be a retailer issue. In some cases it can be an NBN issue. I can assure you that at this point, with satellite and the few customers—the 45,000 that we have on the network today—we should not be experiencing any of that.

Senator URQUHART: That is being experienced down there. The feedback I have been getting from people is that they just do not even bother getting on after about four pm because it just drops out all the time.

Mr Morrow : We will look into it. It should not be an issue with the satellite. Again, as I said, there are other parts of the network that have nothing to do with NBN that could throttle that down at that period of time. Let us look into it to be sure and to see if there is, in fact, anything happening. The other thing that we need to be really careful about is that there are very few people on western Tasmania that we have turned up satellite service for because of this issue.

Senator URQUHART: I understand that. That is what concerns me, Mr Morrow.

Mr Morrow : I wonder if they are using the interim satellite of the past that has been traditionally very poor in service.

Senator URQUHART: No, they are using Sky Muster.

Mr Morrow : You are sure of that?

Senator URQUHART: I am absolutely positive they are using Sky Muster.

Mr Morrow : We will check, because I would be surprised if there are many people at all over on the west coast—

Senator URQUHART: These people are on Sky Muster. They have had emails from Sky Muster during downtimes, apologising.

Mr Morrow : For the outages we have had. Again, we will look at during the busy period or two o'clock in the afternoon to see what is behind that. Again, there are so many factors. It is the speed they purchased, it is the NBN and the retailer network that ties into the NBN, and this is part of the reason we are looking to be able to educate people more and be sure that transparency is there for all.

Senator URQUHART: I think that is important because, as you said, there are very few people actually on Sky Muster down there. As more and more people take it up, if they are saying now that the service is really bad around this particular time, their concern is what it is going to be like when more people are actually getting access to it. That is a very real, major issue.

Mr Morrow : We will look into it, Senator.

Senator URQUHART: This is still regional broadband, but I will move away from the west coast of Tasmania. I would just like you to explain to me what service class zero is.

Mr Morrow : Right from the beginning of NBN, when we were building out a network—let's go to fibre-to-the-premises—we would try to connect everybody's homes, but would typically find houses that are too complex to do in the same time frame as the other homes. Rather than have the whole neighbourhood wait until that construction got finished, we would turn up the neighbourhood as being ready for service and then there would be a number of homes that were omitted from that because there was a complication or a more complex arrangement.

Senator URQUHART: So this could be one home in a street where everyone around them—

Mr Morrow : Correct.

Senator URQUHART: What would be the complications?

Mr Morrow : An extra-long lead time or an inability to access or no ducts going up into the area. That would cause months of delay. So, rather than penalise everybody else around, we go ahead and offer the service. We declare, under FTTP, those homes that have yet to be connected at that time to be service class zero. So that tells the retailer, 'Don't target the house to offer that up until we get back to be able to finish the job.'

Senator URQUHART: How do households find out if they are actually in that service class zero? Do you notify them?

Mr Morrow : They would know by going on to the website to see if their home is ready for service or not.

Senator URQUHART: But if they do not have access to it?

Mr Morrow : Mobile phone or whatever other device—

Senator URQUHART: You do not actually notify them?

Mr Morrow : No.

Senator URQUHART: Why don't you notify them if you know clearly that you cannot provide that to them?

Mr Morrow : Maybe the retailer does that, but again we would need to notify 23 million people around the country. It is just not practical. We notify people when an area has been worked on.

Senator URQUHART: Yes, I understand that. I do not know how many service class zeros there are. How many are there?

Mr Morrow : I do not know off the top of my head.

Mr Rue : It stands at just over 10,000

Senator URQUHART: How many? Ten thousand?

Mr Rue : Around the country. It has substantially reduced over the last couple of years.

Senator URQUHART: So it is around 10,000?

Mr Rue : It is about that number.

Senator URQUHART: Okay. So how long until you go back to connect the services to those places? Say there are problems there and you cannot connect it. How long then before you would go back?

Mr Morrow : It varies depending on the complexity of the home.

Senator URQUHART: So would it be weeks or months?

Mr Morrow : It could be.

Senator URQUHART: Okay, it could be weeks or months?

Mr Morrow : It could be, yes.

Senator URQUHART: And you do not let them know. It is up to the retailer.

Mr Morrow : And typically, if they have put in their address—they go to our website and put in their address—they will see if they are in the construction period of this. But again it is very hard to predict. Remember, everybody will be connected by the year 2020. That is our firm commitment, and we are on track to do that. There will always be those homes that are complex that are out there that are going to take longer than others.

Senator URQUHART: Could it take years?

Mr Morrow : It might.

Senator URQUHART: So, for those around 10,000, do you know the length of time that they will have to wait or have been waiting? Do you have a breakdown of that?

Mr Morrow : Yes sure. There are—

Senator URQUHART: Can you provide that?

Mr Morrow : We can look at that.

Mr Rue : But I would say it used to sit around 40,000 and it has come down substantially in the last 18 months particularly.

Senator URQUHART: Okay. I would be interested to know the time frame.

Mr Rue : We can have a look at that.

Mr Morrow : Again, I can point out that, if you want everybody to get connected, if we care about every Australian, we are going to go as fast as we can, and some people are going to get it sooner than others.

Senator URQUHART: I entirely understand that. I guess I am thinking that, if I am living in a street where there are a lot of houses and the neighbour on that side has it and the neighbour on this side has it but I do not have it, I am going to ask some questions about what is going on.

Mr Morrow : Yes, of course.

Senator URQUHART: And if you have not notified the people, and maybe their retailer has not notified them, they are going to ask the question: how come?

Mr Morrow : Yes, sure.

Senator URQUHART: And then obviously the question is going to be: how long do I have to wait? And you might say, 'It is going to be years.'

Senator Fifield: Through you, Chair, can I just put it in perspective: when we came into office there were 30 per cent of premises with service class zero, and that is down to below five per cent.

Senator URQUHART: Okay. So what do the current weekly reports say is the number of service class zeros? You do a weekly report. Do you have a number on that?

Mr Rue : It would be that number I just gave you.

Senator URQUHART: Those 10,000?

Mr Rue : Yes.

Senator URQUHART: What is status 10, and what is the difference with status 10?

Mr Morrow : That is just a different technology. The last digit is what you want to look at. It falls into the same definition.

Senator URQUHART: So it is still status zero?

Mr Morrow : Yes.

Senator URQUHART: Right. So what the difference between status 10 and status 12?

Mr Morrow : That home is wired up but the rest of the work inside the house is not done.

Senator URQUHART: And why would that be?

Mr Morrow : Access to the customer's house is typically what is involved, or if there is a complication in the way that the home is—difficult to get into, or heritage homes that take longer for approvals to be able to make changes.

Senator URQUHART: Could status 10 be something like a problem with the copper that goes from the node to the premises? Is that something that would be under a status 10?

Mr Morrow : Typically not, no. It could be if the length of the copper is so far that we cannot guarantee the service that we are going to get to. We have to find—

Senator URQUHART: So it is too long, you mean, from a distance?

Mr Morrow : It could be, and therefore you need an alternative technology. You cannot use fibre-to-the-node technology. That is what we were talking about earlier, when we came back with fibre to the curb.

Senator URQUHART: Okay. I wanted to take you to the replacement of ADSL with Sky Muster in regional Australia—I am talking about an issue around Port Augusta here. Is it the case that, with the rollout of NBN, Telstra and other telecommunications providers will at some time in the future be switching off their ADSL broadbanding?

Mr Morrow : Only where we have fixed line technology. If you are under the satellite or a fixed wireless, there is no intent—it is up to Telstra or one of the other carriers whether they want to shut it down.

Senator URQUHART: Has NBN done any analysis on the number of customers that will be asked to switch from ADSL broadband to Sky Muster?

Mr Morrow : No. This is what we estimate in the satellite Sky Muster footprint. Roughly 400,000 homes are there. We anticipate 240,000 ultimately taking up the NBN service.

Senator URQUHART: But do you know if all of them will be switched from ADSL?

Mr Morrow : We do not know.

Senator URQUHART: You do not know that at all, or you do not do that analysis at all?

Mr Morrow : No.

Senator URQUHART: Is it the case that those people would be getting a less reliable and more expensive broadband if they move from ADSL to Sky Muster?

Mr Morrow : No.

Senator URQUHART: It is not? Okay. I just wanted to give you an example of an email that we got from a family in Port Augusta who are currently on a plan of 500 gigabytes per month on ADSL. My understanding is that the largest amount of data on Sky Muster will be 50 gigabytes. Is that correct?

Mr Morrow : It depends on what the retailer offers.

Senator URQUHART: Do they offer more than 50 gigabytes?

Mr Morrow : I do not recall what specifically is in the market, but, again, they can purchase other services to be able to expand on that. There is a constraint, naturally, as we talked about earlier: a constraint on total consumption that, during the busy period, would be more than what you will see on ADSL or other fixed line services.

Senator URQUHART: But this family say they are now getting 500 gigabytes per month, and the most data they will be able to get is 50 gigabytes. That basically says they are getting a reduced service as a result of moving from ADSL to Sky Muster.

Mr Morrow : It could be that there are faster services that they are going to get than the ADSL with less capacity. That very well may be the case, but they still have a choice to keep their ADSL service.

Senator URQUHART: Are they able to keep their ADSL service?

Mr Morrow : Yes, they are.

Senator URQUHART: They definitely can?

Mr Morrow : It is up to them and their provider. NBN does not go and mandate that Telstra or anybody else has to disconnect ADSL services.

Senator URQUHART: But if Telstra are going to disconnect the ADSL service then you do not intervene in that, if these people are going to get reduced service?

Mr Morrow : Absolutely not. No, we do not.

Senator URQUHART: So they could end up with a reduced service if their provider determines that they are going to turn off the ADSL?

Mr Morrow : They could, yes, and maybe that is the case. I have heard nothing about Telstra saying they are going to turn off that service in the satellite and fixed wireless areas, though.

Senator URQUHART: Their retailer says that they are only going to get 50 gigabytes; they are now getting 500. So moving to Sky Muster for them is actually a reduction in their data, which is a step back. It really is.

Mr Morrow : But then they do not have to move.

Senator URQUHART: No, but they will if Telstra says they have to.

Mr Morrow : But that is like saying your car manufacturer is going to put your car away—

Senator URQUHART: I am not arguing with you; I am just saying that is the reality of the situation for some people if their provider says they are going to turn it back and they do not have an alternative provider.

Mr Morrow : I understand, but that is a big 'if'. No one has indicated that is going to happen, though.

Senator URQUHART: All right. Can you tell me what the date for the switch-off of the interim satellite service is?

Mr Morrow : Sometime in the first part of next year.

Senator URQUHART: The first part of 2017. How many customers are currently on the interim satellite?

Mr Morrow : About 15,000 are left.

Senator URQUHART: What process is NBN putting in place to ensure that they will have access to the fixed wireless?

Mr Morrow : They do not have guaranteed access to the fixed wireless.

Senator URQUHART: They do not?

Mr Morrow : It will be whatever technology is served in that area. It could be satellite. It could be fixed wireless.

Senator URQUHART: Are you able to assure the committee that the fixed wireless service will be in place for all customers before the interim satellite service is switched off?

Mr Morrow : They will have either fixed wireless, satellite or on of our other technologies.

Senator URQUHART: So it would be some other technology.

Mr Morrow : Yes.

Senator URQUHART: And that will be in place before the interim satellite is turned off?

Mr Morrow : That is correct.

Senator URQUHART: And if it is not in place?

Mr Morrow : It will be in place, or—

Senator URQUHART: You will not turn it off?

Mr Morrow : Yes. It is pretty much already in place today, so we are not worried about technology not being available wherever there is interim satellite today.

Senator URQUHART: Okay. I understand that potential customers in urban areas on NBN fixed line technology are receiving $100 gift vouchers from NBN if they switch to NBN early. Is that the case?

Mr Morrow : Sometimes there are cases in multidwelling units where, if they move more quickly, we give an incentive to the retailer to be able to move them over. In other cases, retailers have their own propositions for where they may want to migrate off the old service and onto the new retailer provided NBN service more quickly, and that is a commercial term that they have with the end users.

Senator URQUHART: Okay. That happens in urban areas. Is the same being offered to regional customers?

Mr Morrow : It is a case-by-case basis, and again it is up to commercial terms based on the retailers and what we see in terms of business needs.

Senator URQUHART: But are there any that are currently being offered to regional services?

Mr Morrow : I do not believe so.

Senator URQUHART: So no regional customers. You do not see a need for that?

Mr Morrow : No, I do not.

Senator URQUHART: Why not?

Mr Morrow : Because the business model does not require it and it is not good for the taxpayer investor to advance that.

Senator URQUHART: Does NBN have any fixed wireless base stations in areas that are included in the government's Mobile Black Spot Program?

Mr Morrow : We work very closely with the government on the black spot program. We work very closely with other wireless carriers to share infrastructure. We offer a new product now that we call our CSAS product. If a mobile carrier wants to build that in a black spot area, we can provide a broadband service into that tower to give them a service competitive with the alternative.

Senator URQUHART: But do you have any fixed wireless base stations in the areas that are covered by the government's black spot program currently?

Mr Morrow : Not that I recall, but if we do then we cooperate and share with them.

Senator URQUHART: Can you take that on notice, please.

Mr Morrow : Sure.

Senator URQUHART: I would be interested to know roughly how many NBN Co base stations are in that mobile black spot area.

Mr Morrow : I will take that on notice.

Senator URQUHART: You can take that on notice. When you are building a new fixed wireless tower, do you have any process for communicating that with the mobile network operator? Do you talk with one another about the fact that you are building one?

Mr Morrow : We do.

Senator URQUHART: What sorts of things do you discuss? Is it multi-use?

Mr Morrow : Where we are going to deploy and whether there is a shared opportunity in that area.

Senator URQUHART: In NBN Co's 2014 Fixed Wireless and Satellite Review, you said that more than 870 new NBN Co fixed wireless towers were available for co-location of services with retail telecommunications providers and that only three expressions of interest had been received then and only one had been proceeded with. So what is the issue there? Why don't more mobile network operators take up the opportunity to co-locate with NBN on those towers?

Mr Morrow : Typically, we call it the grid: where we put our towers has a certain grid look to it. Mobile carriers have a very different approach to how they build their towers. So the overlap in the specific locations is not as great as one might think.

Senator URQUHART: Okay. Again in that review of 2014, it said that NBN Co was in discussions with mobile network operators about the issue. What was the outcome of those discussions?

Mr Morrow : I am sorry?

Senator URQUHART: In that Fixed Wireless and Satellite Review from May 2014, it said that NBN Co was in discussions with mobile network operators about the issue of taking up the opportunity to co-locate.

Mr Morrow : Yes.

Senator URQUHART: What has been the outcome of those discussions?

Mr Morrow : Again, there have been fewer than what was initially thought we could share. Because of the grid issue we just laid it out. We were very open and said, 'Here is where we are planning to build the fixed wireless network. Can we ride on top of your asset or do you want to share our asset?' There were a few examples of where we could cooperate, where either it helped them or it helped us and lowered the cost to the taxpayer. But it was not material, I would call it.

Senator URQUHART: Okay. That review also said that additional measures could be taken to facilitate greater sharing by third parties. What sorts of measures were they, that you could actually facilitate better sharing of that infrastructure? And have any of those been put into place?

Mr Morrow : This is one of them, I imagine: CSAS products, where we can offer the backhaul—the capability that goes from the tower back into their respective exchange and their network. Secondly, we could share the actual tower itself. We would just make sure that it can support the incremental weight. And then there are things that are environmental around power and things of that nature that we can also look to sharing.

Senator URQUHART: Okay, so you have put some of those things in place but the take-up has not been fantastic?

Mr Morrow : Right.

Senator URQUHART: Fantastic. According to a recent audit office report into round 1 of the government's Mobile Black Spot Program, 32 of the base stations funded under that program are likely to be co-located with NBN Co. Can you provide an update on that?

Mr Morrow : I do not have any of the specifics for you, but I do know that throughout all of this interaction and, I think, through the focus the government has had on the black spot area, we see more interest from the carriers to do something with us than where we were before back when that review was written. Again, it is easy for us—it is a no-brainer—if we can do it we will. But, as I said, our overlap areas are not 100 per cent.

Senator URQUHART: Just on that number of 32 base stations: is the number of co-located base stations 32, or what is the current expectation?

Mr Morrow : I am not aware of that. I would be happy to take that on notice if you like—how many sites we are going to co-locate.

Mr Rue : Around 30 per cent of all our sites are co-located, but not necessarily in the way that you are talking about, Senator. But it is about 30 per cent.

Senator URQUHART: So the expectation is for around 30 per cent?

Mr Rue : Approximately, yes.

Senator URQUHART: Could the number of co-located NBN Co fixed wireless base stations and mobile base stations in regional and remote areas be higher? Could you actually make that more than 30 per cent?

Mr Rue : We look to do that as much as we can because clearly it reduces the cost of builds. But around 30 per cent is where we are sitting today.

Senator URQUHART: In terms of regional and remote areas: what are the obstacles to that? To making that higher—the opportunities?

Mr Morrow : Again, it is where they need it versus where we need it.

Senator URQUHART: Okay, so it is that grid stuff. Do you agree with the ANAO report findings that co-locating mobile base stations within the infrastructure would have a lower deployment cost due to the use of established infrastructure, including the tower and backhaul?

Mr Morrow : We agree that the more we can share in those assets and the cost that it will reduce the cost for both the carriers and for NBN.

Senator URQUHART: Yes, okay.

Senator CHISHOLM: I just have some regional questions. Are you aware of the issue on the Gold Coast with regard to the NBN rollout affecting the Commonwealth Games venue?

Mr Morrow : I am aware of that, yes.

Senator CHISHOLM: My understanding is that the NBN rollout was not going to reach the Commonwealth Games venues prior to the game's opening. Is that correct?

Mr Morrow : That is correct.

Senator CHISHOLM: Okay. And that the council had to lay its own cable to ensure that the games venue had the rollout?

Mr Morrow : I understand that the council chose to build its own fibre out to certain venues before the Commonwealth Games, but not to the residential homes, no.

Senator CHISHOLM: Is there any flexibility in the rollout? I would have thought that this is Queensland on the world stage and Australia on the world stage and that it is an opportunity to showcase—that the NBN would make that area a priority?

Mr Morrow : Again, our objective is to make sure that we get everybody connected for the benefit of an entire nation. We have areas that come first before that, for the sake of the speed of that rollout. It just so happens that this particular area did not fit within that profile ahead of the Commonwealth Games. To divert resources to do that would have meant many, many homes getting further delayed from access to the NBN. That could also affect the economics of NBN, because we would lose the revenue of those higher-volume premises. Therefore, we looked at it. We hoped to do it. We are as patriotic as anybody on fighting to see those games and making sure that the nation is seen in a positive light. Unfortunately, the economics and the rollout schedule did not permit it.

Senator CHISHOLM: So in terms of the technology that the council roll out, will that eventually be something that the NBN will be able to use? Or will that basically just be $3 million that they are going to spend on this that will become irrelevant when the NBN does actually reach those areas?

Mr Morrow : We have even thought that they want to get that built before the games to feed certain venues because of the volume of data that will be sent in and out of that, including, I think, the village where the athletes are going to be. We would love to talk to them later to see if there is something that can be reused of that asset that will help the NBN speed when it comes through. That might be a cost recovery. It is too early to tell how they are designing it, what it will do and whether they would even be interested in such. But we are not tied to who builds it; we just want to get it done fast to the entire nation at the lowest possible cost. If we can reuse some of those assets and pay them for it, we would be happy to do so.

Senator CHISHOLM: The Telecommunications Industry Ombudsman report which came out last week says that Bundaberg had the most complaints in regional Queensland. Is there any specific reason an area like Bundaberg would have had the most complaints?

Mr Morrow : It was one of the earliest that we had rolled out with FTTN. As I mentioned earlier, we have a technology curve that we have to go up and a maturity curve that we go through on a lot of the processes. It was 2.56 per cent of active users that came through on those complaints that the TIO reported. So 97½ per cent had not complained to the TIO. That still does not mean that we are happy. We want to address everybody up there and give them a very good experience. I think we are looking at and fixing on a weekly basis any remaining issues that do exist. Again, that was the first area and 2.56 per cent of the active users there.

Senator CHISHOLM: What about any analysis of what the specific complaints were? Is there any linkage? Is it the fibre-to-the-node technology?

Mr Morrow : This brings up another point that is very difficult. The TIO collects information of people that are calling in. If it is NBN-related they categorise it. In the report the way issue it in terms of the volume, the 2.56 per cent is 'NBN-related'. That could be related to NBN Co, it could be related to the retailer that is reselling NBN or it could be related to other issues that actually have nothing at all to do with those two companies that are involved. But they take those complaints and they bundle them into one. That is why I said earlier we work with the retailers. It is really confusing to the end user—who is responsible for what. I have a lot of empathy with this notion of pointing fingers at each other. We just want to get it solved. Those complaints would be a multitude of different companies that would be involved. We are getting them sorted. It is getting fixed at new, faster rates than ever before. We do not want anybody to have a bad experience. Unfortunately, the minority of people there are having it are more than in other areas.

Senator CHISHOLM: I think that is a good, broad explanation. But specifically on Bundaberg, because it did receive a fair bit of attention in the local press last week, is there any specific reason they have the most complaints in the country?

Mr Morrow : It is mainly because they were the first ones to roll out. This is an area that is quite spread out, so you have a lot of the service class zero issues that we were talking about or that Senator Urquhart was asking about earlier. Remember, as the retailers and NBN Co start to iron out our processes, sometimes we do not experience everything for a while, and end users actually see it first and report that to us, and we fix it. I do know, when you think about the experiences and the complaints that have been reported, it ranges from, 'I'm not getting as fast a speed during the busy hours', about which we have found everything from retailers that have not provided enough of the CVC to elements of the modem within the house. Seldom ever do we find anything that is actually related to the copper network portion itself.

Another issue that we find from people calling into complain is that the modem is setup in the wrong place or the modem is not working at all or it is taking too long to get the schedule to get the technician out there, or the rescheduling—those are all the provisioning processes that I meant that we are going up a maturity curve. We receipt for everything that has gone on out there. We are going to get it sorted. We have a very collaborative relationship with the retailers to make sure that we do not have to explain, 'It's their issue not our issue;' we just both collectively go get it sorted. Again, for the people of Bundaberg, I hate seeing that at the top of that list, that 2½ per cent that are experiencing those complaints. We are focused on it and we are going to get it sorted for them.

CHAIR: Maybe the cane toads are getting into the pits!

Senator CHISHOLM: A related issue is in regard to Cairns and I have some more specifics about the issue. There are congestion issues and slow speeds in the evenings, particularly in the northern outskirts of Cairns. It seems to be a specific problem in an area. Is there any information that you can provide as to why that is occurring?

Mr Morrow : I am not familiar with that. Do you know which technology they are on?

Senator CHISHOLM: I am fairly sure it is fibre to the node.

Mr Morrow : Typically, we do not see any busy period or congestion issues that are related to the fibre-to-the-node technology. What we commonly find when we hear these sorts of issues is that a customer will assume that they have a super high speed, but in fact they have only purchased a 12 megabyte per second limiting service through their retailer and therefore NBN only provisions them up to 12 megabytes per second. Where they may have had an ADSL circuit that offered nine before, they are saying, 'I don't feel the difference any more,' we typically work with the end user to say, 'You have choice and you can talk to your retailer about maybe moving up to a 50 meg service.'

The second issue that we find on speeds is, again, where the retailer is maybe on their CVC opening or on the dimension of the network—how big their network cable is—coming into the opening of where they access the NBN network that was not provisioned high enough. We have also seen a lot of cases where the wifi in the house is an older wifi type technology and that limits the amount of data that is going through. Until we see the specifics, we do not know. We want to investigate and we want to get every one of those issues resolved. That is why I said we will work them all, whether it is the end-user equipment, the retailer or NBN Co's network that is at fault on that. We do want to be made aware of it and get it sorted for them.

Senator CHISHOLM: When there are complaints, and I will use Cairns as an example, does the NBN look at the quality of the copper if that is the issue?

Mr Morrow : Indeed. We are constantly testing and looking at various things. For example, even in the Cairns area, we did go out and run some tests on the network to see if there is any evidence of any congestion caused from the FTTN network itself, and the answer came back as no. If there is rain in an area that penetrated the copper cable, it will have an effect and it will slow down speeds but it will be constant on that, not just a busy period. That is a telling troubleshooting issue: if somebody is saying they are fine at noon but they have trouble at 6 pm when more people are going to be on the internet. In FTTN, that is more likely a question to ask the retailer about, 'Have you provisioned enough capacity to run through to deal with all of us as customers of the retailer,' because maybe they need to expand the CBC and maybe they need to build a bigger pipe that connects into our point of interconnect. Sometimes it is a modem of ours that is bad that needs replacing; sometimes there are other issues. Predominantly that is what we see if there is a congestion during a busy period that slows them down.

Senator CHISHOLM: In relation to Cairns, could you take on notice to look to see if there any underlying problems there?

Mr Morrow : We will.

CHAIR: On that basis, we managed to finish a little early. That concludes the committee's hearing with NBN Co. Senators are reminded that written questions on notice should be provided to the secretariat by close of business Thursday, 1 December 2016. I thank the minister and officers for their attendance, and I thank the secretariat staff and of course broadcasting and Hansard.

Committee adjourned at 12:24