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National Broadband Network Select Committee

ROUSSELOT, Mr Jean-Baptiste, Head of Strategy and Transformation, NBN Co. Ltd

SWITKOWSKI, Dr Zygmund, Executive Chairman and Chief Executive, NBN Co. Ltd

Committee met at 10 : 00

CHAIR ( Senator Conroy ): I declare open this public hearing of the Senate Select Committee on the National Broadband Network. This is a public hearing, and a Hansard transcript of the proceedings is being made. Before the committee starts taking evidence, I remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage witness on account of evidence given to a committee and such action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to a committee. The committee prefers all evidence to be given in public, but under the Senate's resolutions witnesses have the right to request to be held in private session. It is important that witnesses give the committee notice if they intend to ask to give evidence in camera. If a witness objects to answering a question the witness should state the ground upon which the objection is taken and the committee will determine whether it will insist on an answer, having regard to the ground which is claimed. If the committee determines to insist on an answer a witness may request that the answer be given in camera. Such a request may also be made at any other time.

I remind senators that the Senate has resolved that an officer of a department of the Commonwealth or state shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about when and how policies were adopted. Officers of the department are also reminded that any claim that it would be contrary to the public interest to answer a question must be made by a minister and should be accompanied by a statement setting out the basis for the claim. On behalf of the committee, I thank all witnesses appearing today for their cooperation in this inquiry.

I welcome representatives from NBN Co. I will start by seeking some clarification. The committee requested some additional information to the publicly available document—in other words, an unredacted copy. I understand that you might want to make a statement; I understand there is correspondence from the minister that you might want to advise the committee about. The committee asked for an unredacted copy of the report, Dr Switkowski?

Dr Switkowski : I have a concern about accessing the full report, because the parts that have been redacted have been redacted for a reason, primarily the commercial sensitivity of the numbers that we have been using as well as the confidentiality of information that has been provided to us by certain organisations. We have sought advice from the minister's office, and the minister's office has confirmed that we are not to provide the full report at this time.

CHAIR: We have just been given a copy of that letter. Could I have a motion to table the letter? Then we can circulate it to all members of the committee.

Senator LUDLAM: I move that the letter be tabled.

Senator O'NEILL: I second the motion.

CHAIR: Hopefully we can get that circulated during the course of the morning. Can I clarify, would that even apply to an in camera hearing? In other words, we clear the room. It is still on Hansard but it is an in camera discussion. So is Minister Turnbull saying that, even in camera, the committee cannot have access to that information?

Dr Switkowski : That is my understanding and that would be my wish.

CHAIR: Do you wish to make a brief opening statement before we go to questions?

Dr Switkowski : Yes. NBN Co. board completed its review last week and submitted its final report to the government. The strategic review has been undertaken at a time when the network roll out is three per cent complete. The forecasts that we have made refer to consumer needs through to the year 2040 and some judgements about the internet environment three decades hence. Consequently there are uncertainties in quantifying the merits of certain strategies and associated outlook statements. We welcome an opportunity today to have our assumptions challenged and alternative views put forward. I have invited our key advisers to join me today to help the committee in getting answers to questions you might have around the review.

The previous government's central policy objective in 2009 was for NBN Co. to deliver significant improvement in broadband service and quality to all Australians; to address the lack of high-speed broadband in Australia, particularly outside the metropolitan areas; and to reshape the telecommunications sector. NBN Co. was to be a wholesale only, open access communications network. The current review accepts this policy objective and applies formal financial scrutiny and international benchmarking to the performance and the costs of such a policy, noting this may be the largest infrastructure project ever initiated in Australia and is being undertaken by what is effectively a start-up company—albeit well funded and resourced.

Many of you will know that the original policy was being pursued through a fibre-to-the-premise, FTTP, technology and it was this technology that was mandated rather than the service objective of high-speed broadband being delivered as efficiently as possible. The original fibre-to-the-premise plan foreshadowed peak funding of just over $44 billion and a national roll out to be completed in 2021 with 13 million premises to be passed by optical fibre, fixed wireless and satellite. At this point, our estimate for June 2014, which is five years after the announcement to create NBN Co., is that the brown fields fibre network is now expected to pass a total of somewhere between 350,000 and 400,000 premises. Of these, about 90,000 premises are likely to be activated. To meet revised estimates, NBN Co. must scale up to rolling past 100,000 premises per month or 5,000 premises per day by 2017.

As we revise the estimates for the next several years, our judgement of our continuation of the current process will see peak funding to be at $73 billion. We see the roll out of FTTP delayed by three years to the middle of 2024. The $29-billion increase arises from a number of areas. We find that the costs have been underestimated, particularly in light of the experience that NBN Co. has had, and we find that the revenues have been overestimated. When you also include the cost of additional debt, that helps to explain the $29-billion variance. A range of alternative deployment scenarios has been analysed in the review, and we have looked at different technical solutions to achieve high-speed broadband for customers. In the end, we have landed on a preferred scenario which we call the optimised multi-technology mix, MTM, solution.

This is a strategy that aims to contain peak fundings and optimise long-term economics while delivering continually upgradable service through access to wholesale speeds of 50 megabits per second and beyond for a high proportion to fixed-line footprint. In this scenario, the peak funding becomes $41 billion and wholesale speeds of up to 50 megabits per second are planned to be available to 90 per cent of the footprint in 2019. This outcome and these milestones are broadly in line with what we have seen in other rollouts internationally. So the MTM—the multi-technology mix—scenario then becomes a network of networks interconnecting fibre to the premises, fibre to the node, fixed wireless, satellite and the hybrid fibre-coaxial system and any other platform that might emerge in the future. This approach resembles the architecture of similar rollouts overseas where service levels are dictated rather than a selection of a particular technology.

At the end of the build, the split within the fixed footprint would be approximately 26 per cent all fibre, 44 per cent fibre to the node and 30 per cent the HFC network. We have formed the view that this is the sensible approach in an industry where technology is changing rapidly and forecasts beyond the next decade or so are necessarily uncertain. This technology mix should reduce costs, and does, and bring forward revenues, and does, and doing so reduces the debt requirements to build the NBN. The level of fixed wireless and satellite coverage really varies little between the scenarios.

The deployment of this technology—agnostic MTM—promises to deliver access to very high speed broadband where wholesale speeds of around 100 megabits per second may be accessed by more than 65 per cent of Australian households and businesses, and to do so substantially sooner than an all-fibre scenario. This is obviously helped by the planned redeployment of existing HFC networks that are already capable of 100 megabits per second download rates as part of the construction of the NBN, rather than overbuilding those networks. This in turn allows for a greater and earlier focus of resources on new construction work in areas that are currently underserved by existing broadband services.

In areas where FTTN is rolled out, this review expects that NBN Co. will not need to upgrade to a second access technology—presumably all fibre or fibre to the distribution point—sooner than five years after the construction of the first access technology. We have modelled and concluded that it is economically more efficient to upgrade over time rather than attempt to build a future proof network in a field where fast-changing technology is the norm.

The other issue is the average revenue per user: if assumptions are conservatively made and ARPU is held in constant in nominal terms, the current corporate plan, if continued on current trends, would not make a positive return in terms of the internal rate of return. Allowing the average revenue per user to grow with inflation over time, which we think is a realistic outlook, produces an internal rate of return of 2½ per cent for the current plan and 5.3 per cent for the multi-technology model. Frankly, neither figure would support a commercially based investment decision by the private sector given that the capital required is high and that there are risks anticipated for NBN. However, a cost-benefit analysis study, which is about to be initiated—or perhaps has been initiated—by the government may reach a different conclusion once estimates of social benefits are made and offset against opportunity costs.

Finally, 30-year plans—that is what the 2040 scenario means—are interesting and can be useful, but NBN Co. must translate these long-term milestones to realistic and actionable new term plans. The best practice internationally is to implement a rolling annual plan, with a semiannual review of annual network footprint and performance, changes in the technologies and being mindful of shifts in consumer needs. I do not think we will get any challenge today that this is a project of critical importance to our nation. It does require a collaborative approach with delivery partners, with retail service providers and with the wider telecommunications network. It is a journey that the board of NBN Co. endorses and our employees look forward to. Thank you, Chair.

CHAIR: Thank you for that opening statement. Dr Switkowski, the committee will have a number of relatively detailed questions, which we wanted to put to you in writing. We appreciate how busy you have been and how busy the company have been since the change of government. If we provide these to you by the end of the week, would it be possible to get responses to the committee by, say, 24 January.

Dr Switkowski : I am sure that is very reasonable.

CHAIR: Thank you. Are the executives at the table aware that theNBN Co. Corporate plan 2012-15 and the June draft corporate plan 2013-16 were reviewed by KPMG for the shareholder ministers?

Dr Switkowski : I am aware that the 2012-15 plan would have been.

CHAIR: And the 2013-16 plan?

Dr Switkowski : I do not even know the status, Chair, of that document.

CHAIR: It was passed by the old board before it was submitted to the government the first time. Were you also aware that the board of NBN Co. hired Ernst & Young to review the corporate plan?

Dr Switkowski : I am aware that Ernst & Young has been involved in that sort of task. I do not have the specifics.

CHAIR: The legal notice for the review says that the work of the experts had not been independently verified or audited—that is the review that has just been completed. I think I am quoting accurately that the work has 'not been independently verified or audited'? That is what the statement says.

Dr Switkowski : Here is where I think there is a difference. In the current strategic review, having appointed external advisers, we said to them: 'Go back and revisit and re-establish all of the assumptions that are relevant to the broadband environment. Interrogate whichever employees are judged to be relevant. Talk to vendors, talk to our construction partners and help us update assumptions and therefore the outlook for NBN under a variety of different technologies and reconcile those forecasts with what you understand to be current practice overseas. Chair, I do not think those were the instructions that would have been given to the firms that were invited in the past to verify a particular plan. I think there is quite a considerable difference, although I do not know what KPMG and EY may have been asked explicitly to do, but my experience is that the task was different to what we have attempted to undertake on this occasion.

CHAIR: Thanks for that, but what I was asking you was to confirm what was in the legal notice stated in the strategic review—that it has not been independently verified or audited. I am just asking you to confirm that is what the strategic review says.

Dr Switkowski : You are asking about our review?

CHAIR: Yes, the legal notice.

Dr Switkowski : It has not had any further verification.

CHAIR: Not independently verified or audited?

Dr Switkowski : It had been undertaken by independent firms.

CHAIR: But it has not been independently verified or audited?

Dr Switkowski : It has not had another layer of review, that is true.

CHAIR: I note the review has used as the baseline the last corporate plan accepted by shareholder ministers, which I think is the 2012-15 one.

Dr Switkowski : That is true.

CHAIR: Given that the June 2013-16 draft was approved by the board, why was that not used?

Dr Switkowski : Again, we used as our baseline the only document that we were aware of that had status as being approved by the government. Subsequent documents were not part of our consideration.

CHAIR: Mr Payne is on holidays overseas—is that right?

Dr Switkowski : Yes, on vacation.

CHAIR: He is not on NBN business in any part of that?

Dr Switkowski : Not that I am aware of.

CHAIR: I am just confirming—that is what I thought. He said in evidence at estimates that the government asked that the company further review the June draft to incorporate the consequences of the delay due to remediation. Given that version 13 of the corporate plan 2013-16 was the NBN Co.'s response, why wasn't that used as the baseline?

Dr Switkowski : We certainly are of the view that the baseline that had to be referred to was the one that was formally in the system and approved, and that any update of the performance of NBN Co. was within the mandate of the current review, and that is what we presented in the document last week.

CHAIR: But you acknowledge that there was a draft corporate plan approved by the board for 2013-16 and then, subsequently, after the election, a version 13 was provided to the board on the day—I do not think you were appointed on the same day as the board resigned. But you acknowledge the existence of versions 12 and 13. Version 12, which you do not acknowledge, is up on the AFR website. You can find it easily. Version 13, we understand, was passed to the board just prior to all of them being asked to resign.

Dr Switkowski : I am clearly aware of 12 to 15. I am also aware that there is a document out there—and that was the object of your interrogation last week—but it has not been part of my consciousness in terms of how this particular review has been undertaken and composed.

CHAIR: Were the experts provided with either version 12 or 13 of the 2013-16 corporate plan for consideration?

Dr Switkowski : I have asked our experts to this hearing on the assumption that the interest was very much around the review and its process. So I would be very happy for them to join me and answer that question.

Senator CONROY: The committee will work in the order of the program. We appreciate you would like to re-order it for us, but we've got that. I am asking you whether the experts were provided with either version, 12 or 13, of the 2013-16 corporate plan for their consideration?

Dr Switkowski : Mr Rousselot?

Mr Rousselot : Yes, those documents, as well as many other working documents, were made available in the data room for the expert advisers.

CHAIR: For the independent assessment, why was KordaMentha used for the costs, but BCG for the revenue? There seems to be a split in the way it was designed and I am interested in the thinking behind it.

Mr Rousselot : The revenue forecast we had to do was going to be applied to all scenarios going forward—so, not only the revised forecasts but also all the other scenarios we are going to have. That is why we had to have one of the two companies produce the revenue forecast. We selected BCG to do so, given their international experience. The costs of the revised outlook were only relevant to the revised outlook, and that is why those were done by KordaMentha.

CHAIR: Going to the issue of BCG. You mentioned their international experience. What specific expertise did BCG bring to forecasting revenue in Australia?

Mr Rousselot : The Boston Consulting Group has a technology practice, and in particular a telecommunications practice. I believe the lead of the technology practice is in fact Patrick Forth, who is based in Australia and was the leading partner on the BCG project. We thought that would bring a lot of local knowledge as well as international experience. In the references that BCG listed, they mentioned work they had done in the telecommunications sector in Australia.

CHAIR: We will go into some more detail later with the other witnesses, but could I confirm that the independent assessment found that there were no material issues within the accounts.

Mr Rousselot : The KordaMentha findings were that there were no wrongdoings in the accounts. We asked them to do—

CHAIR: In the report it says 'no material issues'.

Mr Rousselot : Yes, no material issues.

CHAIR: I would be shocked if there were wrongdoing, but that is a very different test to 'material'. Wrongdoing implies criminal activity. I am pleased you were confirming there was no criminal activity by anybody at NBN Co. It is very good of you to confirm that. I am sure everyone in the company is relieved to hear your endorsements. But the question I asked was about the statement by KordaMentha, which was that there were no material issues within the account. That is on page 35.

Mr Rousselot : That statement is correct.

CHAIR: Just to confirm again: no wrongdoing, no criminal activity, in the company?

Mr Rousselot : I confirm that too.

CHAIR: Can I also confirm that the independent assessment found that the corporate plan is based on detailed and quantative analyses?

Mr Rousselot : Yes.

CHAIR: The revised outlook offered in the strategic review is clearly another view. We have already established that the review has not been subject to independent analysis, as per the legal statement. From the evidence available to me it seems that every worse-case scenario has been used to create the revised outlook, the data is inconsistent and you are low-balling targets. We will get to debate that at length, I am sure, over the next few hours.

Dr Switkowski, I am assuming you have read the front page of today's Australian, given you are featured prominently on it—I am not suggesting in any way there is any narcissism involved, but I am sure you wanted to make sure you were accurately portrayed. The headline reads: 'NBN chairman vows to bring down $41bn bill' and in it you are quoted as saying:

We have to go back in there and see what we can do to deliver on expectations more quickly, to spend money more productively and to work with industry to achieve those things through a higher level of co-operation.

That is an accurate quote?

Dr Switkowski : That is an accurate quote.

CHAIR: Excellent. I have to check these things, as you know—you have had plenty of experience with the media in the past yourself. As a consequence, should we regard everything in the strategic review as just a line in the sand, all of which could be improved upon?

Dr Switkowski : Firstly, can I assure you and the committee that whatever assumptions were made were applied even-handedly across all of the scenarios. So if you have a different view as to, for example, the revenue forecasts that apply to the current scenario, then you would have a similarly different view across the scenarios. So, no, I do not believe the earlier comments that we have pushed our assumptions to one end or that we have low-balled any assumptions. That was not the approach.

Again, I remind the committee that, although the chair characterises this review as not having been reviewed again by an independent body, it has been—

CHAIR: No, your own document makes that statement.

Dr Switkowski : undertaken by independent advisors and it is called an 'independent assessment'. In terms of the comments in the media today, I refer to the following: a strategic review is just that—it attempts to scope out the dollars et cetera for various scenarios, and lays a preferred path, but now it will be transformed into a corporate plan and a budget. That is several months of work. At that time, I firmly believe we have to go back and stress-test all of the assumptions and challenge ourselves to do better—I simply think we have to.

CHAIR: Are you suggesting the previous management were not doing those things?

Dr Switkowski : I make no comments about previous management.

CHAIR: I want to confirm the speeds the optimised multi-technology mix will deliver. On page 18 of the strategic review it states:

The Optimised Multi-Technology Mix scenario results in the following outcomes:

40-45 percent of the fixed line footprint will have at least 25Mbps in CY16—

calendar year 2016—

provided by


90 percent of the fixed line footprint will have at least 50Mbps in CY19;

98-100 percent will have at least 25Mbps by end of CY20 …

Will these be guaranteed minimum speeds?

Mr Rousselot : They are different speeds that you can guarantee or offer, depending on the technology that you are on. Those speeds are the speeds that we will be offering. It some cases it may well be that for a short period of time you will have a slightly lower performance than you otherwise would—but that is the case for any network; ultimately, every technology has some level of sharing up in the backbone.

CHAIR: But Minister Turnbull, and now Prime Minister Abbott, guaranteed minimum speeds, not best available efforts on whatever technology is recommended. I just want to know: are you going to meet Prime Minister Abbott's and Mr Turnbull's promise to guarantee a minimum speed to Australians. The trick here is that Australians are people. Your wholesale offering to your retail customers, the RSPs, are not capable. Mr Abbott's promise and Mr Turnbull's promise was to Australians, not to RSPs. So are you guaranteeing that minimum speeds will be delivered to Australians to meet the promise made by Prime Minister Abbott and Minister Turnbull?

Mr Rousselot : What this network will do is it will make available to retailers a network capable of delivering on that promise.

CHAIR: Capable of delivering. That is not a guarantee that people will receive the guaranteed minimum speed that the Prime Minister of Australia and the Minister for Communications, Mr Turnbull, promised the Australian people before the last election.

Mr Rousselot : Ultimately, as you say, the retail service provider are in that chain. You have made that point yourself.

CHAIR: So it is their fault if the promise is broken.

Mr Rousselot : I am not saying that. I am saying that it is a value chain that has many links and what we will make sure of is that the NBN network as part of its links is capable of delivering that.

CHAIR: So you will not guarantee that Australians will receive a guaranteed minimum 25 meg as promised by the Prime Minister of Australia and the Minister for Communications, Mr Turnbull? You are not prepared to back that up. Please feel free: you do not need to feel shy, Dr Switkowski—jump right in. This is the promise made before the last election to the Australian public. I just want to know whether you are going to be keeping it.

Dr Switkowski : Firstly, the approach to this review, the mandate was not inventory all of the comments et cetera that have been made outside of NBN Co.; it was have a look at the business plan and deliver against the terms of reference, which it has done. So references to what other people may or may not have promised is outside—

CHAIR: The Prime Minister is not just anybody.

Dr Switkowski : I agree, but that is not a question you can reasonably put to us.

CHAIR: We can reasonably put to you whether you are delivering on the Prime Minister's promise.

Dr Switkowski : The other thing is that this is a strategic review. One of the problems I have found in reviewing the past is that there has been a too quick take-up of words like 'guarantee'. This is a strategic review. This outlines what a particular scenario may deliver and we are doing it with high confidence. If we were doing it perfectly mathematically, we would say that within a certain probability and once the standard deviation we can do the following. We have not done that because we needed to make this thing understandable.

CHAIR: Did Mr Abbott not understand those things when he made the promise?

Dr Switkowski : I do not buy questions that demand us to guarantee anything. It is clear that after four years of NBN guarantees have lost currency.

CHAIR: Mr Abbott is the one whose guarantee I am asking you to keep, but you are not prepared to commit to meet the Prime Minister of Australia's commitment to the Australian public before the election.

Dr Switkowski : We have indicated in the review what we believe the revised plan will deliver.

CHAIR: Which is not the promise that Mr Abbott and Mr Turnbull made.

Dr Switkowski : I do not need to go there.

CHAIR: It is a question of are you going to meet their promise or not. You are clearly indicating that you are not.

Dr Switkowski : I am clearly indicating that I am standing by, along with my executive team, the conclusions that have been summarised in this review.

Senator RUSTON: I seek clarification here to see if I am understanding what we are talking about. The Prime Minister and Mr Turnbull made a comment that speeds of 25 megabits per second would be accessible by this percentage of Australians and all the benchmarks in time. If a user chooses not to access those speeds because they take a particular package from a provider that gives them less speeds because they have chosen to pay for less speed, it can hardly be suggested that a commitment has not been kept, because they have access to the speed even if they do not choose to take it. Is that a fair summary?

CHAIR: That is a completely accurate statement but it does not meet the promise, the guarantee, given to the Australian public by the Prime Minister of Australia and Mr Turnbull. But I will move on. There is no need to labour it. I think we have established that you will not be meeting the commitment. I am not being critical. I understand the limitations of the technology you have chosen and you would be foolhardy to try and promise you can deliver on those speeds. I think you accept that.

Dr Switkowski : I think you are adding a colour that is not intended. The conclusions of this review are summarised in this document and they use words like 'in a certain year a certain percentage of our customers will have access to, for example, 25 megabits per second'. That is a perfectly accurate conclusion supported by very full analyses. I stand by it.

CHAIR: I am not disagreeing with anything you have said, but Mr Abbott and Mr Turnbull promised a guarantee. But I will move on because, as I said, we could probably spend an hour exchanging different perspectives on that. NBN Co. has passed 259,948 brownfields as of 9 December, correct?

Dr Switkowski : That sounds about right.

CHAIR: For how many brownfields premises have build contract instructions been issued as of 24 August, including premises passed?

Dr Switkowski : That is not a number I carry around. I will have to take that on notice.

CHAIR: From recollection, it is about 512,818. Contract instructions have been issued. I believe, as at 24 August, there are 512,818. Somebody behind you will be able to confirm if I am wrong—and please do. KordaMentha found that the build phase of the construction process is being completed more or less in line with the corporate plan assumptions. They say at page 48, 'The construction phase is being completed in an average of approximately 216 days, or 7.1 months, which is in line with the corporate plan.' Is that correct? NBN Co. is actually delivering the construction phase on time?

Mr Rousselot : Yes.

CHAIR: So all of these 512,000 premises that are identified as already being construction issued should be passed by June 2014?

Mr Rousselot : Mr Adcock is coming later today. I think he is the best person to direct those questions to.

CHAIR: We did ask for him to be here now.

Dr Switkowski : We have got Mr Korda here. Why doesn't he—

CHAIR: He will be called separately. I am asking you about your actual ongoing operation. Mr Korda is not involved in the actual deployment and Mr Adcock is. We did ask for him, and it continues to be a surprise to the committee that you continue not to provide the witnesses that the committee asks for. That is an unusual set of circumstances. I have not bothered having an argument about it because we want to get on with the hearing. But I just find it extraordinary that you continue to prevent the committee from having access to the people who can directly answer the questions. Mr Rousselot has just indicated that Mr Adcock is the person to ask, and we asked for him to be here, sitting next to you, right now. Mr Rousselot just tried to pass the question to him.

Dr Switkowski : My reading of the mandate of this committee led me to conclude that the interests of this committee were going to be focused on the contents of the strategic review, and that was supported by my reading of Hansard from last week. So I have assembled a team today that I believe to be—

CHAIR: The committee decides who we will ask questions of.

Dr Switkowski : I believe this is the team that is best placed to answer your questions. Going back to your question: if we have passed 260,000 brownfield premises—and I think the number today is a little higher than that—

CHAIR: That was the number at 9 September.

Dr Switkowski : We have also estimated that, by the end of June next year, that number will be somewhere in the order of 360,000 and that the incremental 100,000 homes passed is broadly consistent with what we are delivering now, or think we can deliver, in the early months of 2014.

CHAIR: We will come to that. But I come back to my point. We appreciate that you have had a look at our terms of reference, which are fairly broad. I think you would agree that the last paragraph, to paraphrase, says 'anything else we want'. So it is good of you to read our minds, but who you think we need to see and who we ask to see can be different. We would appreciate if you could give us a commitment that you will provide the witnesses we seek so that we do not have to go through the absurd process of having to summon public servants to appear before a committee.

Senator SESELJA: Chair, what is the problem with Mr Korda answering questions in addition, if that is what Mr Switkowski wants?

CHAIR: Even Mr Rousselot suggested the person to ask was Mr Adcock.

Senator SESELJA: Dr Switkowski has said that Mr Korda might be able to add something. Is there a reason why the committee or why you as chair don't want to hear from Mr Korda?

CHAIR: I would like to hear from the person who is employed by the NBN Co. that Mr Rousselot believes I should ask because, he is right, I should be asking Mr Adcock. Anyway, I am happy to move on. I want to play a clip from Mr Turnbull and you, Dr Switkowski. I am not sure if it was on your first ever visit to Blacktown but it was great to see you out there on 8 November.

A videoclip was then shown—

CHAIR: Just to confirm what you saw the minister say there:

The NBN Co. is proceeding. Twelve thousand premises were passed last week—

Congratulations—that was back when he gave that interview—and he went on:

We have issued design instructions for more premises—twice as many premises to be passed by June 30 next year as the NBN Co. has passed to date …

This did lead to people scratching their heads a bit. I understand that the minister's commitment may be a little confusing, but Josh Taylor—good news for all of us, he is in the room today—wrote on ZDNet on 8 November that he confirmed with the minister's office that this was a commitment to complete 450,000 premises by 30 June. Do you agree that this was the minister's claim on 8 November?

Dr Switkowski : I can only support what I saw on the cable—

CHAIR: Josh, you're getting to be very famous here! I am happy to table ZDNet's article; if we can get a copy I am sure we can circulate it very quickly to you.

Dr Switkowski : Chair, I assume that this is in the context of estimates for the middle of 2014, starting at a very high number, moving through 600,000 down to 450,000 and currently at 360,000.

CHAIR: Did you mention 600,000?

Dr Switkowski : I think I have seen that number before.

CHAIR: That would be what was in version 13 of the corporate plan that is out there in the ether. I have also seen reference to it by Mr Turnbull. I do want to come to the numbers, if you will bear with me. I note the ramp-up in the rollout is happening, from the evidence—

Dr Switkowski : There is no evidence that that is happening.

CHAIR: Mr Turnbull just said there was.

Dr Switkowski : I think the difficulties are that—

CHAIR: Perhaps I could ask my question before you give me an answer; that would be helpful. According to your website, over the past six weeks NBN Co. has passed—and these figures are by weeks: 9 December, 4,695; 1 December, 5,278; 24 November, 5,198; et cetera, et cetera—but for the past six weeks the average has been 5,000 passed. That is just a statistical fact.

Dr Switkowski : That feels right.

CHAIR: So we agree that that is right. I want to have a discussion with you about these different scenarios that seem to be getting painted.

Slides were then shown—

CHAIR: Let me draw your attention to the first slide behind me. As of 24 August this year, NBN Co. had passed or had issued build instructions to pass 512,818 premises. KordaMentha, as we have discussed, found that the build phase is being completed in line with corporate plan assumptions—this is not the design and the issues around design; this is purely the build part. It means that by June 2014 the NBN Co. should easily have passed the 512,000 , according to your own figures and KordaMentha.

Dr Switkowski : For build instructions?

CHAIR: These are build instructions that have been issued already and are averaging seven months on your own figures and the company's own figures. This slide demonstrates the premises passed count of what we have just discussed. The line is the cumulative premises count and the columns are the historic weekly rollout and the average to get to 512,000. That is what that graft represents.

Slide 2 is coming up next. It was noted by Josh Taylor in ZDNet on 8 November that 'Turnbull's office clarified that the NBN will have passed 450,000 brownfields premises by the end of June.' This slide shows that trajectory.

The next slide demonstrates where you will be in June 2014 if the rollout plateaus. That slide shows where you will be if you do nothing more than continue to build at the average you have built for the last six weeks of 5,000—so nothing more than keeping on doing the amount you are doing at the moment.

The final slide demonstrates where you will be according to your new target in the strategic review, which you published last week, of 357,000. Just a few weeks ago, Mr Turnbull said it would be 450,000. You acknowledged earlier, I think, that there was a target, which I described as being from version 13, of 600,000. What that seems to show is that you actually have to tank the rollout to meet your own target.

Dr Switkowski : This to me illustrates one of the big problems around the commentary with respect to NBN. You, from the outside, have taken a bunch of numbers and challenged our ability to make forecasts when we have all of the data and we understand what is happening out in the field. How does that work? For example, you cannot take 5,000 homes passed per month and not allow for the fact that from the middle of December to the middle of January the industry shuts down. There is 20,000 off your number to start off with. You have got to get down to that level of analysis to form a forward view. What we will not do is come up with numbers that are excessively optimistic, which I assert has characterised previous forecasts. To have people from outside the organisation attempt to reinterpret our forecasts is ludicrous.

CHAIR: That is good of you to say. Mr Turnbull spent three years interpreting the forecasts. I will pass on to him that you think his efforts were ludicrous.

Senator SESELJA: It turned out to be correct.

CHAIR: As you can see from this video, you actually have to slow the rollout down from where you are at right now just to meet your revised down numbers from not even six weeks ago—November 8, I think it was—which Mr Turnbull announced as his target. So you are actually slowing the weekly build down.

Dr Switkowski : Senator Conroy, could I encourage you or your staff to go out into the field and talk to our distribution partners, our construction partners, and have them confirm to you that we are doing everything possible to stabilise the rollout and to increase it. It is in our interests, as it is in yours, to do better, to pass more homes, to provide connectivity to high speed broadband to more and more Australians. That is what we are trying to do. The numbers are what the numbers are at this stage.

CHAIR: They started at 600,000 in August. According to Mr Turnbull just four weeks, they were 450,000 and last Thursday they became 357,000.

Dr Switkowski : They started at 1.1 million the year before. What does that tell you?

CHAIR: What it tells me is that you are slowing down the rollout on your own figures.

Dr Switkowski : No, because if you look at the rollout rate from 1 July, which is when the new year started for accounting purposes, you will find that the rollout is consistently at between 4,000 and 5,000 homes passed in brownfields environments per week, and it represents to me that the industry is running on two cylinders. We have got to get it to eight cylinders. That is our focus. We share with you a determination to get those numbers up.

CHAIR: My point is that the target you have set actually shows that you have to slow down the rollout—

Dr Switkowski : That is incorrect.

CHAIR: from where you are today.

Dr Switkowski : That is incorrect.

CHAIR: From where you are today, you are slowing down the rollout per week.

Senator RUSTON: Senator, you are verballing the witness. The witness has not said that he is slowing the rollout down.

CHAIR: He has not said it. It is just actions speak louder than words, and the actions of NBN Co. do not support the words of Mr Switkowski.

Senator RUSTON: Mr Chairman, can I maybe ask Dr Switkowski—

CHAIR: I have not finished my questions.

Senator RUSTON: Maybe he could explain why.

CHAIR: He just has in his interpretation. If I can keep going with my questions, you will get your chance soon.

Senator RUSTON: Hopefully.

CHAIR: I wanted to investigate how a slower deployment affects revenues and peak funding. Just to put it in a context: you have to slow the build per week to 3,300 on average—down from the 5,000 you are at today—to meet your target that you have now set, for 30 June next year. It is 3,300 down from 5,000, which is the average you have achieved for the last six weeks.

Dr Switkowski : No, your algebra is wrong for the following reasons. We are in the middle of December. We have passed 260,000 homes. We have 100,000 homes to go to meet our revised forecast. We have 23 working weeks—maybe 22 if you exclude Easter—in which to do that. Then you see that between another 4,000 and 5,000 homes passed per week gives you our revised forecast.

CHAIR: I am familiar with the rollout over the Christmas period. I am familiar with what happened last year; you might want to acquaint yourself with it. My understanding is that NBN Co.'s construction partners kept working—perhaps not at the full speed that you are suggesting, but they keep working through the Christmas period. If you are negotiating to allow them off for the full period, that is in your hands, Dr Switkowski, not in the committee's hands.

Dr Switkowski : That is another step that we might park for the moment. What I am saying is that that is the basis for our forecasts; that we have made reasonable allowances based upon experience. Contrary to past practices, where NBN Co. appears to have sprinted to some sort of virtual finish line at every half, we are going to run at a steady rate for the purposes of this forecast. We hope that you have an opportunity in a few months to say that you were right and that we did better.

CHAIR: You have just invited us to go and speak to your construction partners. I understand that shadow minister Jason Clare has made repeated efforts to simply observe construction but has been advised by Mr Carden, your government relations officer, that that is not possible. Were you making an open invitation for us to go out on the ground now?

Dr Switkowski : I am unaware of that history.

CHAIR: I am asking whether you will overrule Mr Carden and say that, if Minister Clare or anyone else wants to go and look at the construction process, they can. It is in your hands.

Dr Switkowski : I am always very guarded about making commitments in areas that are intensely political.

CHAIR: You have just invited us to go and talk to the construction partners.

Dr Switkowski : I will bring the representatives here for you to question.

CHAIR: I have met them quite a few times.

Dr Switkowski : I know.

CHAIR: As I said, I wanted to talk about how a slower deployment affects revenues and peak funding. Mr Rousselot, Mr Turnbull very eloquently announced to the parliament last week or the week before that you have qualifications from a university founded by, I think I overheard him saying in parliament, Louis XIV. What is your background? I did not catch all of Mr Turnbull's eloquent defence of his yachting partner.

Mr Rousselot : I did graduate from the Ecole Nationale des Ponts et Chaussees, which is a civil engineering school in France. I also have an MBA from the Massachusetts Institute of Technology—MIT. I have since then worked in a number of fields, and for the last 15 years I have worked mostly in the media and communications field.

CHAIR: And you are a keen sailor to boot.

Mr Rousselot : Yes.

CHAIR: We all have our weaknesses!

Senator RUSTON: I am not sure this gets into the terms of reference.

CHAIR: You said you have a civil engineering degree. Have you ever used it?

Mr Rousselot : Yes, I have. I worked with Baulderstone Hornibrook for two years, between 1994 and 1996.

CHAIR: So you have been in the workforce 30 years, and you have used your civil engineering degree for two years. I am not being critical; I am just seeking to establish the fact.

Mr Rousselot : Yes.

CHAIR: A decision to extend the rollout—or, as I would characterise it, to tank the rollout—results in $11.6 billion less in revenues, according to page 58 of the review. That is a mathematical formula; if you slow the rollout down, revenues—

Dr Switkowski : No, that is incorrect.

CHAIR: Page 58—

Dr Switkowski : The revision to the revenue forecasts—

CHAIR: The biggest hit on revenues is from the delayed deployment; it actually halves the revenue.

Dr Switkowski : The revenue reduction—

CHAIR: It is a fact, on page 58.

Dr Switkowski : is largely on the back of the changed assumptions around the average revenue per user and also the slower development of the footprint.

CHAIR: Yes, the slower deployment.

Dr Switkowski : That is part of the answer.

CHAIR: Perhaps you jumped too early before I finished the question, because I will get to the other components. They are all listed on page 58, Dr Switkowski. But the biggest single hit on the revenue is from the delayed deployment profile. It actually halves the revenue. There are other components, which I will happily talk about with you, but the single biggest hit on revenue is due to a decision, an assumption, by Mr Rousselot, an assessment by Mr Rousselot, that you will slow down the rollout by three years. That is the single biggest impact on it. Mr Rousselot, you might be able to help Dr Switkowski. That is just a fact, isn't it?

Mr Rousselot : The slower rollout is indeed driving the bulk of the reduction in revenue for the period FY 2011 to FY 2021, which is the number you are referring to. The slower rollout, however, is not based on my assumptions; it is based on the actual track record that we have and the review that has been done since then by KordaMentha, supported by the newly appointed operations team of NBN Co.

CHAIR: Who are the newly appointed operations team, just out of interest?

Mr Rousselot : Greg Adcock has been recently appointed chief operating officer.

CHAIR: Mr Adcock. Okay. But this is an assessment that has been done, based on assumptions about a whole range of things—and we are going to get to them. I just want to make it so we are all going to be talking about the same thing. You say 'the vast bulk', I say that it is more than $11.6 billion, but $11.6 billion is the figure characterised by you, or by the strategic review, as the hit on the revenue base of NBN Co. by the decision—the assumption, the forecast—that you will extend by three years. That is just a fact.

Mr Rousselot : If I may, because we look back to FY 2012 plan, there are in fact actuals that cover the period between FY 2012 and now. So this is not an assumption; it is a fact. Yes, there are assumptions being made in terms of from now onwards. So it is a mix of the fact and the track record that we have achieved between when the plan was published and today, and then a forecast made for the period going forward.

CHAIR: I note that the strategic review assumes that government equity does not change in the revised outlook. Is that correct?

Mr Rousselot : Yes, that is the assumption we have worked under.

CHAIR: So, under your decision to incorporate all of these in the review, this decision to delay the completion date by three years halves the revenues to 2021, and what that means is that NBN Co. has to get more money from private debt markets. Is that right?

Mr Rousselot : Again, you have mentioned 'my decisions'. It is not my decision. It is a forecast that we have made based on the actuals and assumptions that have been made going forward. And, yes, you are correct; this is the impact on the revenue.

CHAIR: Thank you. And more money is needed from the private debt markets because of this assumption that you have made. I am not trying to split hairs. You keep changing between 'decisions', 'assumptions', 'forecasts', 'advice'; I do not mind which of them you pick. This is your document, Mr Rousselot—that has been extensively explained to us by Dr Switkowski—so you cannot keep trying to blame other people. Your name is on it.

Mr Rousselot : I am not blaming other people. I am just stating the fact that, to build the numbers that you are looking at, we have actuals to date and we have forecasts going forward; and your point on the debt is we have assumed, when we look at the revised outlook, that the current funding arrangement with the government would apply, which is a maximum equity contribution of $30.1 billion, $30.5 billion, and any fund that is required in addition, given the re-forecast that is made based on actuals and a revised forecast, we have assumed to be funded through debt.

CHAIR: Okay. So the extra interest that NBN Co. has to pay up until 2024, from 2021 to 2024, in this situation is $7.5 billion, according to your chart on page 38?

Mr Rousselot : I think that is correct.

CHAIR: So your costs are up by $7.5 billion because of the decision. Your revenue is down by $11.5 billion because of your assumption, decision, interpretation, whatever. So what happens to opex if the rollout is slowed by three years?

Mr Rousselot : I believe that the opex vary little during the period. I think the biggest changes—

CHAIR: On page 38 it suggests that it increases by $5.4 billion—that is a lot by my standards; it might be a little by yours.

Mr Rousselot : I understand why you have that. Certain payments that are made that are in fact more representative of the rollout are treated as opex, and I think that is why you have a difference in that number. I will have to check.

CHAIR: These are national accounting standards signed off by the Auditor-General of Australia a few months back. That is not a characterisation of anything; it is actually the accounting practice, confirmed by the Australian Audit Office, who will be auditing your figures.

Senator SESELJA: Chair, can I ask you a procedural question. We have been going for about 50 minutes of questions from yourself. Are you planning on giving other members of the committee an opportunity to interrogate witnesses?

CHAIR: I probably have two more and then I can pause. So where we are is that by slowing the rollout by three years you have added a lazy $13 billion to peak funding—it is just mathematics; it is just that that is what happens?

Mr Rousselot : That is the result of the forecast that we have made, yes.

CHAIR: How many years would you need to slow the rollout out by just two get to Mr Turnbull's original claim of peak funding of $90 billion?

Mr Rousselot : It is an analysis that we have done.

CHAIR: There can't be too many more.

Mr Rousselot : I cannot answer your question.

CHAIR: Sure. That is all right. I wasn't really expecting you to.

Senator LUDLAM: Slightly tongue-in-cheek.

CHAIR: Slightly tongue-in-cheek. Any questions from that end of the table?

Senator SESELJA: Yes, I have a number. The chair asked a number of questions around some of the findings of the review and he mentioned one or two—this is going some time back now. I think the chair used the term 'low-balling' when it came to some of the predictions or assumptions. I was just drawn to, I think, page 15 which says that now a 20 per cent contingency will be applied to capital rather than 10 per cent. That would be the opposite of 'low-balling', wouldn't it—that would be putting in place extra contingencies, an extra conservative way of predicting, would it not?

Dr Switkowski : Indeed, you are quite right. I wonder, JB, whether you would elaborate on the philosophy that led to that.

Mr Rousselot : Typically what you do on big complex infrastructure projects is that you set an amount of contingency that reflects the complexity and the uncertainty that surrounds the project. Having done so and having consulted both advisers—KordaMentha and BCG—we thought that a 20 per cent contingency was more representative of the type of risk and complexity of this project, and this is why we have assumed that number for the scenarios going forward. When we applied it to the first scenario we have left it to be the 10 per cent assumptions that were in the plan so far.

Senator SESELJA: I didn't get that last part of your comment. Sorry, Mr Rousselot.

Dr Switkowski : The business as usual scenario has been left with a 10 per cent contingency, but all others have been loaded with a 20 per cent contingency. I think it reinforces the point that you are making, and that is that we are being careful in conservatising the numbers for the scenarios that we are supporting.

Senator SESELJA: This is the business as usual that leads us to a $73 billion peak spend. So if you were to apply the 20 per cent contingency, as you are applying to all of the other scenarios, that would take you beyond the $73 billion, presumably?

Dr Switkowski : It would do that.

Senator SESELJA: That is interesting. Again, obviously you are taking a very conservative approach in terms of your estimates. I guess the flipside is that, if you were to apply the 10 per cent to the other scenarios where you apply your 20 per cent, there would be potential projected savings, but you have made the assumption that the 10 per cent contingency is not reasonable going forward.

Dr Switkowski : That is a fair point. It is part of the thinking that when we come to translate this review into a plan and a budget, we have those sort of contingencies that, if we are better at doing what we are doing at the moment by a significant margin, we will be able to maybe lighten the contingency, but that is not the intention at this stage.

Senator SESELJA: Underpromising and overdelivering, hopefully, when it comes to some of these assumptions.

Dr Switkowski : Hopefully.

Senator SESELJA: The chair picked out a couple of bits, I think, in relation to the accounts when it came to what the review had found, but I wanted to get you to expand on some of the other aspects that the review found. Some of them are quite damning. It found:

An unrealistic assessment by key internal and external stakeholders of the complexity and time required to complete the task;

Do you have any views as to why there was that unrealistic assessment by key internal and external stakeholders?

Dr Switkowski : This might be an opportunity to invite one of our advisers to comment on that, because it was an independent assessment. Their views are well worth listening to. Mr Korda—

CHAIR: Sorry; we will ask questions of Mr Korda later.

Senator SESELJA: I have asked a question of Dr Switkowski. He is seeking further advice. I would be very pleased to hear the additional information from Mr Korda.

CHAIR: And you will be able to, at the appropriate time in the committee hearing.

Senator SESELJA: Sure. But it seems that you want to limit the ability of questions to be answered. You have had 50 minutes. We have just started some questioning—

CHAIR: The committee has set out the agenda. The witness is—

Senator SESELJA: But there is nothing to stop additional information from coming forth.

CHAIR: The witnesses will be called this afternoon—

Senator SESELJA: There is no principle of the committee that we cannot have additional information.

CHAIR: The witnesses will be called this afternoon. You will be able to get all the information you need if you are patient.

Senator SESELJA: But I am going down a line of questioning which is no different to where you started in terms of the review. Dr Switkowski has said that he can provide additional information to that questioning, and I would like to get those answers. If Mr Korda can assist—

CHAIR: Mr Korda is listed to appear at 3.45 this afternoon, and you can put the questions to him—

Senator SESELJA: That is fine, but you have had 50 minutes—

CHAIR: If you do not have any more questions for the witnesses at the table—

Senator SESELJA: I do have questions for the witnesses.

CHAIR: Well, then, please ask them.

Senator SESELJA: And if Mr Korda can assist the witness, I am not sure why we as a committee would be prevented from getting those answers.

CHAIR: We have a separate entire period where we will be calling those witnesses, as agreed by you earlier today and—

Senator SESELJA: The witness at the table has said he can provide additional information through an additional witness.

CHAIR: last week. Would you like to ask Dr Switkowski some questions?

Senator RUSTON: Could I ask a procedural question, Chair? Is there anything preventing Mr Korda answering this question from a procedural perspective—

CHAIR: If you have finished your questions to Dr Switkowski, I have got lots more, so I can take up the flak.

Senator SESELJA: I am actually asking Dr Switkowski a question. I agree with Senator Ruston. Perhaps you can answer that question: is there anything preventing a witness coming to the table—

CHAIR: The committee have already agreed, and now what you are trying to do is change the order—

Senator SESELJA: No, I am not.

CHAIR: of the witnesses appearing before the committee in mid flight. We have already agreed on the program.

Senator SESELJA: It is regular practice, and in fact I think we saw it in the hearings last week—

CHAIR: It is already agreed in the program.

Senator SESELJA: where additional witnesses were called from the back of the room where they could assist.

CHAIR: If you do not want to ask Dr Switkowski any more questions—

Senator SESELJA: I am asking him questions, but you seem desperate—

CHAIR: I will see if another senator—

Senator SESELJA: to stop Mr Korda from coming and assisting—

CHAIR: I am very excited for Mr Korda to appear, when he is called this afternoon. If you have no more questions—

Senator SESELJA: I have plenty.

CHAIR: I will take the questions and I will keep going.

Senator SESELJA: Can I ask the question, though: what is the problem with him providing additional information?

CHAIR: He will provide it at 3.45, when he has been called.

Senator SESELJA: What is the problem with him providing—

CHAIR: Stop trying to run the committee from over there.

Senator SESELJA: I am not trying to run the committee. I am dealing with our witness at the table, who has requested another witness come and assist with answering the question.

CHAIR: Would you like to ask Dr Switkowski a question? I am sure Mr Korda, who is down the back enjoying a cup of tea, will be able to answer your question at the time he has been put down for on the agenda. That was agreed to by you last week and confirmed this morning, when I read it out and said we were going with the order that was agreed at the Senate committee hearing. Do you have a question for Dr Switkowski?

Senator SMITH: I think, Chair, we should be very, clear: the government senators were very, very keen to have KordaMentha appear higher in the program, and it was non-government senators that objected to that request. I think Senator Seselja is quite right—if Mr Korda can provide illumination on his questioning, given that the chair is very happy for Mr Korda to come to the table, then we should do that, we should facilitate that. If that is not how you would like to proceed then it is very clear to us and others that you are concerned about the evidence that might be presented.

CHAIR: I am looking forward to you asking questions, to your heart's content, this afternoon, as agreed by you. They are following almost immediately. The only change agreed was that Telstra, because of their request, would be before these other witnesses. So we are going through NBN's witnesses, then Telstra's, at their request—which we all were happy to concede to—and then we will be straight into them. No-one is trying to hide anybody. But, if you would like to ask Dr Switkowski some questions, please do so; otherwise, I will start asking him some questions.

Senator SESELJA: Dr Switkowski, given the chair is preventing this witness from coming up, I will ask you some of these questions, but I will go back briefly to the previous topic to get you to confirm, in relation to the $73 billion business as usual cost, if you were to go to the assumptions which are now considered by NBN Co. to be the right contingencies in terms of 20 per cent, we are talking about quite a significant blow-out in the $73 billion cost, are we not?

Dr Switkowski : We are certainly talking about a large number, but I would like to ask a procedural question. The answer to your question resides with Mr Korda. Can I turn around and ask him for the answer? Can I turn around and ask anybody?

Senator SESELJA: I do not think there is anything stopping you from asking.

CHAIR: If you like to go through the absurdity of having him pass you a note, that is fine, but he is appearing separately and the simple way to deal with this is to say that, when Mr Korda is at the table that 3.45 pm, as has been agreed by the committee, the senator can ask him the question.

Dr Switkowski : I think, Chair, you are being cute. We have experts here who can answer.

CHAIR: I have not been called 'cute' in years.

Dr Switkowski : No, indeed. I can understand why that might be so.

CHAIR: Can we make sure that that gets into Hansard? I got called 'cute'!

Dr Switkowski : We have experts here who, in good faith, will answer these questions precisely.

CHAIR: And they can answer them at 3.45 pm when they are scheduled to appear. Now what would you like to answer any more questions from Senator Seselja, or I can ask you questions? I am offering an opportunity for the senator to continue with his line of questions .

Senator SESELJA: I will continue and we will come back to those later when we have Mr Korda and others here. I am interested in your view, though. I imagine you would have formed some views about these conclusions. Perhaps if you cannot give us the same kind of detail that other witnesses might be able to, you might be able to give us some of your broader views on what went wrong and how we got to some of the pretty damning findings that I am going through. Would that be okay Dr Switkowski? I accept that you will not necessarily be able to provide all the detail but we might come back to that later this afternoon, given we have been prevented from doing so at the moment.

Dr Switkowski : On the detail, if the current plan continued to its conclusion and $40 billion or thereabouts of capital spending is part of the $73 billion, the difference between 10 and 20 per cent contingency is $4 billion. That is just my mental arithmetic. We await Mr Korda's more expert views on that.

Senator SESELJA: So $73 billion may not be the extent of the blow-out we would have been facing under a business as usual scenario?

CHAIR: We are talking $90 billion, remember?

Senator SESELJA: Clearly it could be much closer to $90 billion on those sorts of numbers.

CHAIR: Let Dr Switkowski answer your question.

Dr Switkowski : If you are looking for the big differences between our current rollout scenario—which is fibre to the premises for 93 per cent of Australians—versus the proposed alternative, the big differences in the cash requirements are to be found in the fact that we are not overbuilding existing cable infrastructure and existing copper infrastructure. The video clip which the chair showed earlier illustrates one of those points. When you go to a suburb like Blacktown, into that particular location, when I was there with the minister what we saw in ducts underground was Telstra cable and copper.

In the aerial build you had Optus cable. Optus cable and Telstra cable are already able to deliver about 100 megabits per second. In addition, NBN was coming through and stringing their own fibre through the Telstra ducts. That is a threefold or even a fourfold overbuild in a suburb which could conveniently have been accessed by just one of those bits of infrastructure. So to the extent that the multi-technology model uses, leverages and upgrades existing copper network and the existing GFC network, that is a considerable saving in dollars relative to overbuilding an all-fibre network. In addition, the expectation is that the civil works associated with the multi-technology model are less demanding because you are not stringing cable down every street and taking leads into every home and working inside every apartment and every dwelling. The work is largely to a particular cabinet or a node. You can do that less intrusively. You can do it faster. You can do it at a lower cost. Frankly, these are not breathtaking observations. These are the observations and conclusions of virtually every jurisdiction we have studied. I hope you get a chance to ask the Boston Consulting Group folk this afternoon.

CHAIR: They will be at the table at 3.45, Dr Switkowski.

Dr Switkowski : Overseas experience has drawn the same conclusions that we have. As a result we are not, from a standing start, adopting the most expensive—arguably visionary—plan, which is difficult to execute. We are doing it in stages, while at the same time maintaining our options as other technologies or customer needs unfold.

Senator SESELJA: So somebody is making a bunch of commonsense changes at this stage, that are designed to get the most efficient rollout of the network, going forward.

Dr Switkowski : I would agree with that conclusion. I would also say that had an appropriate analysis been done at the beginning of this, of all of the options, and had a debate had been had, we probably would have landed on about the same spot as our current recommendation.

Senator SESELJA: Unfortunately, that did not occur.

CHAIR: Dr Switkowski, what was your last comment?

Dr Switkowski : Had an appropriate analysis and plan been proposed and debated then I think the conclusion would have been drawn that the current multi-technology-mix option would be the preferred option.

CHAIR: Your own evidence from YouTube was that the best technological outcome was fibre to the home.

Dr Switkowski : Point to point, fibre is fastest.

CHAIR: We are not building a point to point network. You know the difference between point to point and—

Senator SESELJA: I know you are keen for more questioning. You have had about 50 minutes so perhaps I could—

CHAIR: No, I was asking him to repeat his evidence.

Senator SESELJA: continue to ask some questions. I will go back to some of these conclusions and attack them in more detail but I am keen for your views on some of these other conclusions. I have talked about the unrealistic assessment by key internal and external stakeholders. Another finding is that there was blind faith in the achievability of the corporate plan, notwithstanding clear factual evidence to the contrary. Did you, as chair, have any views on how that was the case? What did the review find in relation to that?

Dr Switkowski : The review found what I also found in the early weeks when I joined NBN, early in October—that is, that, commendably, there was a high regard and respect for the promises that were built into a corporate plan. But there was a very high resistance or reluctance to recognise that what was being experienced and delivered in the field was well away from the assumptions and the promises in the corporate plan. The culture was such that these differences were not properly debated and tested, and adequate remedial action was not taken. I have seen evidence of that in the inquiries and the interrogations of this committee. There is a kind of ferocious determination to say that what was in the plan and what was in the headlines of two years ago must have been right, and that they must still be right. The fact is they are not. They were not right then; they are not right now.

Member of the committee interjecting

CHAIR: I invite Dr Switkowski: if you do not want to have interventions all the time when you are giving your opinion on the past you might want to be slightly less provocative in your statements. Otherwise, I am sure the senator will object if I start responding to your soothsaying backwards.

Senator SESELJA: I will.

CHAIR: If you want to debate what is in the report and answer the questions, that is fine. I am happy to have a generic debate with you about the world—

Senator SESELJA: Chair, that is exactly what the witness is doing. I have asked him—

CHAIR: If you want to be pejorative in your answers you will just invite commentary from this side of the table.

Senator SESELJA: You might not like it, but the witness is entitled to answer honestly. Perhaps one of the problems in the past was that we had a government that did not want honest answers.

Members of the committee interjecting—

Senator SESELJA: Clearly, that was the case. I have asked the witness to give his views. We would have liked different detail from different witnesses but we have been prevented to from doing that at this stage.

CHAIR: You will get the opportunity at 3.45, this afternoon.

Senator SESELJA: I have asked him to give his views. He is giving his views. Just because you do not like them does not make them incorrect. I would invite the witness to continue to give his answers honestly to the committee in a way that he has been. I think you are cut off there, Dr Switkowski. Would you like to continue that answer.

Dr Switkowski : My recollection of the first three sessions that we have had with Senate estimates and this committee is that the focus has been entirely upon trying to demonstrate that the figures that characterised these operations one and two years ago must have been right, whereas I am saying that when I arrived and had a look at what was happening, it did not resemble anything like it was in the figures. That is a very generic statement, so I apologise that it is too wide-ranging, but in key areas there was a big gap between the reality and the numbers. And the numbers were tenaciously defended, tenaciously enforced and consistently commented upon, but they did not represent reality.

Senator SESELJA: Without being generic then, perhaps there are some specific examples that you can give us where the claimed numbers were not matching the reality.

Dr Switkowski : Senator, whether it was appropriate or not the key metric was always around brownfield environments, homes passed and what was possible. As we said in an earlier exchange, the 1215 plane promised some number at the middle of next year that might be 1.1 million homes. That number has gone—as the charter has indicated—down, down and down. Even as I arrived in the early days of October, there were numbers in the system that it was insisted would be delivered that were never ever going to be delivered given the run rate and the instabilities in the supply chain. That is probably the biggest of the problems.

Senator SESELJA: Well those numbers clearly were spectacularly wrong. I do not think that is a controversial thing; that is just what the numbers show. Going back to the findings, another finding was 'some significant operational decisions being made without appropriate commercial rigor and oversight'. That is obviously very concerning, and perhaps one of the reasons we have seen such cost blow-outs. Are you able to expand on that, and were there any particular reasons do you think as to why significant operational decisions would be made without appropriate commercial rigor and oversight?

Dr Switkowski : I might just put JB on notice here, but one of the examples that I am certainly very well aware of is that if you were managing the rollout of an all fibre network, you would manage it so as to achieve critical coverage in particular areas and then you would expand contiguously so as to not only efficiently use construction resources and partners, but provide sufficient opportunity for retail service providers to connect an acceptable level of customers. In fact, the rollout has been largely scattered—not entirely, but largely scattered. It is subcritical in so many areas, it is not contiguous and it seems to have involved so many different construction partners that where you would expect the experiences gained with one firm to be internalised and lead to improved processes, that is less effective when you have multiple partners working in different jurisdictions doing work at a subcritical level. JB, do you have any other comments?

Mr Rousselot : Another example would be in some of the designs that were selected. When we looked at ways to reduce costs of the deployment, we identified some areas that could significantly reduce the costs. Some of those were included in some of the plans that we have going forward. The fact that the original design did not look at those options initially would be another question where you would think: how would you have gotten to that particular design in the first place.

Senator SESELJA: At what level is it your understanding that those kinds of decisions were made?

Mr Rousselot : I would not know; I was not around at the time.

Senator SESELJA: The review did not look into that in terms of where those decisions were made?

Dr Switkowski : That is an appropriate question to ask Mr Korda when he appears later in the afternoon. Can I also emphasise: our motivation here is to neither look for problems, nor in any way to diminish the efforts of previous management, which I think have been substantial. No question. This was always an ambitious project, it was always a project that was pioneering in many ways because it has not been replicated anywhere else in the world. We are not interested in somehow or other diminishing the outlook for NBN, quite the reverse, but we cannot ignore the situation as we found it. And by going for independent assessment, we have accepted the commentary and the words of our advisers.

Senator SESELJA: Another finding—and this is quite an extraordinary one, in some ways—is that the review is critical of the 'lack of a “single version of the truth” for information and decision making.' What are we trying to get at there with that finding? Does that mean that whatever the government wanted at any given time was 'the truth'? What do we mean by a 'lack of a single version of the truth'? That seems to be an interesting choice of words.

Mr Rousselot : I think what we were referring to there is the fact that throughout the organisation you would find different systems providing numbers for the same output. So if you asked what a deployment at a certain date was, or what a particular cost estimate at a certain date was, you could potentially get different results depending on who you were asking within the company.

Senator SESELJA: Where were those numbers being fed? If you are getting three different answers to the same question, where was the central point they were coming from and where it became apparent that those answers were different and there was not one version of the truth?

Mr Rousselot : Just to clarify, the reason the numbers were different is they were probably looking at it in a slightly different way. So the methodology for each of those was right but, unfortunately, when you looked at it in a summarised way you did not look at the details behind it. So you would be having conversations with people in operations that potentially gave you different results from people you asked in finance. I think that is what KordaMentha were trying to highlight in that report—but, again, as Dr Switkowski was suggesting, maybe Mark can give you more details around that later today.

Senator SESELJA: Where was the quality control? Who was responsible? I am trying to get to the bottom of this. You say there are a few different versions of the truth, there are a few different assumptions being made and therefore different answers being provided. To whom are those different answers being communicated?

Mr Rousselot : They would have been within each of the divisions, so they would probably have been communicated to the EXCO representative in charge of that particular division.

Senator SESELJA: That would lead to significant confusion at some point in the organisation, presumably, as to what the answer actually was.

Mr Rousselot : And indeed I think it is reflected in our experience in the first few executive co meetings that both the chairman and I joined, where we had to seek clarification because there were different numbers being put on the table.

Senator O'NEILL: Can I just seek clarification there: so it was a systems problem rather than a truth problem. Is that correct—it was a systems failure?

Mr Rousselot : It was the fact that there were different ways to calculate a particular number. It is therefore hard at that point to figure out which one is the most accurate representation. Again, I am not trying to put words into Mark Korda's testimony—maybe it is a question you need to ask him—but it was different perspectives on a single number that made it hard to figure out which one was the most accurate representation.

Senator O'NEILL: So a systems failure.

Dr Switkowski : Partly. There is no assertion here about people being untruthful.

Senator O'NEILL: Thank you for that clarification, Dr Switkowski. That is what I was seeking to have clarified.

Dr Switkowski : But there is a criticism of the culture, in the sense that there was such a determination to stick with official numbers that, once you went down two or three layers in the organisation, employees knew those numbers did not relate to their experiences. Somewhere in this process bunches of numbers appeared and were used differently by different parts of the organisation. So we do need to work on—and we are working on it now—a situation where there is only ever one set of data that is factual and one set of estimates and forecasts.

Senator SESELJA: I would just make the point in relation to Mr Korda not being able to come to the table that last week, I think it was, the deputy secretary of the department was not on the list at that time and I think you called the deputy secretary to the front in order to answer questions. So I am not really sure why we are having a different standard here.

CHAIR: Mr Korda and the other witnesses are actually scheduled to appear before the committee later this afternoon—

Senator SESELJA: I think that was the case last week as well.

CHAIR: and they will be available. You have almost had 40 minutes, so—

Senator SESELJA: No, less than 30, actually.

CHAIR: You accused me of having 50, which meant 10.50—and it is now nearly 11.30, so that is 40 minutes.

Senator SESELJA: I will correct you on that: it was around 11.00 when I said that, from 10.10.

CHAIR: Okay, I wasn't paying attention to—

Senator SESELJA: It has been less than 30 minutes, but I think Senator Ruston has some questions.

Senator RUSTON: Going back to the question we were on when the chair suggested I leave my questions until after he had finished. It was in relation to the figures to do with how many brownfields sites are able to be connected by 30 June 2014. There is obviously a reason why we have seen the spiralling downward of the estimates for the number of sites. I also might mention that at the time that Mr Quigley revised the estimates down from 1.1 million to 600,000 there was never any suggestion that he was slowing the rollout down, so I think it is possibly unreasonable to suggest you are. Can you give us a bit of background as to why you have revised your estimates down, particularly in this space from 30 June until now?

Dr Switkowski : Firstly, we obviously have weekly data that goes back to since the beginning of the rollout, but most particularly since 1 July of this year. That is relevant because that is when a new forecast will have been made. Even though it is tempting to say that there were influences on the rollout as a result of the election being called, with the caretaker period, and the installation of the new government, the reality is that the weekly figures are steady at between 4,000 and 5,000 homes passed per week. They are low, lower than they have to be. Remember that 4,000 and 5,000 homes per week has to ramp up to 4,000 and 5,000 homes per day within a couple of years if any of our forecasts are going to materialise. You asked why it is at that level. The whole process has been creaky. Partly, it is trying to recover from a pause as a result of Telstra remediation in the asbestos areas.

Senator RUSTON: Would that be something of concern now given that the remediation activity was taken in the first three months after the financial year. Would that—in the remediation—be now showing in construction.

Dr Switkowski : It is not showing through yet, but in the new year it should. Part of the problem is that our own internal design capability and the way in which you hand work over to construction partners is not very efficient. We are trying to fix that. Partly, it is that we have inherited a very—let me not be extravagant—somewhat dissatisfied group of partners with various levels of dispute with us. In some cases they have as a result slowed their deployment. That is quite important and we are trying to work our way through each of the disputes and resolve them commercially, and we are trying to create an environment where our distribution partners are enthusiastic in their approach to the work. All of those things are being managed as we speak.

There is no change in the current strategy. We are rolling out fibre to the premises wherever we can in a way that we think is appropriate, given that at the end of the plan that is proposed we will still have a quarter of all premises on all-fibre.

In the meantime we have a machine, if I could describe it that way, that is running at 4,000 to 5,000 per week, and it was during Senator Conroy's time, and that has not changed. What we are trying to do now is resolve some of these issues and begin to lift it, but we cannot claim to have lifted it yet. The numbers are what the numbers are and it is on that basis that we have made the projections for the middle of next year.

Senator RUSTON: Would it be reasonable to suggest that once we are through these issues of remediation, the slowdown and the contractor model being less than optimal, there is every reason to suggest that we can increase those numbers quite—

Dr Switkowski : Sharply.

Senator RUSTON: Okay. Going back to the issue of what people actually need—25 megabits per second or 100 megabits per second. In terms of the sites and premises that have connected to the NBN in the areas it has so far been rolled out to, what is the evidence of what people are asking for in the packages they are—

CHAIR: They were tabled last week.

Mr Rousselot : There are two things you can look at. One is the take-up rate, which is how many people take up the service once a location is passed. Then, there is the mix of plans they take. If you look at the current take-out actuals to September, we are roughly at about 19 per cent. That compares to a corporate plan that assumes 20 per cent, so we are not too far off.

This is one of the areas where the numbers are similar. When you look at the mix of plan where 45 per cent of the customers have taken the lowest speed plan, the 12-meg down speed, one meg up speed, and you have 23 per cent that have taken the 140 plan. This is slightly different from the assumptions that were in the corporate plan. We are actually experiencing more people taking 140 meg plan than was assumed in the corporate plan. The fact that none of the ifs have yet reached a date where we get to the compulsory migration of customers has to be taken into consideration. It is potentially a likelihood that what we will have is early adopters taking the plan and that as we get to that completion of forced migration, we will see the people in the lower speed plan grow. That is something we have not experienced yet because we have not reached that status in any of the FSAMS that we have deployed.

Dr Switkowski : I do not know if it is widely understood, but 50 megabits per second is a kind of a benchmark speed for the purposes of this review and for the inquiry of the committee. What is 50 megabits per second, if you receive it at household level, mean?

CHAIR: There is no guarantee that anyone in a household will receive that speed though.

Dr Switkowski : In the Australian market, business will have legitimate needs for a much higher bandwidth—for which we are making provisions—and six, seven or eight per cent of the population will be in very remote areas covered by satellite and fixed wireless. If you allow me to call the rest of the market the mainstream, which are largely households and apartments, what does 50 megabits per second mean? It means a high definition broadcast signal of, the numbers will vary a bit, maybe five megabits per second or maybe a little more. If you add a so-called 4K television, which is just becoming available but it is unclear whether it will become a mass-market product, you may need 20 megabits per second. Everything else falls right away, YouTube, music, emails in terms of how hungry they are for bandwidth. So if you are in a household where you have got two standard television signals over the internet and you have got two HDTV signals then that would be 10 or maybe 15 megabits. With a 4K TV we could call it 30 megabits and you would still have not got to 50 megs. This is a household where you would need effectively five big screens operating simultaneously with one of them at 4K levels and two of them at HD levels. This is a requirement of far less than one per cent of Australia's high bandwidth users. The conclusion that people overseas have drawn is that for the mainstream, except admittedly for an important group that requires it, 50 megabits per second is considerably in advance of their appetite.

Senator RUSTON: Is it for the reasons that you have just explained that many of the countries that went for this fibre to the premise that are now moving back to the node and to the HFC type models are doing so because the experience has found that the majority of people are not seeking that level?

Dr Switkowski : There are three reasons: (1) those companies and countries that initially started enthusiastically with fibre to the premises are finding it expensive; (2) the resilience and the outlook for the copper networks has been revised positively—the life left in copper and the various upgrades that are foreshadowed suggest that it is going to be future of broadband networks for a long time to come; (3) consumer needs are at a point where they can be satisfied with this mix of technologies and do not require an all-fibre network and may never require an all-fibre network.

Senator RUSTON: In conclusion, would it be reasonable to say that what you are trying to do is develop a model that best meets the needs of Australia at the least possible cost?

Dr Switkowski : Fit for purpose.

CHAIR: You know what the people of Australia want, Dr Switkowski. We are blessed to have you at the chair.

Senator RUSTON: Chair, can I just put on the record that apparently Mr Clare has been invited on numerous occasions to undertake site visits and to date he has declined them all.

CHAIR: We can debate that later.

Senator RUSTON: Indeed.

CHAIR: I just wanted to make sure that Dr Switkowski was making it a public invitation.

Senator LUDLAM: I think we are breaking in 20 minutes or so, so I will ask a couple of high-level questions and then I will put some more detailed stuff to you after we have heard from Telstra. On page 73, you say that the independent assessment commented that intense political and media interest had 'adversely impacted the performance of NBN Co and the efficient deployment of the network.' What was that meant to indicate? Is that just someone with a dark sense of humour, or is that something that you are able to reckon with in terms of costs or delays?

Dr Switkowski : Firstly, I doubt very much whether you were surprised to read something like that. The morale of the organisation is affected by the degree of criticism that NBN has had to withstand for a long period of time and for the challenge to its plans, promises et cetera. You can see it in an organisation where individuals are hesitant about making decisions, realise that their executives today and in the past have had to run the gauntlet of various subcommittee hearings and have had their leadership subjected to vigorous interrogation. It is very different to the way in which you run a regular company, and it does affect the morale.

Senator LUDLAM: People are having their professional reputations impugned, as Mr Quigley's was, for example, or experience three years of intense opposition from the Murdoch press. Is that what is being referred to here?

Dr Switkowski : I do not want to be drawn into comments about individuals, but I certainly do not belong in the camp which personalises attacks.

Senator LUDLAM: That would be a nice clean sheet to turn over, I guess; it would be a great place to start. I presume you are well aware that the internet is not a broadcast medium and that that is probably the least interesting dimension of the technology, yet we are continually hearing about download speeds in terms of how many televisions you can operate at the same time. Can we talk about upload speeds for people, whether in a business or in a home context, who want to push content or material back out to the network. I understand we are not allowed to call them 'guarantees' anymore, as of this morning, but what are the commitments that you are intending to deliver by 2016 and 2019 in terms of uploads?

Mr Rousselot : On the HFC network we have assumed that we would be able to do uploads of roughly a third of the download speed. So, given that HFC is targeted to hit 100, that would deliver 30 upload speed. They are the assumptions that we have used to design the HFC part of the network. On the FTTN, I wish I could call upon the help of BCG. If you give me a minute, I will—

CHAIR: Perhaps you would like to invite one of the officers sitting behind you to the table to help you.

Dr Switkowski : Why can't we invite BCG, whose advice we have relied upon for this report?

Senator LUDLAM: I do not want to use my brief period of time relitigating that one.

Dr Switkowski : Can I attempt to help, Senator Ludlam, because your point is so important. There will be customers and areas where a more symmetric upload and download speed matters, particularly in business. We are mindful of that. There are some areas, I understand, where HFC can be tuned in that way, and I think fibre can be as well.

Senator LUDLAM: Premise by premise.

Dr Switkowski : Not premise by premise but area by area. This was a discussion that we had. Our advisers could inform you about that.

Senator LUDLAM: Okay. What if I am in the copper footprint; what if I am in the fibre-to-the-node footprint?

Dr Switkowski : Let us hold that question for people who can address it technically.

CHAIR: We can address that now.

Senator SESELJA: Are we now bringing witnesses back and forth when—

CHAIR: Witnesses from NBN Co. have been called to be here to answer questions.

Senator LUDLAM: Rather than the consultants.

CHAIR: There are other people who are scheduled to be here later on.

Senator SESELJA: Why is there such an objection to the consultants answering questions?

CHAIR: This is Senator Ludlam's time.

Senator SESELJA: Senator Ludlam has been going back and forth and Dr Switkowski is quite entitled to answer as he sees fit.

Mr Rousselot : I now have the answer—I got it from our experts. The assumptions that we have put in the model to size the FTTN products would deliver the same type of upload speeds that are currently offered on the FTTH products. On a 50 megs product, it would be a 50/20 type of product.


Mr Rousselot : Yes.

Senator LUDLAM: I am sceptical about your 50 meg product, so let us start with the 25 meg product.

Mr Rousselot : The 25 meg product would therefore be a 25/5 or a 25/10, which are the two plans that are currently—

Senator LUDLAM: And you seriously think that you can deliver that ubiquitously on the existing legacy copper network?

Mr Rousselot : That is the expert advice that we have received. I am more than happy to get them to come—

CHAIR: You said that you think that you will be able to deliver 50 down and 20 up on FTTN.

Mr Rousselot : Yes.

Senator LUDLAM: That is in your second phase.

Mr Rousselot : Yes.

Dr Switkowski : Yes.

Senator LUDLAM: Is anybody delivering that anywhere in the world consistently across all premises? Is that happening anywhere in the world?

Mr Rousselot : If you look at the report, a number of specific deployments are illustrated there. Some of them are 79/20. Another one are—

Senator LUDLAM: I do not have that. What page is that?

Dr Switkowski : It is page 77.

Mr Rousselot : There are some specific products that have been offered on a competing network.

Dr Switkowski : That is again a very good question to ask BCG when you permit them to testify.

Senator LUDLAM: When they appear—

CHAIR: When they are scheduled.

Senator LUDLAM: Yes. Your model relies pretty heavily on using the existing HFC network. My understanding is that that network gets congested as you put more traffic on it. It is a bit like filling up a cell tower as opposed to filling up a glass fibre line. Are we going to see performance degrade as more and more premises come onto that network? What kind of service quality are you confident of being able to deliver?

Mr Rousselot : The assumptions that we have made for the areas that we propose to be covered by HFC include an investment in the existing HFC network to cover the exact risk that you mentioned. We have assumed that we will increase the reticulation of the HFC network. We have also made assumptions about the use of specific frequencies on the HFC cable. The experts from BCG can give you more details on that. In the plan that we have for HFC, we are investing a significant amount of money to avoid it becoming congested and potentially creating issues of quality of service.

Senator LUDLAM: When you talked about having more reticulated HFC, were you talking about building more or buttressing the network in the places where it exists?

Mr Rousselot : It includes building more. As you know, the HFC network does not provide 100 per cent coverage. There are holes. In the modelling that we have done, we have assumed that we build in those areas so that premises in those areas can be serviced through HFC.

Senator LUDLAM: Okay. Are you concerned about different performance standards at different times of day—for example, in a residential area when everybody gets home and flicks things on? Is that likely to lead to degradation of performance inside the HFC footprint if you are using it for data?

Mr Rousselot : What you are describing happens regardless of the technology, because ultimately all internet connection is shared at some point at some time up in the backhaul and in some other cases closer to the home.

Senator LUDLAM: It is much less of a problem with an end-to-end fibre network, though, isn't it?

Mr Rousselot : Probably. But you would still have the problem of the proper dimensioning of the backhaul, which could become a bottleneck in terms of peak service. The assumptions that we have made across all the technologies that we have used are ones that we believe will enable us to deliver the minimum speeds that we have described of 25 and 50 megabits per second.

Senator LUDLAM: Are you proposing to deliver voice services or even voice only services over the HFC?

Mr Rousselot : The assumptions we have for voice across all scenarios is that it moves to a VoIP service, a voice over IP service.

Senator LUDLAM: What is the minimum speed that you need to run a voice service reliably over a data network to give you equivalent reliability to what you would get over a copper phone line?

Mr Rousselot : I would have to turn that to our experts; I do not know the answer to that.

CHAIR: Are you suggesting you could run a VoIP service on HFC?

Senator LUDLAM: That was the suggestion.

CHAIR: Is there anywhere in the world that anyone runs that?

Mr Rousselot : I believe that on the Optus network currently it is capable of providing voice here in Australia.

CHAIR: It is capable of lots of things, but are they are delivering quality of service?

Dr Switkowski : Cable companies usually offer a triple play, which is subscription television, high bandwidth connectivity to the net and voice.

CHAIR: Still using copper lines.

Dr Switkowski : In some cases they do.

Senator LUDLAM: Do your projected revenues assume infrastructure competition in the HFC footprint?

Dr Switkowski : No, they do not.

Senator LUDLAM: So what are you going to do if the Ergas review recommends competition inside that footprint?

Dr Switkowski : That is an important public policy decision that is ahead for the government. Depending upon that decision, it will change the economics.

Senator LUDLAM: Positively or negatively?

Dr Switkowski : Infrastructure competition that permits access to a finite customer base by competitors will change the economics of NBN negatively.

Senator LUDLAM: Could you point me to the part of the document—maybe this is where we would have taken you in camera if the minister had permitted us to discuss the document in its entirety—where you provide us with an estimate of the cost of accessing Telstra's copper network and Telstra's and Optus's HFC networks?

Dr Switkowski : Again, they are quite sensitive bits of information. I cannot recall which part of the document crosses that particular terrain but obviously they would be either statements or numbers that we would have redacted.

Senator LUDLAM: I thought you were going to say that, because I could not find them apart from all the black rectangles.

Dr Switkowski : It is not an unreasonable position we are taking.

Senator LUDLAM: But we are being asked to accept the entire basis for this project being financially and commercially viable on the basis of a couple of blacked-out rectangles.

Dr Switkowski : Might I say that this is a step ahead of anything else you might have been asked to comment upon.

Senator LUDLAM: No, it is not. I have been working on these committees for five years now and we have been provided with full financials to the company, apart from one period where the background material for the expert panel was not provided to anybody, including the Senate, in 2009.

Dr Switkowski : I stand corrected.

Senator LUDLAM: Apart from that, I have never seen so many blacked-out rectangles on an NBN committee. It is almost as though the whole operational security mantra has been imported into telecommunications policy. I know I am being a bit tongue in cheek here, but it is a linchpin of your entire project, those numbers: the remediation costs and any operational expenses for keeping it maintained while it falls apart around you.

Dr Switkowski : I agree that those numbers matter. I can only give you an assurance that they have been determined to the best of our ability with considerable debate as to what the range of numbers should be to characterise those costs. They have been incorporated in our models.

Senator LUDLAM: So you cannot tell us what they are, but can you tell us how you arrived at them? We can ask this of Telstra in 20 minutes and they will tell us that those numbers are commercially sensitive as well, but you must have landed on a particular number or a range of numbers. How have you done that? Have you concluded negotiations with the companies concerned?

Dr Switkowski : Clearly we have not. We have barely started discussions.

Senator LUDLAM: So how do you arrive at any number at all?

Dr Switkowski : Is the question around maintenance costs of the network or the integrity of the network? Those things we have made judgements around and we have been informed by people who are experienced in copper networks. Which other numbers would be of interest?

Senator LUDLAM: A few different things. The cost of remediation so that the network is fit for purpose would be one very interesting number. Then there is the ongoing operational expenses of maintaining a 60- or 70-year-old copper network. And I would be interested to know whether you sought independent valuation. You are relying on what exactly?

Dr Switkowski : Firstly, I acknowledge the importance of those numbers. You are quite right. We have accepted that. We have spent considerable time trying to convince ourselves that we had a reasonable estimate for those numbers.

We have not yet completed—and even that overstates it; we have barely started—the discussions with Telstra, but we do have access to global data benchmarks, and we have used them and the experiences of people who have had careers in working in Telstra networks in the past to form a view that we think is reasonable.

Senator LUDLAM: What are you going to do if Telstra come to you and say, 'It's very nice that you made those estimates, but it's going to cost you twice as much.'

Dr Switkowski : That is a bridge we will cross—

Senator LUDLAM: You will not be able to cross it.

Dr Switkowski : We will have to do.

Senator LUDLAM: Would you describe your negotiating position as particularly strong?

Dr Switkowski : I would not offer a description of our negotiating position.

Senator LUDLAM: I bet Telstra will say the same when I put the question to them shortly. What are you going to do if it is vastly more expensive. Telstra is sitting on an $11 billion agreement for access to their pits and ducts. Why would they need to talk to you at all?

Dr Switkowski : Again, let us see how this plays out. It is not appropriate for us to start commentating upon an important negotiation before it has really got under way.

Senator SMITH: Perhaps you could illuminate for the committee what some of the potential ramifications are of talking about the figures or talking about the range of figures so that the committee is well aware of the risk that could exist?

CHAIR: Dr Switkowski, I think you have been doing a very good job of answering Senator Ludlam's questions. You will get an opportunity after Telstra. There are only a couple of minutes before we break for Telstra. You will get your chance to ask some questions, Senator Smith, but we will confine ourselves to Senator Ludlam's questions at the moment. You are doing fine.

Senator LUDLAM: I acknowledge the interjection. I get why these numbers are sensitive. I do not understand that you have any negotiating leverage whatsoever. I was around when the original agreement was negotiated. We were not allowed to call it a gun to the head—that would have been extremely impolite—but Telstra faced quite severe consequences if they were not willing to undergo that structural separation and farm the hardware into NBN. What does the Australian government have on the table to back its negotiating position in this instance? Do you have anything at all?

Dr Switkowski : I think we do, and that will play out in the weeks and months ahead. Let me again acknowledge the legitimacy of your position—

Senator LUDLAM: But I am not getting much back. It is nice to be legitimised, but I am not getting any answers.

Dr Switkowski : Senator Ludlam, these are sensitive commercial matters, and you are talking about the character of an upcoming negotiation which will involve very, very big issues. We have estimated to the best of our ability what those issues will be and how we might manage them. We also have a government and a minister who have made it clear that the agreement that is currently in place is of a character which can be varied somewhat without there being any significant value transfer.

Senator LUDLAM: As a taxpayer myself, I want you to be in the strongest negotiating position so that we are not ripped off collectively, so do not misunderstand my intentions here. My question is: what do you actually have to put to them? For example, is Telstra aware of the numbers that are under the black rectangles? Will they have a rough idea of how you built your model? You have some final numbers; we are not able to see disaggregated figures—

Dr Switkowski : Telstra has seen this redacted report.

Senator LUDLAM: They have seen the redacted report?

Dr Switkowski : That is right.

Senator LUDLAM: They are going to be in a better position than us, I guess, to reverse engineer your figures and work out how you are valuing them. That is going to be the single biggest cost of putting this network together, is it not—acquisition of those assets?

Dr Switkowski : That is one of the issues that is up for negotiation. I cannot answer—

Senator LUDLAM: What might cost more?

Dr Switkowski : I cannot satisfy you, because I do not want to get involved in the form and the character and the detail of an upcoming negotiation.

Senator LUDLAM: I might pick it up there after we have had a chance to hear from Telstra.

CHAIR: Okay; thank you.