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Environment and Communications Legislation Committee
24/05/2018
Estimates
COMMUNICATIONS AND THE ARTS PORTFOLIO
NBN Co Limited

NBN Co Limited

CHAIR: While NBN Co is settling in, we'll table these other documents.

Mr Mrdak : Thank you, Chair. This morning, Senator Urquhart asked some questions about the Tasmanian Mobile Black Spot Program and requested some indicative figures on the cost of mobile base stations. I will ask Mr Windeyer to provide them to the committee.

Mr Windeyer : With respect to the status of the black spot rounds in Tasmania, there's a document can I table which has the detail. There was also a series of questions going to the average cost to the Commonwealth per base station. On that, we've done the figures. The average cost to the Commonwealth under round 1 was $200,400. The average cost to the Commonwealth in round 2 was $195,476. The average cost in round 3 was $405,091. Just to put that in percentage terms, as we were also discussing, the average level of contribution by the carrier under round 1 was 48 per cent of the cost. Under round 2, it was 47.8 per cent of the cost. Under round 3, it was 44.9 per cent of the cost. The average contribution of the Commonwealth under round 1 was 28 per cent of the cost; under round 2, 26.9 per cent of the cost; and, under round 3, 55 per cent of the cost.

Mr Mrdak : Thank you, Chair.

CHAIR: Thank you very much, Mr Windeyer and Mr Mrdak. Welcome, Mr Morrow and Mr Rue.

Mr Morrow : Mr Rue is just off to the facilities.

CHAIR: And that is now in Hansard. Would you like to make an opening statement?

Mr Morrow : I would, Senator. My apologies. I thought the hearing was suspended when I came in to say hello.

Senator KENEALLY: We did take a break.

Mr Morrow : Thank you. With me today is Stephen Rue, our chief financial officer, who will join me in just a moment. I would like to make four key points in the opening statement before we get into your questions today. The first is that the NBN is creating jobs, opportunities and growth in the communities that have it. Second, I cannot think of a faster way to roll out these benefits than using the MTM model. Third, while most people are very happy with their NBN enabled broadband experience, we are doing our part to improve the experience for everyone. Fourth, we are seeing customer experience and satisfaction improve. So, in summary, the NBN is changing lives. We are rolling out quickly and we are improving the NBN experience every day.

Last month, shared research carried out by AlphaBeta demonstrated the economic and social benefits that the NBN network is delivering to Australians. The research shows that the creation of new jobs, higher GDP growth and the establishment of new businesses are made possible because of the NBN transformation. One of the standout statistics from this research was that the number of self-employed women in NBN regions grew 20 times faster compared with non-NBN areas. If this trend continues, more than 50,000 additional Australian women will be self-employed by the end of the rollout, again due to the NBN effect. The findings of this research must be considered in the longstanding debate on which technology should be used in building the NBN. A question often put to us is whether it is better to have more fibre even if it delays these benefits and requires one-off taxpayer subsidies. For me, this research strongly reinforces the benefit of doing this as fast as possible and at the least possible cost with the condition that the network is capable of meeting the mass market data demand.

On this last point, it's important to note that the people surveyed in the AlphaBeta research were almost all on 12 and 25 megabit per second services. Every extra year that a community has to wait for the NBN is a year of lost opportunity—lost opportunities for women, children and everyone who just needs to operate in the modern digital world. More than 6.6 million premises can now order a service and more than 3.9 million are now connected. Ninety-eight per cent of the nation is now in design, construction or already able to connect. The network rollout has reached the scale necessary that the nation will be completed by 2020. We are confident this will happen.

Progress across this industry-wide transformation has been very strong, but it has not been without challenges for some end users. As I have said many times, our focus is firmly on improving the customer experience in those areas that we can control. A comprehensive program of work was implemented mid last year to improve customer satisfaction. The committee will be familiar with some of these, including the HFC pause, the pricing changes and the improvements in our installation processes. Our team has also worked closely with our service delivery partners to improve our handover processes when attending an end user premises, be that to connect them or to fix a service fault. We know that getting a technician out there as quickly as possible and getting the job done on the first visit are important to the end user. Our improvement initiatives have had solid results thus far. Our field techs are now completing their work within agreed timeframes and doing it right on the first go more than nine out of 10 times. This is a huge improvement when compared to 12 months ago. This will further improve with the work that we have underway.

It's important for the committee to understand that this is NBN's portion of the installation and repairs. The end user experience is determined by both NBN Co and their retail service provider. We have also worked closely with our retail partners to improve the experience once the end user is connected and using the network. We know 80 per cent of the weighting on end user satisfaction has to do with being congestion free. The impact of our Focus on 50 promotion and the take-up of our new bundled 50 and 100 products has led to RSP controlled CVC congestion dropping from seven hours a week per end user down to 18 minutes. Some big brands are even CVC congestion free.

All of this work has led to a dramatic shift in end user satisfaction. Across the base of customers, the industry satisfaction weighted average has moved from 5.9 to 6.5. Further, customers who have connected since the pricing changes and have not experienced supplier CVC congestion are much more satisfied, with a weighted average of more than seven. So when you combine this with those customers who are aware of their upgrade to the 50 megabit speeds here, the overall satisfaction improved to 7.3.

In the last nine months, an incremental 800,000 end users have joined the highly satisfied. That means that roughly 1.9 million end users now rate their satisfaction at either an eight, nine or 10 on that 11-point scale. Again, I need to reinforce that this is a measure of the total experience, not just NBN service, and the range among the RSPs varies widely. RSPs give a different level of service, and this impacts the end user satisfaction rating.

We know we play an important role in getting people connected and having our portion of the network delivering a highly reliable service. Late last year, we paused our HFC end user activations to allow us to further refine the network. We've recently started opening up this network to the RSPs for new service activations. The further remediated footprint is now of a much higher quality and will provide a better experience for both existing and new end users. The ramp-up of the HFC network will begin slowly for us so we can monitor the changes we've made and ensure the service is of the quality our customers expect. We are taking a similar approach with our recently launched FTTC technology. Early results are good, but it's important to remember that NBN Co is one of the first network operators in the world deploying FTTC at this level of scale.

We are also increasing the capacity of our fixed wireless network. People using this network have consistently rated their experience highly, but this success has driven a higher take-up, more data consumption and a greater concurrency of use. The capacity design we started with needs to be lifted, and we've already completed upgrade work on a number of congested sites to help alleviate the pressure. We have several more to go. We know technology over the existing and newly constructed infrastructure is evolving quickly. We are technology agnostic and we are always looking to leverage this evolution for the benefit of all Australians. With that, we thank you. We would be glad to answer whatever questions the committee has.

CHAIR: Thank you very much, Mr Morrow. We'll go straight to Senator Steele-John.

Senator STEELE-JOHN: Thank you very much, Chair. Mr Morrow, I want to follow up with some questions I put to you in estimates back in February regarding the stalling of the HFC rollout and the NBN's testing of the HFC network. First of all, would you be able to give me an update on the testing and rollout of the network? What has been done? What is still to do? What does the timeline look like?

Mr Morrow : The standard construction process that we have had with HFC from the beginning continues. We do a degree of remediation within that original process. As we gained experience with HFC, we paused it, decided and/or analysed what further remediation would be necessary to lift the quality levels to the standards that our customers expect. That incremental remediation has to do with RF leakage, RF ingress, repeater control, amplifier control and amplifier management. There's also some CMTS to the modem and equipment calibrations that we run. We look at the taps. We look at the lead-ins that go from the footpath down to the customer's home. All of that is a part of that remediation and it's going well. We are on track with our original estimate of an average of a six- to nine-month delay. We are committed to the 2020 completion of the national network. I am proud to say that we're quite confident we will deliver that.

Senator STEELE-JOHN: Do you have a fixed timeline for the completion of the remediation work?

Mr Morrow : Yes, we do.

Senator STEELE-JOHN: What is that end date?

Mr Morrow : That is an average six- to nine-month delay in terms of when people would have the ability to order their broadband experience over the NBN controlled portion of the network.

Senator STEELE-JOHN: All right. Can you provide me with some updated figures on the cost assessment, fixed and deployed, of the HFC network?

Mr Rue : I think you asked me this last time I was here.

Senator STEELE-JOHN: Yes.

Mr Rue : I replied at the time. I'm afraid I'm going to give you the same answer. We're working through our corporate plan at the moment. It's a long process we go through. We go through it with all our teams in the business. They go through each area. In this specific case, they look at remediation needed in each area. As Mr Morrow said, it is an average of six to nine months and area by area when it comes back. That process is still in place. If you could hold that question until the corporate plan is released, I would be very happy to talk you through it.

Senator STEELE-JOHN: Do you have a cost to date of how much that process has cost the corporation?

Mr Rue : No. I don't have that with me.

Senator STEELE-JOHN: Could you take that on notice?

Mr Rue : I'm happy to take that on notice. Once again, as I said, a more fulsome answer I'll be able to give you once we've completed our plan. I'm very happy to talk you through that.

Senator STEELE-JOHN: Thank you. I want to move on from HFC to fibre to the curb. Can you provide me with an update on how the multitechnology mix is evolving, particularly with regard to FTTC? I'm interested particularly in whether you are considering increasing the role of FTTC in the overall technology footprint.

Mr Morrow : We are pleased with the progress we've made thus far with FTTC. We are pleased with the performance of this technology. Just for a quick education, if I may, to be sure that we ground the committee, in our FTTP environment, it's typically architected with a fibre that goes out to a neighbourhood entry point. There's a piece of outside furniture we refer to it as; it's the fibre distribution hub. From that, one fibre is split into 32 fibres. Each one of those fibres goes off to an individual home. In order to reduce the cost to speed up the rollout and to be able to justify using FTTC, we use an approach where we do not need that furniture above ground. We bring that fibre to that neighbourhood entry point. We then put it through a one to 16 splitter and we run that further down the street. As we fan out for other homes at that point, we do another one to 16 split. Then the fibre terminates in the footpath that is closest to the premises. From there, we tap into the copper connection that had pre-existed that goes up to the house. That distance can vary from 10 metres up to 100 metres.

By putting the equipment inside the house at the other end of that copper and terminating it back into our central office exchange, we can give today's speeds, where we're already now offering up to 100 megabits per second. As we deploy G.fast over the top of this, this will take it up to the gigabit per second and better services. We have over 10,000 homes that can now order a service over this FTTC technology. We're just getting started on it. We have a number of homes that have been connected. So far, again, all signs are green in terms of customer satisfaction and the network technology working according to plan.

Senator STEELE-JOHN: It sounds excellent, Mr Morrow. My question is actually whether you will be increasing the footprint of FTTC within the technology mix.

Mr Morrow : We have recently announced an expansion of that program. There are no plans at this point to be able to improve from that level.

Senator STEELE-JOHN: On that level. Okay. In your half-yearly report July to December 2017, you have a cost per premises of technology type on page 26. Do you have some updated figures available? That is the first part of my question. Would you also be able to provide me with figures for FTTC which are not present in the table on that report?

Mr Rue : Yes, I do have updated figures. We released our third quarter results a couple of weeks ago. In there, there was a table on each of the costs per premises. It doesn't include FTTC, but I'll come back to that piece of your question. FTTP brownfields was $4,396.

Senator STEELE-JOHN: In the interests of time, Mr Rue, would you be able to table that with the committee? I am pushed against a flight that I have to catch.

Mr Rue : I can do that. There are only five numbers, though.

Senator STEELE-JOHN: Okay. All right.

Mr Rue : So $4,396. FTTP greenfields is $2,263. FTTN is $2,225. HFC is $2,404. Fixed wireless is $3,698. In terms of fibre to the curb, we have said in the past that our estimate is about $2,900. Because it's early stage rollout, I can't give you an updated figure on what we've built because it's really early. Again, when we come to do the corporate plan, I'll have an update on that. But the $2,900 is what we estimated at the time.

Senator STEELE-JOHN: Could you repeat that last figure in relation to HFC?

Mr Rue : It is $2,404.

Senator STEELE-JOHN: I think I have the rest of them. If you could table them, that would be fantastic.

Mr Rue : Yes, sir.

Senator STEELE-JOHN: I would also like to ask you how you are factoring in the introduction of 5G into your projections, pricing and technology mix plans.

Mr Morrow : We have quite a large fixed wireless network that is currently using 4G technology. We study very closely the evolution of wireless technology, be it the antenna advancements or the protocols such as 5G itself. We have tested that and trialled it. We are optimistic about it providing an improvement to the existing fixed wireless network that NBN has. So very much it will be a part of our program going forward. We do not necessarily plan to expand the fixed wireless footprint because of 5G. Nor do we plan to offer any sort of mobility services, such as what the existing mobile carriers offer.

Senator STEELE-JOHN: Mr Rue, could you clarify when the corporate plan is due?

Mr Rue : Yes, certainly. The corporate plan under the PGPA Act needs to be made public by the end of August, I believe.

Senator STEELE-JOHN: Wonderful. Finally, I understand that you are running 5G trials in Melbourne. I wonder if you could provide me with an update on how that's going.

Mr Morrow : Much like everybody else around the world that is looking at wireless technology, we've tried it in our application with our labs and with our engineers working with our technology suppliers. We can confirm that we see similar results to others in terms of that mere gigabit per second capability. But the important thing for us about 5G is that it offers an improvement in the spectral efficiency. Effectively, you can offer more service within the same frequency band that was used before. That's great news for capacity relief. That's great news for keeping the cost as low as possible so we can keep our prices as low as possible.

Senator STEELE-JOHN: This is a final question. It just occurred to me. It might be for you, Mr Morrow, or you Mr, Rue. It relates to the rollout of FTTC. I remember from the briefing that you very kindly provided me in relation to the HFC issue and the way you were going about fixing that that one of the problems you came across was the degeneration of the pits when you went and had a look at what you had bought. It could be my ignorance of this particular aspect of the technology. When you go up to the copper linkage in the curbside that you described earlier, do you have confidence that when you open that same part up you won't discover a similar degeneration in that part of the copper linkage?

Mr Morrow : Not to the same degree because much of the existing infrastructure can have more chance of it needing remediation. There's not a doubt, as we pull fibre down the street to terminate at this pit in front of your home, that we're having to remediate the ducts. The ducts are kind of the bigger plastic pipes that we pull the fibre cable through. If they've been crushed over time or if they are blocked, we actually have to do a few things to be able to get that fibre to come in front of your house. Equally so, if we look at the pit and it has been caved in for whatever reason—a heavy vehicle of some sort driving over the top of it—we need to remediate, replace that box and change the cement elements on the footpath. That's common with this kind of in-your-neighbourhood sort of rollout. It was one of the benefits that we had with FTTN and HFC; you don't need to do as much of that remediation. Clearly, this will be a part of it because of the condition of that infrastructure.

Senator STEELE-JOHN: Do you expect that to add to the cost?

Mr Morrow : I think we've estimated it fairly. Stephen may want to comment.

Mr Rue : We estimated those when we came up with the cost per premise. We obviously had experience with FTTP and with the pits that we saw. As Mr Morrow said, you have those sort of issues when you do civil work and with FTTC. I think it's fair to say we've largely factored that in.

Senator STEELE-JOHN: Okay. I will leave it there, Chair.

CHAIR: Thank you very much, Senator Steele-John.

Senator KENEALLY: Thank you to the NBN Co for being here this afternoon. I and Senator O'Neill want to ask you some questions about HFC. I would like to start with reference, Mr Morrow, to your opening statement. You said that every year that a community has to wait for the NBN is a year of lost opportunity. The former communications minister, Malcolm Turnbull, promised that every household would have access to the NBN by the end of 2016. Given that we've not reached that goal, how many years of lost opportunity have we experienced so far?

Senator Fifield: I will interpose.

Senator KENEALLY: It's a question about Mr Morrow's opening statement.

Senator Fifield: I will ask Mr Morrow to add. I think it's important to recognise that when Mr Turnbull made those comments, it was when the coalition was in opposition. When we came into government, we had a strategic review. It discovered that things were far worse with the NBN than had been appreciated. We identified that the previous administration had no idea, for instance, what it cost per premise to deliver the NBN. At that time, a new timeframe was established of 2020, which hasn't been deviated from since. That 2020 objective is six to eight years sooner than would have been the case if this government had persisted with the approach of the previous government. So the lost opportunity was one which would have been manifest if we had persisted with the approach of our predecessors. That is just to provide context. Mr Morrow, I am sure—

Senator KENEALLY: Minister, since you've chosen to intervene in this question-and-answer session and my question to Mr Morrow: was the former minister for communications, Malcolm Turnbull, rash in looking Australians in the eye and making that commitment? If we accept your argument, which I don't, perhaps the former communications minister made a promise without having all the information.

Senator Fifield: Well, what occurred was that the opposition at that time, on the basis of the information that it had, gave its best assessment. When in government, it was able to look at the books and assess the work that had been done. It looked at the situation that contractors in four states had downed tools. Despite about $6½ billion having been spent over about half a dozen years, only 51,000 premises were—

Senator KENEALLY: Why did the Prime Minister feel the need, then to make a commitment—

Senator Fifield: Senator, I'm still speaking.

Senator KENEALLY: You haven't answered my question.

Senator O'NEILL: We're still waiting.

Senator KENEALLY: We're still waiting for an answer. It's like buffering.

Senator Fifield: The way this operates is that questions are asked and then they are answered. So $6½ billion having been expended over about as many years and about 54,000 premises having been connected, it was a project which I think you could describe as failed under our predecessors. So after those assessments were made from government, a new timeframe of 2020 was established. As I say, that's six to eight years sooner than would have been the case had the approach of our predecessors been persisted with. So the lost opportunity would have been if we had persisted with the approach of our predecessors.

Senator KENEALLY: So it was in the lead-up to the 2013 election that Malcolm Turnbull made that commitment. He made an election commitment. He didn't have to do that. He felt the need to do it and he broke it. He was rash, Minister, and you know it.

Senator Fifield: No.

Senator KENEALLY: I will go to my questions about HFC. Mr Morrow, I would like to ask you a question about HFC issues. I want to talk about a man named Roland. He is a small business owner in Clarence Gardens in South Australia who connected to the NBN in August 2017. He is connected using HFC technology. Prior to migrating to the NBN, he was on a legacy Telstra HFC network and he had a very good experience. However, since connecting to the NBN network over HFC, Roland's experienced no end of problems with dropouts. On a good day, the connection drops out up to 100 times and on a bad day he says over 500 times. He has had five NBN technicians attending his premises, acknowledging there's a problem but without solving it. We've had follow-up inquiries that suggest that others in that area could be affected with poor service quality over HFC. Is the remediation on all parts of the HFC network with active users now complete?

Mr Morrow : The remediation continues. We have certain areas that have been complete. I would be happy to take the individual that you mention and have that investigated as to whether or not that customer's issues are sorted. This was part of the reason that we took the decision that we did about pausing the HFC activations to where we can do further remediation.

Senator KENEALLY: So it's not the case that all parts are now remediated, and it's possible that this individual is in an area where there's still work to be done?

Mr Morrow : There could be.

Senator KENEALLY: Thank you. This is not necessarily about resolving's Roland's problem alone. Perhaps outside the public hearing I can provide you with some information.

Mr Morrow : Great.

Senator KENEALLY: Thank you.

Senator O'NEILL: I'm aware that, Mr Morrow, you want to head off later this evening at 9.15 pm, if possible.

Mr Morrow : Yes. Thank you, Senator.

Senator O'NEILL: I've got a series of questions. If we can get to the nub of them, I'm sure that we could accommodate that. We will try to make it.

Mr Morrow : I'll answer fast.

Senator O'NEILL: Could you please provide a plain English overview of the technology used for the fixed wireless network? I understand it's essentially a 4G technology, but I would be interested to understand if it has to be adapted in any particular way for the NBN network.

Mr Morrow : It is your standard LTE network that has been deployed all over the world. As I was mentioning earlier to the other senator's question, 4G technology, which is referred to as LTE, is more or less the wireless protocol of how the modulation scheme works that determines how much bit rate you can get over a particular portion of the spectrum. On the tower itself, there are different types of antenna technology that you can deploy that also enhance that experience. You will hear terms like MIMO, or multiple input, multiple output, and direct beam forming—these sorts of things that enhance performance. These are constant evolutions that most of the equipment manufacturers are looking at to be able to get that technology enhancement into the hands of the carriers so that we can pass that benefit off to the end users.

The third part of it is how you deploy those antennas. There's down tilt angles and sectorisation and all these other things to be able to, again, optimise for a particular network. The final bit is that with a radio signal that's propagating down through the airwaves, a lot of times in many networks, you kind of bounce off a wall and eventually get a signal. But with every bounce off the wall, there's a bit of an energy degradation that occurs. NBN does this differently from what your classic mobile carriers would do. We have a direct line of sight focus. So we'll put a dish on the house that is far bigger than anybody carrying around a mobile device. It will be a direct line of sight to these antennas that are on top of the tower. That's the unique configuration of what it is that we deploy.

Senator O'NEILL: Okay. You were talking about evolutions. What are the evolution parts to improve network capacity within the 4G technology roadmap? Can you please break down each pathway or stage for me? I appreciated the enumeration—the one, two, three, four—as that was quite helpful.

Mr Morrow : There are two ways that we are looking at continuing to evolve to get more out of that spectrum. One is even further antenna type of enhancements that we're looking to deploy. This is not about 4G or 5G. In fact, most of the people deploying enhanced wireless in a fixed wireless application around the world are using LTE technology, or 4G technology, in the protocols with this enhanced antenna configuration. So we are looking at that as an evolved approach as well. All it will do, again, is just give greater spectral efficiency, which means either higher speeds or more shared capacity for the end users. Equally so, we're looking at this protocol change from 4G to 5G. That offers, again, further spectrum efficiency. There're other things in the way in which the 5G protocol works that lowers the latency, for example; that's very important in video and, if you imagine, applications in the future with driverless cars. You don't want that delay to exist whatsoever. The final bit around the 5G evolution is that you can put more devices on in a particular cell or a sector than you would be able to in 4G. That's less of an issue for NBN in our fixed wireless application but a bigger issue for the wireless carriers.

Senator O'NEILL: So antenna enhancements, essentially, and 4G to 5G protocol enhancements to deal with the issue of latency?

Mr Morrow : That's correct.

Senator O'NEILL: So, for each of those pathways you describe, towards which parts of the network does investment need to be directed?

Mr Morrow : It is in the capital investment program, in our fixed wireless category. We are looking at this on an as-needed basis. As I mentioned in my opening statement, and what we have talked about before, Senator, is that with the take-up and concurrency and consumption growing in the fixed wireless footprint, we know that we need to change that capacity design. We can get greater capacity by using some of this new antenna technology approach. We can do it by having more sites out there than what we currently have today. One of the advantages of 5G is because of the electronics, the protocols and the energy consumption, you have actually a smaller box so they're easier to deploy in newer sites. That means it's more, again, efficient from a spectral point of view.

Senator O'NEILL: Great. So you put a few bits in there that I want to ask about. My next question is: what physically needs upgrading? You indicated the antenna. You indicated more sites, which isn't exactly a physical upgrade. It is an acquisition of an additional site. Then you mentioned this smaller box. Could you explain the physical needs for the upgrade?

Mr Morrow : The smaller box is really with 5G, not so much with 4G. I wouldn't consider that on our immediate roadmap to be able to expand the capacity. The capacity expansion is largely a function of the antenna technologies that we have out there today. Again, without boring you—

Senator O'NEILL: I'm never bored, Mr Morrow.

Mr Morrow : Okay. All right, then.

Senator O'NEILL: I'm always intrigued. I love civil engineering and what it does for the community. I'm always proud that Australia is the first one to have—the first part of your words—the infrastructure.

Mr Morrow : So there's this protocol of orthogonal frequency-division multiplexing. I'm kidding.

Senator O'NEILL: It's all right. I'm listening.

Mr Morrow : You can create more sectors with an antenna. Imagine a tower going straight up. Depending on your application and depending on your spectrum reuse program, you determine how many sectors that you actually want to divide where you can run different frequencies over each one of those sectors.

Senator O'NEILL: So that means more antennas in terms of the physical requirement to deliver it?

Mr Morrow : Yes.

Senator O'NEILL: That's the key thing?

Mr Morrow : More hardware would go up on top of the tower.

Senator O'NEILL: Is the only hardware the antennas that you are referring to, or are other physical elements required?

Mr Morrow : Sometimes there's electronics, depending on how it's configured to begin with. There might be a new circuit pack that has to be inserted into the shelf that we already have with existing electronics.

Senator O'NEILL: Is there anything else? It's antennas, electronics—

Mr Morrow : Pretty much, yes.

Senator O'NEILL: And then additional sites?

Mr Morrow : Yes. And you might need to reinforce the back of it with fibre or higher capacity for what is served by that fibre.

Senator O'NEILL: There's a series of potential upgrade steps that we've discussed so far. How did the different upgrade steps compare to one another in terms of the amount of capital investment required?

Mr Morrow : You would do a combination of those things. It wouldn't be just one or the other, typically. We're always looking at what is the cheapest, latest thinking. For example, Ericsson, our equipment manufacturer, is very clever in this space. They have new technology that they're always researching, developing and rolling out. For example, they've done some things with the antenna technology that we're going to deploy that gives us greater capacity than what the original design had called for.

Senator O'NEILL: So in all of your answers, you are referring pretty consistently to antennas. This is the main physical thing that needs the upgrade, by the sounds of things. Is that correct?

Mr Morrow : That's correct.

Senator O'NEILL: In your judgement, are there incremental investments that need to be undertaken in improving cell capacity? Can those costs be recovered by NBN through the sale of higher speeds?

Mr Morrow : The quick answer is no. This is not a profitable portion of the company. Satellite and fixed wireless have always been a negative in terms of profitability, much to Mr Rue's chagrin. This actually just exacerbates it. It doesn't matter if we offered the higher 50 or 100 or multiple hundred speeds. It's not about making money in these areas. The losses we see in these wireless technology areas are offset by the profits that we make in the city centres.

Senator O'NEILL: There's a whole lot of questions I'm thinking about, particularly after our hearings down in Albury Wodonga with people concerned about the line of sight to the towers. There are so many questions in terms of failure for delivery and disappointment in terms of people's hopes being raised and not getting it. My next question is: within the 4G evolution path, is there any point at which the modem is not compatible?

Mr Morrow : There could be. If you move into the next generation 5G, you would have to change out the modem that is on the premises.

Senator O'NEILL: Is there any point within the 4G evolution path where the modem is not capable of leveraging the full benefit of the technology upgrades that are made to the tower?

Mr Morrow : Typically not. I would have to confirm, though. Typically not. Again, when you're talking about down-tilting the antenna or putting in an overlay sector, it's not changing the protocol. The protocol is the issue that talks to the modem. That shouldn't be the case. I can't imagine that there would be, but I'm happy to take that on notice, if you would like confirmation of that.

Senator O'NEILL: Thank you very much, Mr Morrow. What is the appropriate metric to describe the amount of peak bandwidth available per subscriber on a given call?

Mr Morrow : Sorry, can you ask that again?

Senator O'NEILL: What is the appropriate metric to describe the amount of peak bandwidth available per subscriber on a given call?

Mr Morrow : It's an interesting topic in itself. Congestion is something that we just want to make sure that people don't have or that we minimise the congestion for end users. The way in which you calculate any contended network has to do with a queueing theory that gets very detailed in the maths. But we translate a lot of that to make it easier to have these sorts of discussions. So we translate it into the minimum speed that people would get during the busy period. The current usage model—when I say that, I'm talking about the expected take-up rate, the concurrency, meaning how many people are using it simultaneously—is the amount of data they are consuming and the speed that they are requiring it or their application is requesting it. With the behaviours that we see, we now can look at the way the network is built and say that the design actually offers a three meg minimum for those sites at the extreme. We're upping that to six meg in the new design criteria going forward. Again, from a percentage point of view, less than half a per cent of the cells out there today are anywhere near close to three megabits per second. About seven per cent of the cells out there are seeing less than six megabits per second. Clearly, those are a priority. Again, the programs have been underway now for a while. That number is actually on the decline. But that means that for a certain number of customers, during the evening hours, which is when the busy time would be there, they could be restricted to six megabits per second.

Senator O'NEILL: Right. That's going to be pretty hard for a lot of people to manage.

Mr Morrow : It could be. I think it's important that we understand that most applications don't drive more than that. Even on a standard Netflix channel, you can get three to four megabits per second. If you have a home that's needing three or four simultaneous data streaming, video streaming applications running at the same time, that six megabits per second is going to be a problem. They are going to see some buffer in there.

Senator O'NEILL: When should we expect 100 megabits per second speeds to become available over fixed wireless, Mr Morrow?

Mr Morrow : We killed it.

Senator O'NEILL: Never?

Mr Morrow : Never. Maybe. Never say never. But not on the roadmap any longer.

Senator O'NEILL: Why?

Mr Morrow : Again, forgive me. You are so interested, so maybe don't forgive me.

Senator KENEALLY: Consign that to your answer.

Mr Morrow : If you take a graph and look at the cost of your capital on expanding capacity for a network, the fixed line technology is going to be a nice linear graph. The cost of growing is linear to the amount of bandwidth that you add in. In fixed wireless it's exponential. So if you stay at a certain level today, no problem. But the cost of that incremental capacity at a certain point in time starts to double and quadruple, so we have to be cognisant of that. While the idea of offering a 100 meg service actually means driving even more capacity requirement into the network, with the economics, again—as I said earlier, this is a loss leading effort—it starts to actually break apart to where it doesn't make any sense. As you know, our SOE requires a 25 minimum peak data speed, not the 100. Therefore, I don't want to jeopardise any other end users by offering 100 meg product to our residential communities.

Senator O'NEILL: So what sort of investment would be required and at which part of the process would it be required to deliver the necessary capacity for the fixed wireless network to support a consistent experience if the 100 megabit tier was ever opened up?

Mr Morrow : I don't think we've ever run that. It would be outrageous.

Mr Rue : An awful lot of money is the answer.

Mr Morrow : Remember now that we're going to serve over 600,000 homes. We have about 240,000 active users on the fixed wireless network today. We're going to expect that to go up to about 400,000 in the plan. If you said for those 400,000 users, 'We want everybody to be able to have 100 megabit per second speed to all use in the same kind of concurrency levels in the evenings while they are video streaming', you would be blown away at the cost. It just would never happen.

Senator O'NEILL: Just blow me away with a number then, Mr Morrow.

Mr Morrow : Billions and billions we would have to invest in this.

Senator O'NEILL: Tens of billions or up to $10 billion?

Mr Morrow : Again, I know it would be in the billions. I don't want to say whether it's five, 10 or 100. Steve always gets nervous whenever I talk numbers over here. Do you notice that? It's cost prohibitive, Senator. You would not use that technology for that.

Senator O'NEILL: There's probably a market there for it, even though you are decrying your capacity to deliver it. Maybe 20 per cent of the people out there would want to take it up.

Mr Morrow : No. We can look at where we have fibre. We don't see a 20 per cent take-up of 100 meg in fibre. No, I would not say that there is a mass market demand for a 100 meg service today. Who knows in the future? I don't want to dispute some of the views about the kind of applications coming down in the future. I can tell you right now today there's not a mass market demand for 100 meg services.

Senator O'NEILL: So what level of demand would have to be present for you to give it serious consideration, Mr Morrow?

Mr Morrow : Well, it's not only the level of demand but it's the price that consumers would be willing to pay. There's no economic model that would work that consumers would be willing to pay to get the 100 meg service. It's hard to find applications that warrant the need for 100 megabits per second. I know that video gamers might want it. I'm not here defending or saying that that's not the case. But the mass market applications available coming down your digital pipe do not warrant 100 megabit per second downloads. Therefore, people are unlikely to pay any kind of incremental amount of money or the proportionate amount of money to invest in capital to grow that network from what its current capacity is today up to 100 meg in particular in the fixed wireless type of technology.

Senator O'NEILL: Does this have a particular impact for regional Australia?

Mr Morrow : I love this country and I love the remote part. I'm a very nature oriented guy. I just love this country for what it offers from nature's point of view. The regional side of it is where that comes through. But this vast land is going to drive economics that will likely mean the regional end users using broadband over this network are likely never to see the kind of bandwidth capability that will come in a city centre. You can already see it today. Over 40 per cent of the fixed line network can offer gigabit per second speeds. You don't see that in the regional areas. I can't imagine a timeframe where that necessarily will be available to all of those people in the regional areas. It may be on a spot by spot basis. Again, there're going to be some fixed wireless towers using 5G that can kind of go up to a gigabit per second service. But dealing with 75 per cent of that portion of the country and offering them all gigabit per second services? I can't imagine a technology world where that's economically feasible.

Senator O'NEILL: Mr Morrow, you've just delivered a terrible blow to regional Australia.

Mr Morrow : It's an honest one.

Senator O'NEILL: The digital divide has been permanently entrenched by what you've just said.

Mr Morrow : Let me actually comment on this digital divide because it's important to me. It's part of the value that I share and that we as a company have. As you know, regional Australia had near nothing with broadband access. Today, I hear and witness a number of stories about them suddenly having satellite capability and how having 25 megabits per second has changed their life. We just announced a business product that we're going to be able to deliver to the regional areas. Again, you can't do it on a large-scale basis. Farmers can suddenly see that they have a potentially 100 meg product that never would have been considered in a private industry application. So the divide has actually closed because this is universal access where everybody is having at least 25 megabits per second. The divide that you can introduce, if you like, is those who can have 25 meg versus those who can have gigabit per second speeds. Yes, there is a division in the country where the regional portion is less likely to get that than the city centre portion. However, it's really important, before we get too worked up about that, to consider what services demand gigabit per second capability today. There are none.

Senator O'NEILL: But this is technology just not for today, Mr Morrow. It's technology for the future.

Mr Morrow : Indeed. When do you think a gigabit per second will be needed on a mass market basis? That's a rhetorical question.

Senator O'NEILL: I'm sure that there is actually some technology right now in regional Australia where the satellite capacity and the productivity capacity of farmers would be massively enhanced if they had access. I'm sure creative regional dwellers in this country could find ways to use the maximum that is now provided to people in the city. It looks like it's just not on the radar.

Mr Morrow : No. On a mass market basis, I wouldn't agree. I live and breathe technology and customer service and applications that are delivered over digital on a mass market basis. I would not agree with that. On a one-off basis, again, you always have the exception. I'm not saying that. Again, remember, the farmers—those running businesses in remote Australia with the satellite technology because of the changes that we've made over the last two or three years. We can introduce a 100 meg product to these businesses. They've never had the potential to have that in the past. Now they can. They don't need to up and root their business and move into a city centre—one of the five capital cities. They can get the kind of speed that hopefully will enhance their business and make them more competitive locally and globally.

Senator O'NEILL: I don't want Mr Rue to feel like he's missing out. I will ask you a question, Mr Rue. What is the cumulative capital expenditure on fixed wireless to date?

Mr Rue : Give me a minute and I'll be able to answer that for you.

Senator O'NEILL: Mr Morrow, you've given a reasonable discourse on the marginal economics of making the 100 megabit speed tier available. That was going to be one of my questions. Can you explain the extent to which the capacity to sell in megabits per second increases through the different stages of upgrades within the evolution pathway that we were discussing?

Mr Morrow : I don't think so.

Senator O'NEILL: So at what increments does the capacity of the cell increase?

Mr Morrow : I'm not sure what you're asking.

Senator O'NEILL: Is there a range of wireless frequencies which the external antenna installed on fixed wireless premises can typically support?

Mr Morrow : Yes.

Senator O'NEILL: What is that?

Mr Morrow : The frequency bands themselves?

Senator O'NEILL: Yes.

Mr Morrow : I don't know. I'd have to take that on notice.

Senator O'NEILL: Are there any differences between the antenna characteristics of those regional licence areas compared with those in the metropolitan fringes?

Mr Morrow : On fixed wireless?

Senator O'NEILL: Yes.

Mr Morrow : The same applies to fixed wireless everywhere.

Senator O'NEILL: So there's nothing different?

Mr Morrow : No. You might find more congested or higher density cells in the city fringe areas than in the more remote areas. I need to correct something earlier. When you do some of the frequency overlays that I was talking about to be able to optimise that frequency band, there might be some NTD, or network termination device, changes to support that.

Senator O'NEILL: Mr Rue, are you ready?

Mr Rue : Just let me check that my maths is correct.

Senator O'NEILL: Mr Morrow, can you please provide an update on the 5G trials that NBN is conducting?

Mr Morrow : Again, we brought these into our lab. We have worked with our equipment manufacturer, who is Ericsson. We have some speeds that get close to gigabit per second capability. That's again for a single device. We are seeing the spectral efficiency improvements, which is, again, as I mentioned earlier, our interest, not so much offering gigabit per second speeds. We know that we just need to get the cost per megabit down and make sure that we have enough to serve the demand. Those trials, I think, are going well. Remember that there's not that much difference that a carrier can make to it. They can talk about the difference of how they're going to apply it. With us, it's on fixed wireless or maybe ultimately for some on mobility. It is a well-defined standard that is used around the world that comes out of the standards bodies. The equipment manufacturers actually take that and develop it. They might put some of their own nuances on top of it. They make it available to us. Typically, you wouldn't see a big difference between Telstra's trial and Vodafone's trial or NBN's trial. This is about 5G technology that isn't developed or defined by the carriers.

Mr Rue : It's approximately $2 billion.

Senator O'NEILL: The question was: what is the cumulative capital expenditure on fixed wireless to date. And the answer is—

Mr Rue : Approximately $2 billion, yes.

Senator O'NEILL: Thanks. In moving from 4G to 5G, can you outline what capital investment and changes are required to support that type of migration?

Mr Morrow : Yes. We don't have that quantified because we don't have definitive plans of how we're going to use 5G.

Senator O'NEILL: So, without definitive plans, in your considerations, have you got any idea about what sort of capital investment changes are required to support that?

Mr Morrow : No.

Senator O'NEILL: Have you done any preliminary work on it?

Mr Morrow : No. Again, it's still early. You hear from a lot of different people around the world, but 5G and its mass market application is still a few years away. We will look at this now to see what we can deploy. Again, I think there's more of an immediate emphasis on antenna improvements than there is on that protocol of going from 4G to 5G.

Senator O'NEILL: Is the NBN modem required to change as you move from one generation of technology to another? It certainly has happened over time.

Mr Morrow : It will, yes.

Senator O'NEILL: So you need a new modem?

Mr Morrow : Correct.

Senator O'NEILL: As you change from one generation to the next generation?

Mr Morrow : From 4G to 5G or, in some unique cases like this, spectral overlay, where if you can imagine from the top of the tower beaming down on to many houses, we may actually say we're going to use one frequency band to go over a number of houses and another one to do that lower portion of it. That may require some NTD change—network terminating device change—or modem changes as well.

Senator O'NEILL: By how much would 5G improve the spectral efficiency of a cell relative to what you can squeeze out of the current evolution path?

Mr Morrow : That still is what we're evaluating today. I think the rule of thumb today is at least twice.

Senator O'NEILL: At least twice. So, in percentage terms, what benefits would it have on the minimum peak bandwidth available to a subscriber?

Mr Morrow : Well, the sector would effectively, if you deployed everything within it, give you twice the capacity as to what you had before. But there's a lot of things, unfortunately, that you've got to factor in. 5G is—

Senator O'NEILL: That was your answer to the question about spectral efficiency; so it's twice as efficient. But in terms of the benefit to the end user, there are other dimensions that might impact on it.

Mr Morrow : The benefit to the end user is mainly going to come in terms of loading up that network with a higher take-up, or a higher concurrency of use. Maybe we'll find a way to grow from the current speeds to faster speeds into the future, but I don't want to make any promises or commitments on that. The idea is that, remember, this is a loss leading type of architecture. If we can get the spectral efficiency down and get the costs down, it means that we can overall lower the price across the nation for everybody as they move forward down the digital economy.

Senator O'NEILL: In terms of a benefit, though, on minimum peak bandwidth, would there be an advantage?

Mr Morrow : Yes, definitely.

Senator O'NEILL: Of what quantum?

Mr Morrow : Again, it's hard to estimate. The rule of thumb is, again, we're looking at doubling the capacity. I hesitate to say this, but I will use it simply for the visual of it. If we have a three meg minimum today in a particular sector, because of the design, if suddenly we were able to snap our fingers and have all the 5G and associated technology with it, that would jump to six.

Senator O'NEILL: Mr Morrow, you have previously stated that NBN would be open to alternative use of the 5G spectrum in the 3.5 gigahertz band. Is that view held within the company, or are there a mix of views amongst senior executives about this?

Mr Morrow : I have not heard a mixed view come out of that.

Senator O'NEILL: So you still hold to that view?

Mr Morrow : Can you say the view again?

Senator O'NEILL: That of an alternative use of the 5G spectrum in the 3.5 gigahertz band.

Mr Morrow : Just to be clear, I can give my view on this. The 3.5 gigahertz spectrum is what we carry today. I think it's 3.6. That's the popular spectrum band for 5G. It doesn't mean it's the only spectrum band 5G can be used in. It is the popular one for it. If somebody said, 'Don't use that spectrum any longer. We are going to give you something else to be able to serve the needs because 3.6G can be used better elsewhere', we wouldn't care. We don't own that or hold to it with kind of religion or emotion behind it. All we want to do is make sure we can deliver a service to the end users.

Senator O'NEILL: So you would certainly be open to alternative use of the 5G spectrum?

Mr Morrow : Again, so long as we can provide the service that we're expected to provide.

Senator O'NEILL: Could you step through very practically what the migration challenges would be and the disruption that it could cause?

Mr Morrow : Significant, to put one word on it, whenever you're trying to reform spectrum into a different use. If we had to give up all the spectrum that we have, we would need to be given new spectrum to replace it with. It depends where that spectrum is on the frequency band. Imagine it's higher up. That actually means it doesn't propagate as far, which means you need to also install new towers and you have to create a new grid to coincide with whatever frequency band you have. In addition to that, you need to change out a lot of the hardware both within the tower location and within the premise. It has been done around the world over time, but it's costly, it is timely and it can be disruptive from an end user's experience.

Senator O'NEILL: In terms of how you expect NBN will be deploying 3.5 gigahertz and the metropolitan licences it owns, do you feel the spectrum will be heavily underutilised in the metropolitan areas?

Mr Morrow : In the metro areas, where we carry the spectrum, we don't use it in the city centre itself. If no-one else is taking that away from us, then, yes, it's not going to be efficiently used. I kind of doubt that we're going to be able to hang on to that spectrum in the metro areas if we're not using it, though. If you talk about the spectrum where we do offer a fixed wireless footprint, there are some arguments that others can use that 3.5 megahertz or 3.6 megahertz spectrum more efficiently than we can. That may be the case. That's why, again, I don't hold to, 'Oh, no. It's ours and no-one can ever touch it.' If there's a better use for the spectrum and a case can be made for how we're going to migrate off that and still keep our customers that we all are here to support in a high broadband speed business, then, great; let's work it through and let's get it done. But we're not owning it and we're not trying to do anything other than provide a service that the statement of expectation expects us to.

Senator O'NEILL: Just to be clear, are you suggesting in your responses that the NBN plans to use spectrum in the inner city areas?

Mr Morrow : No. As I said, we have no intention of using the spectrum where we don't already have a fixed wireless footprint design. Take the city centre of Melbourne as an example. I don't know of any cell towers that we have or fixed wireless type of technology delivered to the homes in the CBD of Melbourne, yet we still have access to that spectrum there. If there's a way to geographically carve that up and the communications minister sitting next to me says, 'We're going to work with ACMA and redeploy that spectrum so it's more efficient', I don't care. It doesn't bother NBN at all.

Senator O'NEILL: Mr Morrow, you've obviously got extensive experience in wireless networks and technology. Do you foresee a spectrum sharing solution that could better utilise 3.5 gigahertz in the medium term?

Mr Morrow : That's a tough question to answer. The most efficient way to use any infrastructure is to share it. If somebody owns something, they usually don't like to share it. It's going to dilute their economic returns. But the interesting thing about NBN is, as you know, when it was created, it was to create a wholesale company that has to share it with all the RSPs at a certain expense. That, quite frankly, is the only way that this economic model became viable to get broadband to every home in the country. So if you believe in that, which I do—and we have proof and evidence of it—then you can believe it in almost anything, whether it's use of spectrum, use of towers or use of energy distribution cables.

Senator O'NEILL: Is there a challenge, given those comments, that the nature and scope of fixed wireless deployment is such that it would be too difficult to dynamically coordinate shared use in a 3.5 gigahertz band without interference?

Mr Morrow : I think there are some applications around the world that are trying to do this right now, where either people use a channel on an as-needed basis and it's their frequency channel when they've opened it up and are using it. There are wholesale and retail models already that exist here in Australia today. Most of the mobile carriers resell their service to other providers. So you have these MVNOs, as they are referred to, that buy capacity from the existing providers. It's a form of frequency sharing in itself to have other brands and other service levels that can be offered to consumers who are out there. The question is whether or not you're going to take a frequency band and say it's available to everybody and all of you must share it. It's a hard model to implement. I think technically it's probably possible, but it's a very difficult model to execute.

Senator O'NEILL: Is there a way that the NBN Co could share the spectrum and boost financial returns?

Mr Morrow : No. Sorry, technically, yes. I think you would run into many other problems. Already today remember that we're spectrum constrained to offer the kind of service that is expected of us. So if you want to say, 'I'm going to give away some of the use of that spectrum to non-broadband delivering entities', then you could pose a problem. There have been people in the industry here who have discussed whether NBN should actually own the spectrum billed out to the various areas with 5G and then in the same model let any retailer say, 'I want access to that. I want to be able to use that tower and that spectrum to provide my level of service, and then I will bolt on all my other service enhancements.' Again it's very comparable to what it is that we do for most of the NBN. So that is always a model that I'm sure that the departments and experts talk about as at least one of the options in terms of the most efficient use of a government asset, particularly that spectrum bit.

Senator O'NEILL: Mr Rue, have you got a view about that resource and its capacity to deliver a financial return to NBN Co?

Mr Rue : Nothing additional from what Mr Morrow said, no.

Senator O'NEILL: Did you want to add anything, Mr Morrow?

Mr Morrow : No.

Senator O'NEILL: I want to go to some questions on pricing. The Focus on 50 campaign has done well in terms of improving the peak hour experience for consumers. I want to confirm whether the $45 bundle offer is temporary or do you think it could effectively become a permanent construct for the foreseeable future?

Mr Morrow : It is permanent as anything is permanent with pricing, which means it could change years down the road if through consultation we felt it was necessary and the retailers felt it was time to move on from that to do something else. But the bundled 50 and the bundled 100 are here to stay for the foreseeable future.

Senator O'NEILL: I'm concerned about the foreseeable future part.

Mr Morrow : There are no games on this. All I'm saying is that you can always change pricing, as we have since the inception of NBN and the first service started. I had a number of personal discussions with the CEOs of the RSPs about the model that we need to move to. One of the things that they said is that they need predictability into the future and they need something that has an economic structure to it to where they can sell these higher speed services. That's what the bundled 50 and the bundled 100 does. We also knew that it's going to take us months to develop that in the IT system and it will take them months to develop in their IT systems the ability to move their customers over or sell that in the marketplace. That's why we created the promotional plan, which we call Focus on 50. That's offering the 50 meg AVC at the 25 meg AVC price and given a 50 per cent boost on CVC. That allows the RSPs to say, 'Economically, I can focus on that bundle 50 and I can take advantage of the promotion that we have and start to move my customers over immediately.' We have seen exactly that happen. Over 42 per cent of our entire 3.9 million base is now on 50 meg or higher speeds because of that.

Senator O'NEILL: Can you restate those figures?

Mr Morrow : So of 3.9 million people, over 42 per cent are now on 50 meg or higher speeds. To put that in perspective, that was 13 or 14 per cent before we did the pricing move. More importantly, and quite interestingly, roughly 70 per cent of all new sales are going onto this 50 meg plan. That was four per cent before we implemented this. So the RSPs know that they need that predictability. We're giving them that predictability and assurance with the bundled 50 and the bundled 100. We have no intention of pulling that off. But, again, nothing is forever.

Senator O'NEILL: Thank you. That's a good answer. How many users is NBN forecasting will be on 50 megabit per second plans by the end of the rollout?

Mr Rue : Again, that's something we're working through. If you look at the figures that Mr Morrow said, the document I handed out earlier had 40 per cent at the end of March. As Mr Morrow said, that's now 42 per cent only—whatever that is—six weeks later. So at the 70 per cent we are seeing, we are seeing a large shift of users. You can still see the 12 one users are at 29 per cent. Beyond that, the rest are moving up to the 50 and above.

Senator O'NEILL: So if you project that growth out, how many roughly would you think would be on the 50 megabits plan by the end of the rollout?

Mr Rue : Again, we're working through that. Without putting a figure on it, we're seeing a continued uptake week upon week upon week of around 70 per cent.

Senator O'NEILL: Seventy per cent?

Mr Rue : At the moment. Of new orders coming through.

Senator O'NEILL: Going on to the 50 megabit plants, as Mr Morrow said. What was the period of time you said that it went from 40 to 42 per cent?

Mr Rue : Between 31 March and last week.

Mr Morrow : So from 40 to 42 per cent.

Mr Rue : And that reflects the 70 per cent week on week.

Mr Morrow : We're quite excited about this because it derives a whole different level of satisfaction. As I said earlier, the bulk of the dissatisfaction was actually when people were using their service and particularly when they were using it in the evenings and the biggest distraction or dissatisfaction was being congested and slowed down. This pricing change, that move to the 50, that CVC relief that we offered within the promotion, has actually relieved that congestion and there was an immediate bump-up in satisfaction.

Senator O'NEILL: I noted your opening remarks. Given the pricing discounts are having the effect on concentrating the users into that 50 megabits per second speed tier, and therefore the associated risk that comes with pricing change, where do you see ARPU growth coming from to meet the target?

Mr Rue : A couple of things. We have continued to talk to you before about the opportunity in business. Business grade services have a higher ARPU. As they come through more, that will increase the average ARPU across all our users. The bundle has a data usage. So as data continues to grow, there is an opportunity to monetise that data growth beyond the two inclusions that we have. So a combination of people continuing to move up the speed tiers, the data growth and the business ARPU growth will continue to provide us growth in ARPU over time, as we've always said.

Senator O'NEILL: Are you seeing any of that change occurring currently, particularly with regard to business growth?

Mr Rue : Well, we are seeing business growth. Again, if you look at the document I handed out earlier—

Senator O'NEILL: The third quarter results?

Mr Rue : The ARPU at 17 March was 43. It's at 44 today. The ARPU a couple of years ago—

Senator O'NEILL: Sorry, Mr Rue, which page?

Mr Rue : I'm so sorry, Senator. It's actually page 1 and the box on the top right.

Senator O'NEILL: Right.

Mr Rue : So we have some small increases in ARPU over that 12-month period. As data continues to grow and as business services come on, we will see that grow over time.

Senator O'NEILL: Do you see some combination of users moving from the 100 megabits per second plans, or do you consider the primary lever is increasing the price of a discounted 50 megabits per second plan?

Mr Rue : Sorry, could you say that again?

Senator O'NEILL: Do you see some combination of users moving to the 100 megabits per second plan, or do you consider the primary lever is increasing the price of the currently discounted 50 megabits per second plan?

Mr Rue : At the moment, the primary growth is users moving on to 50 and not selecting the 25. Over time, I would have thought that users will move up to the 100 speed tier, but the timing of that is perhaps a debate. Certainly we will see over time people move to the 100 speed tier, yes.

Senator O'NEILL: So your business model doesn't rely on increasing the cost to people who are currently just taking up a 50 megabits per second plan?

Mr Rue : It's a combination of people moving up speed tiers from lower speed tiers up to 50 and 100, it's business and it's the data growth. So it's all three of those working in conjunction together.

Senator O'NEILL: How do you monetise data growth if you have a bundled pricing structure for users on a 50 megabits per second plan?

Mr Rue : Because it has a certain capacity limit. Once the users move over that capacity limit, there is an opportunity. CVC is $8 beyond that.

Senator O'NEILL: So you're talking about a capacity limit of?

Mr Rue : It's two megabits per second, which equates to—

Mr Morrow : What you have. Again, I will talk quickly on the architecture.

Senator O'NEILL: Thank you.

Mr Morrow : All of the RSPs' customers, through whatever AVC speed they've purchased, come back to a single point—that point of interconnect. They all have to pass through this thing called the CVC. How wide that pipe is is going to determine how much data flows between our network and their network. They average that, because we all don't use it at the exact time. They average that. Historically, if you go back before a pricing change, the RSPs on average were buying about one megabit per second per customer that they had on the network. Again, people get confused over that. I don't want to go down to one megabit per second. They don't because not every one of those users are using it exactly at the same time. This is where we get the seven hours average congestion per user per week—when they were only purchasing one megabit per second. We knew the demand was greater than that. Today the average is 1.58 megabits per second.

What Stephen is also talking about in the bundled 50, in the $45 price we offer, is that we give free two megabits per seconds CVC opening. That's very deliberate. We're saying we're going to make it so economically attractive that you push people up the speed tier. We're going to give you an allocation of two meg because we know today's needs won't require that. Now, future applications coming down the pipe will require even more bandwidth. An average of 198 gigabytes per user per month is consumed today. We expect that to go to 300 gig or more by 2020. Eventually, that two megabit per second allocation in the CVC is not going to be enough to keep them congestion free. That's when at only $8 a megabit incremental price we expect the RSPs to purchase more. That $8 adds to the ARPU, and that's one component of the three components that Mr Rue mentioned with ARPU growth.

Senator O'NEILL: Right. I want to go back to clarify. Mr Rue, what you're signalling with your bundled price is that the bundled price won't increase but the retail providers, at some point of time, will have to start buying more CVC at the margins to supplement the bundle?

Mr Rue : Yes. So as Mr Morrow was saying, as the data growth demand grows, the average that will be on that CVC that Mr Morrow was talking about will be in excess of that two megabits per second. At that stage, the CVC charge is $8 in the bundle. So the bundle is of that capacity plus that speed tier. Once people need more capacity, the CVC is $8. Therefore, that gives us the opportunity to monetise that ongoing data growth.

Senator O'NEILL: So this is your business plan going forward?

Mr Morrow : Correct. Again, I think there is a really important point to underscore what Mr Rue said. If you look at moving $43 to $44 on the ARPU and we have a $45 price on this bundled 50 and you're seeing 70 per cent of all new orders go under that, you can see how that's going to have an automatic effect. If that continues, that will lift that ARPU up if everything else stays stable.

Senator O'NEILL: The same.

Mr Morrow : So this is why part 1 is we're going to get more people on the 50, which is going to lift the ARPU. Part 2 is eventually people are going to probably want more based on new applications coming down the pipe, which means we get a bit of an ARPU lift, and we get the business ARPU, which is typically higher than the residential. There is another component. Eventually, 50 won't be enough and they may want 100. Therefore, that's $65 in price. If they bump from the bundled 50 to the bundled 100, that is a further bump up in our ARPU to get to the business model level of economic viability.

Senator O'NEILL: Of the $52 to $54 ARPU target that NBN Co set out in its corporate plan, what does the residential customer base have to generate?

Mr Rue : Without getting into the ARPU growth in business, which is obviously a competitive sector, you can imagine it is a majority of that, but not all of that.

Senator O'NEILL: So just a bit less than the headline figure?

Mr Rue : I don't want to get into the specifics.

Mr Morrow : It's not as much, but it's different.

Mr Rue : Yes. It's lower than $52. It's a bit below the $52.

Senator O'NEILL: How much of an ARPU lift are you expecting will come with just the organic acquisition of higher value businesses and the enterprise customers engage over the next two years?

Mr Rue : In the next two years, there will be a small increase in ARPU from business. Business is something that is going to grow over the next three to four years. In the next two years, it will be a small amount. Over a longer period of time, you'll see a larger ARPU increase. The extent of that, again, I don't want to fully get into for competitive reasons.

Senator O'NEILL: If you go to your small increase, could you give me a percentage scale of what you are talking about when you say small?

Mr Rue : One dollar to two dollars, perhaps. Again, it's a competitive space, so I don't want to get into too much detail, if you don't mind.

Senator O'NEILL: And over a three- to four-year projection, you're expecting quite a significant increase. Is that to align with the increase in the data usage that you're anticipating in the sector?

Mr Rue : It is one component of the three components that I talked about.

Senator O'NEILL: In terms of ARPU. Given AVC and CVC charges have been bundled, is it now as a practical matter difficult to undo that going forward?

Mr Morrow : To undo which?

Senator O'NEILL: To undo the bundling of the AVC and the CVC charges?

Mr Morrow : No.

Mr Rue : No.

Mr Morrow : We wouldn't unbundle those in the future. We couldn't say that. We could go back to the original model. We can have a more inclusive model. We can raise the CVC allocation that comes with a different bundle price. It gives us great flexibility. Again, I think we're still even a bit early on understanding exactly the implications. We do know that the retailers are pleased with this. We clearly can see the interest in moving people over on to these services. As consumer behaviour continues to evolve, that will shape the retailer economics and that will, I'm sure, influence how we structure our pricing on future changes, which will happen.

Senator O'NEILL: You've mentioned a few options regarding the way you could proceed. You could go back to the original model. Have you given any consideration to the full range of options for the evolution of the bundle pricing construct moving forward?

Mr Morrow : We will continue. We're about to release a consultation paper to the RSPs that looks at the next step. It is not changing the bundled 50 or the bundled 100 but how we deal with other speeds and other technologies. Remember that the bundled products are against the fixed line technologies only.

Senator O'NEILL: Do you want to give me a bit more of an insight into what you are referring to there? The bundled pricing construct you are seeing as only applicable to the fixed line technology?

Mr Morrow : Correct. And only to the 50 and 100 speeds.

Senator O'NEILL: What are the options for that bundled pricing construct moving forward? What is the range of options?

Mr Morrow : I think I understand what you are asking. All the historians tell us that the 12 megabit per second product that we have was originally designed predominantly to be able to support voice grade services. So that is those people who didn't have video streaming needs, as an example.

Senator O'NEILL: Or a computer.

Mr Morrow : So we want to think of a construct that actually uses that 12 for its original purpose. Let me pretend it's going to provide all your broadband needs when it doesn't. Therefore, we're going to offer, I think, a better price for a voice application use of the 12-meg service that will come with a small bundle. But instead of $8 a meg increase, it will be a lot more expensive, which will deter the retailers from trying to sell you a best effort sort of broadband experience using this lower priced product when you are really expecting to be congestion free, as an example, while you're streaming two channels of Netflix into your home. So we have to think about that. We want the retailers and the access seekers' opinion on this. We're going to be introducing some concepts and asking for their opinion here coming shortly. We have to decide how we manage the 25 meg service. We're also looking at what we do on fixed wireless given the unique nature that fixed wireless has. We already have a unique pricing offer on satellite. This is the complex world that we live in that is necessary to keep this as a user pays model and make sure everybody gets a broadband experience. Hopefully we get that take-up rate at 75 per cent that will continue.

Senator O'NEILL: It sounds to me like you're looking at increasing differentiation of product across multiple media?

Mr Morrow : Well, no. You already have that to begin with with satellite versus the rest of the nation. Today that's the only place where it's different. We're going to talk about whether or not we offer something unique on the fixed wireless product that still adds the value, gives the end user the great experience and minimises the economic loss that we have in that area.

Senator O'NEILL: It is very interesting to see what's on the horizon. From a conceptual standpoint, what are the key aspects to preserving NBN Co's flexibility on pricing in a way that provides sufficient certainty for industry?

Mr Morrow : Keeping the cost of capital down. Again, it's all about the capex investment that you make to get an economic return. The user pay's model is that if we want to spend more capital on whatever it is, the user has to pay more to make this economically viable. Again, I believe so much in this, as you know. I think about the idea of helping almost two million homes in this country that didn't have any broadband access because economically it just wasn't viable for a private company to do so. We're taking the profit margins at the city centre, the high density, low cost areas, and getting these people the service.

Senator O'NEILL: I remember that plan. It came through the Labor caucus.

Mr Morrow : Again, I don't care about politics at all. I care about people. This is what I think is serving them. It's a user pay's model. It's not a one-off taxpayer subsidy that's coming. In order to do that, we've got to do this thing fast and we've got to do it cheap. I've told you this before; you know this very well. I'm a fibre fan. I think it's a great medium of technology, but it's bloody expensive and it takes a long time to do. The economics would fall apart to where those people in the remote areas wouldn't be served and/or prices would be so high that people wouldn't afford it and everything kind of falls apart.

To answer your question, we need to keep our capex costs down and our operating costs down. The government today—and, I assume, any government of the future—does not require a high profit margin. This is not a greedy, 'Let's make as much money as we can.' We make a modest return that no other outside investor would even remotely consider. But because we're having that half social, no taxpayer one-off subsidies, economically viable model, we're keeping this thing together. It's hard and tricky and you've got to be on your toes a lot, but so far it's working well. But it's important that we keep that cost down.

Senator O'NEILL: How do you manage the balance between the flexibility that you're talking about there in adapting your business model and innovation in all those different spaces and certainty for the industry? How is that interaction managed?

Mr Morrow : Again, I wrote a paper recently, which I put out, that explained how all these nuances come together. Quite frankly, that it's worth—

Senator O'NEILL: I have to say I haven't read it, Mr Morrow. You might want to table it, if you can.

Mr Morrow : It's available on our website.

Senator O'NEILL: Thank you.

Mr Morrow : I think it's worth reading. The fact is that this is very complex and there are lots of nuances. This complexity is worth it because of the benefits of the AlphaBeta research that you very well, I think, know about today. This is with these complexities and the nuances. Our RSPs have to understand that there are different products available in different areas, such as the city centre, be it satellite, FTTN or FTTP. There is a different product offering that they have to customise for that technology that serves that customer. But they're doing it and I think they're doing it well. We're seeing record numbers of orders come through and customers signing up on a regular basis with increasing customer satisfaction. So it is all coming together, but it has its challenges.

Senator O'NEILL: On 19 April, NBN published further information about the pricing construct. It revealed that the wholesale price of the 12 megabits per second, 25 megabits per second and 50 megabits per second bundle were all the same. Is that correct?

Mr Morrow : Sorry?

Senator O'NEILL: If a provider has taken up a Focus on 50 bundle, they are still able to sell a 12 megabits per second product using the existing dimensions based discount structure—

Mr Morrow : That is correct, yes.

Senator O'NEILL: Do you have to adopt one structure or the other, or do providers preserve the flexibility to buy wholesale services under either construct?

Mr Morrow : No. They can choose, and all if they want. It's their decision. We don't have any restrictions.

Senator O'NEILL: Mr Morrow, the current plan is to have two megabits per second of CVC bundled in. Based on the growth in data consumption that we've discussed, when would we expect that more CVC would be needed to support the level of peak hour experience that consumers have at the moment?

Mr Morrow : This is part of what we do with our update annually on the corporate plan. Now that we can see people taking up this service and how much of the CVC that they're actually consuming with the 50, we're now just crunching all the numbers. Hopefully, we'll have some visibility of that in the corporate plan when it's issued in August.

Senator O'NEILL: So no indication of when we could expect more CVC will be needed? You haven't got that—

Mr Morrow : Not at this point.

Senator O'NEILL: for a scheduled date?

Mr Morrow : Eventually it will. But the year that it happens is being analysed right now.

Senator O'NEILL: You said 2020, if I recall correctly, people would be up to 300 gig.

Mr Morrow : Three hundred gigabytes per user per month.

Senator O'NEILL: Is that one of the key figures that you are using to get your projection of when that CVC shift is going to happen?

Mr Morrow : We update that all the time. The 300 was based on last year's corporate plan. I imagine the team of analysts, the data scientists, are looking at it now.

Mr Rue : One of the exercises we go through each year is exactly that, because obviously that's a big sensitivity to our ongoing plans. It's something that our team are busily projecting at the moment. It's not without complexity, as you can imagine, with the applications and compression technology and historical data as well.

Senator O'NEILL: Mr Morrow, in terms of having more users concentrated in the 50 megabit per second band, do you consider that that provides NBN with more leverage to exercise its market power to move pricing in a direction that's favourable for the company?

Mr Morrow : What do you see consolidating?

Senator O'NEILL: The number of people in the 50 megabit per second band. More users there?

Mr Morrow : I don't think it gives us any leverage whatsoever.

Senator O'NEILL: Does it potentially concentrate a degree of political risk that could make further pricing changes difficult?

Mr Morrow : No. I think, if anything, it's kind of like freedom; once you have it, you don't want it ever to be taken away. If I have freedom from congestion, I don't want that ever to disappear. So the chance of somebody coming in and saying, 'I'm going to lower you from a 50 to a 12'—and this would be a retailer, not NBN—I think is unlikely. So I don't think that there's any political risks. I don't think that there's any economic risk behind this. In fact, it is just the opposite. I think from an economic point of view, we're already seeing some of the benefits behind this. We hope it continues. That's what we are going to be evaluating and incorporating into our corporate plan. It's evident that it's providing a better customer experience, which makes us all happier.

Senator O'NEILL: I would like to be happy too, Mr Morrow, but I'm sure people are interested. What are the next steps on pricing and, in terms of consultation processes, determining how this pricing construct conversation continues?

Mr Morrow : Very shortly—it might even be Friday, which is tomorrow—we'll issue a consultation paper to the retailers about some of the things we are considering.

Senator O'NEILL: That is the paper you were referring to earlier in our discussion?

Mr Morrow : Yes. Correct, yes.

Senator O'NEILL: So any chance of you tabling a copy for us this evening?

Mr Morrow : Tomorrow we will.

Senator O'NEILL: An embargoed copy this evening, Mr Morrow?.

Mr Morrow : I think we're going to end up doing something more. That's a confidential document that we share with the RSPs. But we know there's a lot of interest in this, so we're actually going to have one of our experts write a blog on it that will also go live tomorrow. So we'll get a copy of that blog sent to the committee, if that's appropriate.

Senator O'NEILL: Thank you. I think Senator Keneally has some questions to take us to dinner.

Senator KENEALLY: We might give Senator O'Neill a break.

Mr Morrow : No. We don't need to give her a break. We're trying to wear her down.

Senator O'NEILL: I've been married for 33 years. I think I've got endurance on my side.

Senator KENEALLY: Thank you, Mr Morrow. We might change tack a bit. Mr Morrow, do you have a sense of when you might be wrapping up in your current role?

Mr Morrow : You know, there's a lot to do. I have given the board of directors a commitment that I will remain until 31 December. That's a long way away still and there's a lot to do between now and then, so that's where my attention and focus is.

Senator KENEALLY: So that is the date you've given to the board?

Mr Morrow : That is correct.

Senator KENEALLY: Thank you. I understand that Dr Owen made quite a decent showing at comms day. Is he under consideration?

Mr Morrow : I think there are many people who are qualified to do my job. That's not my call, my decision. That is something for the board of directors. But I too like Ray Owen very much and I'm very pleased that he actually joined NBN under my tenure. I'm very proud of that.

Senator KENEALLY: Mr Rue, I understand you put your hand up as well.

Mr Rue : Have I?

Senator KENEALLY: Yes. That's what I've heard. That was a bit of a tongue-in-cheek question, Mr Rue.

Mr Rue : I was just going to go into a speech about the corporate plan.

Senator KENEALLY: We'll spare you that tonight. Mr Morrow, are you contractually constrained from working for any particular company post NBN?

Mr Morrow : No. Not that I believe.

Senator KENEALLY: Before we move on to some other questions, I think Senator O'Neill may have some more or we may be able to have a slightly earlier break, Chair?

CHAIR: We could. We could come back early and finish early. I have some questions too.

Senator KENEALLY: Do you?

CHAIR: Yes.

Senator KENEALLY: Excuse the surprise in my voice.

Senator Fifield: Or we could push on through.

CHAIR: We could.

Mr Morrow : We're ready. We're here for you.

Senator KENEALLY: Great. I want to ask something else. Have the NBN Co actually trademarked the term 'bring it on'?

Mr Morrow : We do have an internal slogan about bring it on, yes.

Senator KENEALLY: I know you have an internal slogan, and I've seen the ads. I'm trying to understand if you've trademarked it.

Mr Morrow : I don't know. I don't think so.

Mr Rue : We will find out.

Senator KENEALLY: Thank you. Where did the slogan come from? Who came up with that idea?

Mr Morrow : We have a marketing team that came up with it. We liked it at the executive, so bring it on.

Senator KENEALLY: Fans of cheerleading movies, are you?

Mr Morrow : Yes, indeed. You should see us.

Senator KENEALLY: That's another cheeky reference. You don't know if there's a trademark and you're taking that on notice. Could you also take on notice, if there is a trademark, how much was paid for it.

Mr Morrow : Yes.

Mr Rue : We'll set about getting those answers from the team in the background.

Mr Morrow : We have a team inside this iPad here.

Senator KENEALLY: Chair, I have a few light-hearted questions.

Mr Rue : Yes, we have trademarked it.

Senator KENEALLY: You have trademarked it?

Mr Morrow : Now, on the next question of how much we paid, we'll see if we can get that answer tonight.

Senator KENEALLY: This is—

Senator O'NEILL: It's going well.

Senator KENEALLY: It's going well. Live real-time questions and answers. Chair, do you have any questions?

CHAIR: I was just discussing with Senator O'Neill how much more she had to go. I think in light of that, it is best if we break. I want to check that officers and the minister are okay to break now and come back at 7.15 pm? Yes?

Senator Fifield: Yes.

CHAIR: All right. I know that officers have to leave at a certain time, so we'll go until then. So we'll suspend now and return at around 7.15 pm. Thank you.

Proceedings suspended from 18 : 17 to 19 : 16

CHAIR: We'll kick off again.

Mr Mrdak : I have answers to a couple of questions asked earlier today. Senator O'Neill asked when the ACMA was consulted on the ministerial direction, the Telecommunications (NBN Consumer Experience Industry Standard) Direction. I'm advised the department consulted with the ACMA on the legal drafting between 4 and 7 December and provided the ACMA with a final draft of the direction on 13 December. A final copy of the direction was provided to the ACMA on 20 December, following signature by the minister.

Senator O'Neill also asked what stakeholders were consulted on the ministerial direction. NBN, Telstra, Optus, TPG, Vodafone, Vocus, Communications Alliance, ACCAN, Consumers' Federation of Australia, Choice, TIO and the ACCC were contacted about the release of the package, including the ministerial direction, ahead of its release.

CHAIR: Thank you, Mr Mrdak.

Senator O'NEILL: I appreciate you giving that to me but I was struggling to get my head back in the space it was in when I was asking those questions. Could you provide me of a copy of what you just read?

Mr Mrdak : Certainly—happy to.

Senator O'NEILL: That would be great. Thank you.

CHAIR: I have a couple of brief questions. I wanted to turn to Tasmania for a brief moment—that is, the west coast of Tasmania, a great part of the world—

Senator O'NEILL: A beautiful place.

CHAIR: Have you ever been there, Senator Keneally?

Senator KENEALLY: I have enjoyed time in Tasmania.

CHAIR: You must come to Strahan, a beautiful part of the world! I want to get an understanding of where we're at on the NBN rollout on the west coast of Tasmania, which is something that was a topic of discussion at the last federal election.

Senator Fifield: As you know, at the last election there was an announcement by the Commonwealth that $18.5 million would be contributed to the west coast of Tasmania, to upgrade the technology in a number of towns. I should acknowledge the Tasmanian government for making a $4.5 million in-kind contribution. I should particularly acknowledge the efforts, advocacy and tenacity of former member Brett Whiteley.

CHAIR: Brett Whiteley is a tenacious fellow.

Senator Fifield: He is.

Senator O'NEILL: So is Senator Urquhart, who has been harassing the minister to deliver for the west coast for many years!

CHAIR: Not like Brett Whiteley!

Senator Fifield: Brett Whiteley has been a force of nature that has delivered for the west coast of Tasmania.

Senator KENEALLY: Minister, you might want to look in the camera when you say that. It'll play better in the ad!

Senator Fifield: Chair, I would advise that the town of Strahan can expect fixed wireless technology to be ready for service in August 2018—so, not far away. Queenstown and Rosebery will be ready for service in September 2018, and Zeehan will be ready for service in November-December 2018.

CHAIR: Another election commitment by Brett Whiteley delivered! That is wonderful news. Thank you for that, Minister. I look forward to seeing Brett Whiteley return to this parliament. I'll hand over to Senator O'Neill.

Senator KENEALLY: Don't you have any more questions about how great Brett Whiteley is!

CHAIR: I'm happy to talk about Brett Whiteley and how he is a strong advocate for the electorate of Braddon any time but we've got a whole week in the middle of June to do it.

Senator KENEALLY: For the record, this is the first mention of Brett Whiteley we've had all week.

CHAIR: No, no, I talk about him a lot!

Senator O'NEILL: Could I ask about the third-quarter results—and thank you for the documentation that you provided a little earlier. In the third quarter last year, where NBN was comfortably ahead of its stated rollout targets, NBN had met 66.5 per cent of its revenue target for that financial year. Yet in the third-quarter results for this financial year, where NBN is behind its stated rollout targets, NBN appears to have achieved 73.6 per cent of its financial year revenue target. Could you explain to me how that works?

Mr Rue : It's often a case of timing, of when we acquire active band users. As for the timing of revenue, the quicker you gain subscribers, the quicker you get your revenue. It would be purely timing over the year. We've been pleased with the activations in the first half of the year and you can see that the revenue, as you quite rightly point out, is at around three-quarters of the full-year target.

Senator O'NEILL: How is it, Mr Rue, that NBN looks like it'll exceed its revenue forecasts for the 2018 financial year, despite being on track to miss activation targets, and with ARPU remaining pretty flat?

Mr Rue : As I said earlier, the revenue target is not just a combination of ARPU; it's also a factor of when the actual subscribers come on board and when we start to generate ARPU on a month-by-month basis. We have been very successful in terms of the timing of the take-up of those subscribers that we have, and that's what's driving the revenue.

Senator O'NEILL: If I was a cynic, Mr Rue and Mr Morrow—

CHAIR: You're not, though!

Senator O'NEILL: I could say you've been low-balling the target so you can't miss one.

Mr Morrow : I'll respond to that. This is one of the most challenging and quite aggressive projects I've ever had in my 40-year tenure in the industry. To get this thing built by 2020, to remain commercially viable, to have 14 quarters in a row of hitting targets has not been easy. I think what you're actually experiencing is an incredibly dedicated team that believes in the cause and in the purpose behind helping Australia, and will do whatever is necessary, even if it means long hours, weekends and ingenuity. I appreciate and I'll take as a compliment the fact that we have been able to beat our targets. As you know, the HSC pause is going to affect not only the end users but, of course, the ready-to-connect metric that we have for the full year. We did it for the right reasons, and it does not affect the overall target of 2020 and a healthy, commercial, viable business model.

Senator O'NEILL: Mr Rue, just processing your comments to me: how can what you have just said on the record match up with the fact that you halted the rollout of the HFC? The timing of subscribers coming on board had to have been delayed by that process.

Mr Rue : The revenue is a function of all subscribers, even ones that you got a couple of years beforehand. I'd also point out that the ARPU is slightly up year-on-year as well, which we're also pleased about. The ARPU is higher, year-on-year—and also the timing of when subscribers come on board—is what drives the revenue. The ones that you add in a period of time only adds that one month. The ones you have for many years, or for the early part of the year, adds month upon month upon month. So it's a combination of timing of subscribers and also that ARPU.

Mr Morrow : Just to add to that: it's very interesting, we're still adding 100,000 new customers a month, and HFC was going to be a big portion of what the plan was before the pause. But what we found, quite frankly, is that the RSPs diverted their attention to these other areas, so you saw a greater take-up in the non-HFC areas than what we had experienced in the past. You saw very little dip in terms of that activation focus that they had—clearly, they're geared to be able to support those sorts of volumes. The fact that they diverted their attention predominantly over to FTTN, the fact that we have higher ARPUs, and the fact they are coming on earlier than was expected because of that, is going to allow us to hit the revenue target or come very close to it, even though the HFC pause took effect.

Senator O'NEILL: I still don't understand how you can be behind in your activations. You're talking here about ARPU, but my understanding is ARPU is flat. How can you meet your revenue targets with that construction?

Mr Rue : The subscribers you add for a period of say three months or so does not add much to revenue in that particular year. What drives a revenue in a year is the total base of your subscribers. In this situation, where a target is missed: yes, it has an impact, but it doesn't have a material impact on revenue in that particular year. That impact is counterbalanced by the fact that the take-up was strong in the first half of the year, and a small increase in ARPU has also helped to get to that target. It's not a case of targets being low-balled, I absolutely assure you that.

Senator O'NEILL: What executive bonuses are linked to hitting the financial year 2018 revenue target?

Mr Morrow : The board sets the bonus structure for the company, and the bonus applies to the large majority of the employees in the company. Typically, at the beginning of the year the board will decide what the measures are and what the objectives are in order to hit—call it a standard payout. It typically, in this year, involves revenue, end users, the ready-to-connect, the customer experience and reputation, and there's general finance and general safety that the board considers in determining what the bonus will be for management and its employees.

Senator O'NEILL: Can I just get some clarity: my understanding is that the ARPU is $1 higher, is that correct?

Mr Morrow : It has gone up by a dollar, from $33 to $34.

Senator O'NEILL: What was your forecast?

Mr Morrow : I'm pulling up the corporate plan now—do you recall what the corporate plan said by the end of the year?

Mr Rue : No, we didn't have it in there. It was slightly below that 44.

Mr Morrow : The point is that it doesn't take much. When you talk about four million subscribers, it doesn't take much of an ARPU delivery that's over the budget to have a higher revenue component—because, again, you multiply that times 12 and times four million, and that's the increment that you can get. The very fact that we're already on target to beat that ARPU level gives us that added revenue, even though the number of active end users will be less at the end of the year than what was originally predicted.

Senator O'NEILL: Given what you've just said then: Mr Rue, are you disputing that the NBN are going to meet their financial year 2018 aggregate revenue targets?

Mr Rue : If you take the $1,412 million and you take the quarter revenue of March, which is $500 million, it will be in excess of $1.9 billion.

Senator O'NEILL: Is there any way you could miss your revenue target?

Mr Rue : Yes, if the subscribers were significantly lower throughout the whole year.

Senator O'NEILL: But you've just described to me a situation where that almost seems impossible.

Mr Rue : Senator, I think it's fair to say that we're on track, with only weeks left within the full financial year, to hit the revenue target. I'm pretty confident we're going to hit it.

Senator O'NEILL: What does that mean for executive bonuses?

Mr Rue : There is a portion that the board considers as to whether we hit our revenue target. They do a weighting. No-one's trying to hide anything here. They'll do a weighting and they'll say, 'If you hit your revenue target'—

Senator O'NEILL: I always worry when a statement begins with something like that.

Mr Rue : I know. I'm learning from you guys! There's a per cent weighting given to revenue. There's a per cent weighting given to the ready-to-connect number, the end-user number and the customer-experience numbers. These sorts of things are factored in to determine and let management know what the board considers a priority for us to deliver on and to be renumerated accordingly.

Senator O'NEILL: I might move on.

Senator KENEALLY: Before you do, Senator O'Neill, I have one question. Minister, how many premises in Tasmania are getting fibre to the kerb?

Senator Fifield: Essentially, the Tasmanian rollout is complete.

Senator KENEALLY: How many of them are getting fibre to the kerb?

Senator Fifield: It's the first jurisdiction. Fibre to the kerb is a technology that came to development and fruition after all of Tasmania was concluded or in the final stages of construction planning.

Senator KENEALLY: I repeat my question: how many premises in Tasmania are getting fibre to the kerb?

Senator Fifield: I've answered the question already.

Senator KENEALLY: I didn't hear a number in there.

Senator Fifield: Fibre to the kerb was something that came into development and being after Tasmania was essentially concluded as an NBN rollout project.

Senator KENEALLY: Minister, why can't you give me a number?

Senator Fifield: Senator, I've answered your question. This is very playful—

Senator O'NEILL: My question is: is the number zero?

Senator Fifield: This is very playful and charming. We did this yesterday, where, like we're in Play School, you'd say a sentence and then invite me to repeat your sentence. I'll speak for myself and you can speak for yourself. Senator, the simple answer is: there aren't any, for the reasons that I explained.

Senator KENEALLY: I'd say another Brett Whiteley achievement.

CHAIR: I remind that a certain technology wasn't available. I remind my colleagues—

Senator KENEALLY: Under the Turnbull government.

CHAIR: and Senator Keneally that we only have one hour 25 minutes before our witnesses have to go—

Senator KENEALLY: I could have breezed through that question if the minister had given me the answer straight up.

CHAIR: He did, as a matter of fact. Senator O'Neill, do you have further questions?

Senator Fifield: I thought there might have been more from Senator Keneally.

Senator O'NEILL: We were certainly hoping there would be more fibre to the kerb, too, but there isn't any.

Senator Fifield: As a matter of logic it could not be, because Tasmania was at the front of the nationwide rollout. Tasmania had the benefit of being completed first.

Senator KENEALLY: No fibre to the kerb, though.

Senator Fifield: Because fibre to the kerb didn't exist at that time, Senator Keneally.

CHAIR: Come down with me to Strahan.

Senator Fifield: It's like saying someone hasn't purchased a car that hadn't yet come into existence. It's a non sequitur.

Senator O'NEILL: But we know that you didn't appreciate the offer of the car of fibre to the kerb when it was presented to you by Mr Morrow—you delayed that, too.

Senator Fifield: No, that's not correct. We have fibre to the kerb in places where it makes economic and logistical sense to deliver.

Senator KENEALLY: Is it true that 44 per cent of Tasmania is getting fibre to the premises?

Senator Fifield: I see Mr Morrow nodding.

Mr Morrow : It sounds close.

Senator Fifield: That sounds about right.

Senator KENEALLY: If fibre to the premises is so slow to roll out, why is Tasmania finished already, with 44 per cent getting fibre to the premises?

Senator Fifield: Because Tasmania is a very small state when it comes to its population size and also the rollout started there first so they are the two reasons to explain that.

Senator KENEALLY: So we all need to move to Tasmania if we want good internet coverage; is that what you're saying?

Senator Fifield: No, anywhere in Australia will have the benefit of good internet.

Senator KENEALLY: When will that happen, Minister?

Senator Fifield: It will happen in 2020—that is, six to eight years away.

Senator KENEALLY: You are going to look me in the eye and make that commitment to me, Minister?

Senator Fifield: It is 2020. Again, this is charming. You have repeatedly, over the last few days, invited me to look you in the eye, Senator. You are the first senator who has done that, just saying.

CHAIR: How would you feel if I did it, a bit uncomfortable?

Senator KENEALLY: I don't know, Senator O'Neill, if it is enough to make Minister Fifield's hair curl.

Senator Fifield: If what is?

Senator KENEALLY: This line of questioning.

CHAIR: With where the conversation is going generally, I think, Senator O'Neill, you'd better take over, don't you?

Senator O'NEILL: If you're offering it for the Labor Party, I will take it. Right now, I have a question for you. Mr Morrow, can I confirm the cost-per-premises figures in the corporate plan? When you figure out the cost per premises, if I remember correctly from previous conversations we've had, it includes a component of cost in there that capitalises on the lease payments into the future. I can't remember if it was 30 or 40 years. So is that the case? Could you just clarify?

Mr Rue : Yes, that is the case. The reason for that is because the accounting treatment for the leases that we have from Telstra, which are extended leases, is required for accounting standards. I really don't think you want to know why, but I'm happy to tell you if you do but, for accounting standards, it's required to be treated as an asset. What the cost per premise attempts to do there is to reflect the asset or the cost of the asset put on the balance sheet. I appreciate that that may be an accounting concept, which is why we've always put in a corporate plan, the component of that, so as we're very clear about it. It's consistent for all technologies. And for consistency, the fixed wireless cost per premise also includes the same concept for where we take out a 20-year lease, for example, on a piece of land where a tower goes up on top, a site cost.

Senator O'NEILL: Is this applicable to any of the technologies?

Mr Rue : Yes, it is.

Senator O'NEILL: So if a technology was, say, $3,500, what component of that would be that particular element, the capital lease payments?

Mr Rue : To correct my previous statement, it doesn't apply to greenfields, because that comes from developers, not from Telstra.

Senator O'NEILL: But to all others, to everything other than greenfields, it applies.

Mr Rue : It's actually in the corporate plan. It's around about $700.

Senator O'NEILL: For $3,500?

Mr Rue : It doesn't matter. It's a fixed cost per each technology. You will see that in the corporate plan.

Senator O'NEILL: So if it was $4,100, it would still be $700?

Mr Rue : That's correct.

Senator O'NEILL: So for $3,500, it would be $700?

Mr Rue : That is correct.

Senator O'NEILL: For $3,900, how much?

Mr Rue : It's the same. If you see in the corporate plan, where we talk about the cost per premise—I'm trying to find the page—you will find that clearly laid out.

Senator O'NEILL: What page is it, Mr Rue?

Mr Rue : It's on page 55.

Senator O'NEILL: Can you read it to me, please. I haven't got a copy.

Mr Rue : I'm trying to find the number on this page. It certainly was in previous plans. We certainly say infrastructure leases are included in the cost per premise calculation based on the net present value of minimal future payments—and it goes to describe what that is. I can't see it on this particular page but, in the previous corporate plans, it's always been very clear it's around $700 for each technology, apart from greenfields and fixed wireless, of course.

Senator O'NEILL: Mr Morrow, could you please reaffirm for the public record that you presented a proposal to Minister Fifield which proposed to drop the entire HFC network and replace it with fibre to the curb instead.

Mr Morrow : We talked about this last time. I think there are plenty of notes in the Hansard records. I recall trying to make sure it was clear that there was never a proposal made but, as we saw the different technologies that emerged that weren't available at the time that the plan was put together, we felt it was our obligation and duty to present this to the shareholders as new alternatives should they want to go down a different path. We presented this in the format of whether or not they wanted to change out the existing infrastructure to deploy FTTC or whether they wanted to change out either one of them, being FTTN or HFC. While the minister is here, so he can comment, I think he was grateful that we are constantly looking at new technology, especially given that we are technology agnostic. When he asked the question as to whether or not we can stay on plan with 2020 and do this at the least possible expense, our answer was no. He said to continue to evaluate the new technologies and see if we could come up with ways to improve. If we can reach that barrier, then we can consider an alternative approach. That direction and our work in trying to find a way to get FTTC cheaper and do it faster is what has enabled us to now expand the number of homes that get FTTC to a million-and-a-half. We are always continuing to look. With 98 per cent of the nation now in design, in construction or completed, we are unlikely to see an increase from the 1.5 million—this was the senator's question earlier in the hearing. Nevertheless, we are going to continue to try to reduce costs.

Senator O'NEILL: That's a lot of words to say, 'Yes, I did take a proposal to the minister and—

Mr Morrow : It was a presentation.

Senator O'NEILL: 'I took a presentation to the senator which proposed to dump the entire HFC network.' I think you told me this on 10 April.

Mr Morrow : It was here as the economic and time cost if we were to replace either one of the networks.

Senator O'NEILL: To be clear, you took a proposal to dump the HFC and replace it with fibre to the curb. Is that correct, Mr Morrow?

Senator Fifield: Mr Morrow has made clear tonight and in the previous estimates that NBN do scenario planning and provide presentations to government, but there was not a proposition put to government to follow a particular path. What Mr Morrow has indicated is that that option would have resulted in significant additional cost and would have delayed the rollout of the NBN. Our approach is that we are technology agnostic within the funding envelope and in 2020 completion.

Senator O'NEILL: One of the things about this technology is that it's quite complex. I'm trying to get straight and clear answers so that people who are interested in this, Australian citizens who are investing in this, get the truth and in a way that they can understand. Can I say again and get a clear, clean and simple answer: Mr Morrow took—you're not calling it a proposal—a presentation to Minister Fifield to dump the entire HFC network and replace it with fibre to the curb.

Senator Fifield: NBN, as is entirely appropriate, are constantly looking at options and scenarios. NBN did not make a recommendation to government. NBN looked at a range of scenarios, a range of options, as is appropriate, and they would have added cost and would have delayed the rollout of the NBN. We have a mandate to NBN, and that's to complete the NBN by 2020 within the funding envelope.

Senator O'NEILL: Thank you, Minister, but I say to Mr Morrow, because my question was to you, Mr Morrow: is it correct that you took a presentation to the minister to dump the HFC network and replace it with fibre to the curb instead? Did that occur as you indicated in your evidence to the committee on 10 April?

Mr Morrow : A portion of the presentation that was made was that, if the government decided to use FTTC in lieu of HFC, here is what the cost and time indicators would look like. Equally—again in the spirit of your comment about being clear—we offered the same analysis on FTTN and the same analysis on FTTN and HFC in case they wanted to use more fibre alternative to the existing infrastructure that was there in the past. In each of those three different scenarios, with the analysis that we did, it was extended time and an increase in cost.

Senator O'NEILL: And I will shortly go to the FTTN and the HFC. It's very interesting that you say that, Mr Morrow. But I just want to confirm one other detail that we discussed in the last outing that we had. Can you confirm that the proposal that you presented to the minister was costed? He certainly indicated costs were a significant factor in his decision-making. Can you confirm that the proposal you presented to the minister had been costed?

Mr Morrow : It was a high-level analysis of the cost. Typically what we would do for anybody and almost in any company is take the evolution of technology that may present a new opportunity or a threat and do a high-level analysis without expending a lot of resources to say we think generally that this is what it would cost, how much it would take—the consequences of doing that. And you do that to say, does the board or does the owner of the company want us to go pursue a more detailed analysis to come back then to confirm? This is all ahead of any official decision that was made. So, yes, we did a high-level analysis of the cost but only indicative levels to know whether or not the government wanted us to pursue one of these options.

Senator O'NEILL: So you took a costed proposal to the minister to dump the HFC and replace it with fibre to the curb?

Senator Fifield: That's your summation in your words, which I don't think reflects what Mr Morrow and I have both said.

Senator KENEALLY: So would it be fair to say Mr Morrow took a presentation to government; it considered fibre to the curb, it considered fibre to the node and it considered HFC and fibre to the node; and it had high-level costings so that government could make a decision about each of those?

Mr Morrow : Yes. This is cracking me up. I took a presentation to the government that looked at high-level costs and high-level timing estimates to either replace both HFC and FTTN or one of or the other.

Senator KENEALLY: And when did you do this?

Mr Morrow : I don't remember. I think I was asked before and I gave a high-level timeline, but I don't remember. Can you?

Mr Rue : No.

Senator O'NEILL: Can you remember if it was before or after the election?

Mr Morrow : I don't remember. I think it would have been before. Yes, before the election.

Senator O'NEILL: Can you possibly get a bit more detail about when that happened?

Mr Morrow : Yes, we can.

Senator O'NEILL: I'm assuming you don't take this sort of proposal on your fortnightly meetings with the minister.

Mr Morrow : We might start talking about it. I remember the discussion that, hey, this FTTC technology is actually starting to grow some legs and show some promise but it was still too early to be able to do anything other than inform the minister of it. We kept that kind of ongoing discussion in our fortnightly meetings. It might have even been one of those fortnightly meetings where I presented this information that I mentioned earlier.

Senator O'NEILL: The information you presented last time we met, it became clear after a rather long time of questioning, was the HFC that you proposed to dump and replace with fibre to the curb, which we've reconfirmed this evening. But today it seems that, in addition to that, you've also put a proposal to the minister to dump the entire copper network for fibre to the curb.

Mr Morrow : We looked at the options on the copper network as well.

Senator O'NEILL: Why was that, Mr Morrow?

Mr Morrow : I wanted to make sure there were clear options in front of the government so that, should they want to redirect money, they could do so. I was merely informing them of the evolution of technology and how it could be applied to NBN.

Senator O'NEILL: For some time, including prior to the last federal election, the government has had options on the table and recommendations for serious consideration, with costings attached, to dump fibre to the node and replace it with fibre to the curb?

Senator Fifield: When you say 'proposal to dump', that implies that it was a recommendation, and it was not.

Senator O'NEILL: But it was certainly a cost-informed discussion which gave the government a clear option.

Senator Fifield: But we've already canvassed that.

Senator O'NEILL: If fibre to the node was so fantastic, why was Mr Morrow bringing a proposal to you to dump it for fibre to the curb?

Senator Fifield: We've already discussed the fact that NBN, as part of good business practice, does scenario planning and looks at options. What was clear was that the options that were presented would add significant cost to the NBN and delay the rollout. Our objective is to see the NBN rolled out as quickly as possible, by 2020, at the lowest possible cost.

Senator O'NEILL: But this is quite extraordinary—

Senator Fifield: I know that working within budgets is not a concept that comes naturally to the opposition, but that is the approach we're taking.

Senator O'NEILL: I don't mind how many personal attacks you make on me or the party that I'm proud to represent, I just want the truth for the Australian people. I'm quite amazed—

Senator Fifield: That wasn't a personal attack.

Senator O'NEILL: at what's going on here—there are costed proposals to dump the copper network for fibre that have gone before you, prior to the last federal election.

Senator Fifield: Again, I reject your characterisation. The way that you are rephrasing, incorrectly, the evidence that has been presented is intended to give the impression that there was a formal recommendation for a course of action when there was not.

Senator O'NEILL: I've never said it was a formal recommendation, but a costed proposal was put to you, Minister, to dump the fibre-to-the-note network for a fibre-to-the-curb network prior to the last federal election.

Senator Fifield: When you use that combination of words, 'proposal to dump', you're trying to say there was a recommendation to government to take a course of action, and there wasn't. It doesn't matter how many times you rephrase it.

Senator O'NEILL: Let me put it to you: you received information from the NBN Co prior to the last federal election in which costed plans for a change from the copper network to a fibre network—a change from fibre to the node to fibre to the curb—was provided to you for your consideration.

Senator Fifield: Since you're wanting to rephrase things, let me also put things another way: the government was not willing to consider adding the significant cost and delaying the rollout of the NBN.

Senator O'NEILL: We can split the semantics. I think I probably do need to call this a proposal, whether it came in the form of a presentation or a discussion or a piece of paper.

Senator Fifield: A proposal means a recommendation is being put forward. It wasn't a recommendation.

Senator O'NEILL: A proposal can mean something other than a recommendation. A proposal can cover a multitude of different forms of information that was presented to you, Minister.

Senator Fifield: You want to put a particular take on things, which is not correct.

Senator O'NEILL: The take that I want to put on it—

Senator Fifield: Each time you do that, I will correct it.

Senator O'NEILL: This is a battleline for us. We have long, as the Labor Party, articulated that fibre is the better medium to get materials to the Australian people. Mr Morrow has made comments about that today.

Senator Fifield: You're correct. The Australian Labor Party was about fibre at any cost, no matter how long it took.

Senator O'NEILL: You had a proposal. You had information that was put before you that was costed prior to the last election. You could have made a choice for the Australian people to do fibre to the curb. You were told what the cost would be, you rejected that better technology, and you stuck with fibre to the node.

Senator Fifield: You are correct in that the government decided that we were not going to make Australians wait longer for the NBN and that we were not going to incur significantly higher costs.

Senator O'NEILL: Your decision was to prevent Australians from getting fibre to the curb, which you were advised was a superior technology and could be delivered, and you were given costings on that. You chose against that technology prior to the last federal election.

Senator Fifield: What we did was indicate to NBN that the existing mandate remained in place. What we did was ensure that Australians did not have to wait longer for the NBN. What we did was ensure that there was not significant additional cost.

Senator O'NEILL: What you did was reject a presentation to you—a costed presentation—that suggested you should change your MTM at that time, prior to the last election.

Senator Fifield: No, that's not what was presented to the government.

Senator O'NEILL: Mr Morrow, if I can go back to you. I'm sure it's all coming back to you now. When did you take this proposal to the minister?

Mr Morrow : It was over two years ago. I think when I gave you that answer in the hearing when you were asking me about this before, it was close to the time that we were discovering that FTTC is a real technology that may take hold in several countries around the world, and that we could consider that as an alternative. I want to make clear that we were driving this hard. We knew that we were going to use it in a limited application. Applications that we talked about before at this hearing with those distances on copper would not allow us to meet the statement of expectations of the 25 megabits per second in areas that it was just too difficult to get to, and this was the only one technology that made sense. And we studied that. And I will tell you, it was the management team that said, 'All right, we know enough now about this, we need to make sure that our owners and the board also know enough about it to know if they want to do anything different.' That's what we did. But, again, it was a couple of years ago that we presented this.

Senator O'NEILL: So two years ago you were taking what you've characterised as responsible action to advise the government about new technologies emerging. And you put in front of them proposals, options for them to consider.

Senator Fifield: Analysis to consider.

Senator O'NEILL: Costed analysis about technologies you recommended should be considered, including the halting of the HFC technology to replace it with fibre to the curb.

Mr Morrow : Yes, correct. Naturally, what we wanted to do—and, again, we had no idea what the government or the owners wanted to do—was make sure we gave them as much information as we could get without turning the organisation upside down to do the detailed analysis.

Senator O'NEILL: And you gave them an option to halt the continuing rollout of the fibre to the node?

Mr Morrow : That is correct.

Senator O'NEILL: And go to fibre to the curb?

Mr Morrow : That is correct.

Senator Fifield: It's important to recognise that substantially higher costs for the NBN would have translated through to higher costs for customers. So, again, if we had persisted with the approach of our predecessors in going essentially full fibre, apart from the satellite and fixed-wireless component, Australians would have been paying significantly more for the internet under the Australian Labor Party proposal. That is one of the reasons why we are mindful of the cost of the project.

Senator O'NEILL: Could I ask again about the third technology, just to be clear: fixed-wireless technology. You took recommendations, or did costings, that you put to the minister in some form of a proposal around the cost of fixed wireless. Did you make any recommendations for that to be changed to fibre to the curb as well—with three separate options costed or just HFC and FTTN to replace?

Mr Morrow : It was nothing to do with fixed wireless at the time; it was merely looking at the two existing infrastructure technologies within the MTM. And we did a high-level analysis, saying, okay, if the government wanted to replace cap and grow, limit the deployment to this, now that it had gone thus far—

Senator O'NEILL: When you say cap and grow—?

Mr Morrow : Cap and grow. Say you did a million of one technology, but you're planning to do three, you cap it at one million and use the other two to go with whatever other technology approach. Again, all it was, and innocently, was just: all right, we see something new that we don't know if the government knows enough about to know if they want to redirect us in any way. So our job, and we felt responsible, was to take it to the shareholders to say: here are options, if you want them.

Senator O'NEILL: How many options did you have costed?

Mr Morrow : At that point, HFC was still getting going, so all of HFC, I think, is where that was. Two years ago, remember now—and I'm old, so there's a memory issue here—HFC, I think, was in its entirety for fibre to the node. It had already gone to a certain degree, so rather than using regret capital, go back and spend it,. It was capping the FTTN as to where it was and then the cost and therefore using everything else to go with fibre to the curb. So we had those two separate and distinct: if you just wanted to pick A or B, you could do that, and, equally, if you wanted to do A and B, here's what the total consequence would be—cost and time.

Senator O'NEILL: Was Mr Rue aware of all of these?

Mr Morrow : I'll let Mr Rue answer that.

Mr Rue : Yes.

Senator O'NEILL: So you undertook the costings?

Mr Rue : I thought you were going to ask me, so I was trying to remember—I think it was done between my team and then the then head of strategy, Mr Whitcomb. He was running the strategy team at the time.

Senator O'NEILL: So you and Mr Whitcomb. Was there anybody else who was involved in these costings you then took to the government that the minister doesn't want to call a proposal?

Mr Rue : That would be a very, very limited number of the finance team and the strategy team.

Senator O'NEILL: Why was that?

Mr Rue : Because, to do a high-level analysis, you just go to a couple of senior people in our teams and ask them to do the analysis. To do a full-blown analysis would require hundreds and hundreds of people and, as Mr Morrow said, it was deliberately a high-level analysis.

Senator O'NEILL: Was that to keep it confidential?

Mr Rue : Not at all; it was to keep people busy on what they were doing and make sure the people who were paid to do high-level analysis did that.

Senator O'NEILL: Can I go to who else was aware of that level of analysis you were doing, and the costings that you were putting together to put before the minister for his serious consideration—which he rejected, history shows. Was the board briefed on the options you put to the minister?

Mr Morrow : Yes.

Senator O'NEILL: When was the board briefed, and on how many occasions?

Mr Morrow : I believe on one occasion, and it would have been roughly at the same time that we briefed the minister.

Senator O'NEILL: So two years ago?

Mr Morrow : Two years ago.

Senator O'NEILL: And certainly prior to the federal election?

Mr Morrow : Correct.

Senator O'NEILL: For the costed proposals, I just want to understand the process: you have a conversation at a high-level, you talk to Mr Rue—tell me how it goes?

Mr Morrow : Again, you're asking me to recite specific conversations, but I could tell you exactly what I would do today. As we learn about new technology, I hear from our experts within the company that this is where this is maturing, this is the promise that it may be able to bring, here's how maybe G.fast can be added to it to even take it up to higher speeds and here's how we're going to use that within the limited applications that I mentioned earlier. Once that was done, I'm sure I talked to Mr Whitcomb and Mr Rue and said, 'Listen, let's look at this now. In light of a new technology, maybe the MTM would shift and change. Let's take it to the board, take it to the government and see if they want us to be doing anything different than what we're currently doing'—because this was new information that had not been available in the previous years' plans that we had taken to the government for approval. I'm sure I said, 'Let's keep it at a high level. Let's not turn the organisation upside down to run these analyses, because we have no idea.' We knew intuitively it would not fit within the lowest cost and the fastest to deploy, but we still wanted to give the government the option; we didn't want to make a presumption there. So I would imagine Mr Rue had one or two people on his team and maybe Mr Wickham had one or two people on his team, and that was the extent of it. I'm sure we also talked about it at the executive committee level—'Here's what this looks like'—and then we had that discussion with the board and that discussion with the minister. I say 'shareholders'; it was predominantly Minister Fifield; it would not have been the finance minister.

Senator O'NEILL: Sorry, would you repeat that last part?

Mr Morrow : I referred earlier to presenting to the shareholder ministers; it would have been only Minister Fifield; we don't usually have those sorts of discussions—

Senator O'NEILL: High-level meetings.

Mr Morrow : unless Minister Fifield says, 'Let's bring in Minister Cormann.'

Senator O'NEILL: As you've mentioned that, was there any point at which Minister Cormann was there to receive any of these costed proposals?

Mr Morrow : Not unless it was handed over from somebody else, but I did not have any direct discussion with him about this.

Senator O'NEILL: So these costed proposals were seen by the board before you proposed them to the minister?

Mr Morrow : I don't know if it was seen before or at roughly the same time. Again, we have a very collaborative board. They know that the minister is very close to NBN and wants to understand things that are happening on a real-time basis. I likely would not have waited for a month or six weeks to the next board meeting before I presented to the minister, but I don't recall the specifics. It could have coincidently happened that way.

Senator O'NEILL: So that would be the normal process—that, if there was time, you would present it to the board and then take it to the minister. In the interim, if you had what you thought was another important piece of information that the government should be taking into account in terms of the further rollout, you would prepare the documentation with the support of Mr Wickham and Mr Rue and then take it to the minister for his consideration.

Mr Morrow : And to the board, knowing that no official decision could be taken unless the board was around the detail and approved it.

Senator O'NEILL: I'm assuming that you didn't take any of these things to the minister while holding the opinion yourself that they were bad ideas.

Mr Morrow : I had this view that this was not my call; this was more of a policy related decision, not an NBN-GBE decision. So I don't even try to do that. I want to stay clear of politics as much as I can.

Senator O'NEILL: I think you're in the wrong job, Mr Morrow!

Mr Morrow : Yes, maybe!

Senator O'NEILL: I want to go through that process of the costed proposals, the interaction with the board and the presentation to the minister. Can you confirm for me that, when you took these proposals to the minister, you thought they were good proposals that were reasonable options, worthy of his consideration, and they were essentially ticked off by the board if not before then shortly after?

Senator Fifield: You're saying that the board ticked off. When a presentation is made to the board on something of this nature, which is analysis and presenting options, I wouldn't want your language of 'tick off' to imply that the board was making a recommendation to government, because that wasn't the case.

Mr Morrow : That's right.

Senator KENEALLY: But the board didn't say, 'Mr Morrow, we will look foolish if we put this to the government. Remove that.'

Mr Morrow : No.

Senator KENEALLY: And that's a role the board could take? That's something the board could direct?

Mr Morrow : Again, I want to be careful. I'm just one board member and the CEO, so I don't speak for them all, but I'm pretty sure—

Senator KENEALLY: I'm saying in general terms, Mr Morrow.

Mr Morrow : I know. I'm trying to answer in general terms.

Senator KENEALLY: The board can say to you: 'If you take this on our behalf to this government, we will look foolish. Don't do it.'

Mr Morrow : I've never heard that. In fact, if anything, I think if the board feels that something's worthy of the government knowing about, to know if they want to redirect the board in terms of the statement of expectations, we, the management team, should do that. I'm sure they'd back this to be able to go find out what the shareholders are interested in. That's all. Again, I don't know if it's a foolish proposal over 'Let's get into the basket-weaving business.' I'm sure they would say, 'Don't take that to the minister. You're wasting the board's time.'

Senator KENEALLY: Earlier today you were telling us about the 100 megabits per second. You said you haven't even bothered to cost it. It's not a proposal you would entertain; it's not something that you're looking to do.

Mr Morrow : On?

Senator O'NEILL: On the delivery of the fixed wireless.

Senator KENEALLY: The fixed wireless.

Senator O'NEILL: 'We've killed that,' I think you said.

Senator KENEALLY: Yes, you said 'We've killed it.'

Mr Morrow : Yes—

Senator KENEALLY: That's not a proposal you're going to even cost or take to government.

Mr Morrow : This is right. It's very different. If I can explain that: we looked at the feasibility of actually introducing the 100 meg product. The technology could do it. Why not introduce it? We took it to the board. The board liked it and said, 'Yep, go for it.' We informed the government that we have this technology that can do this, and we're going to be introducing that. We're going to through all the stages of product development, consultation, pricing and all that stuff that goes on with that. That was working its way down the path as we saw the usage behaviour of people change, and understanding the limitations and the cost to be able to expand the capacity, that's when we said, 'No, we need to pull it.' I went back to the board and said, 'For these reasons, we need to pull this.' I informed the government that we're pulling this product out from consideration.

Senator O'NEILL: Did you inform the government that they should pull the HFC network and replace it with FTTC?

Mr Morrow : I informed the government that, if they chose to do so, this is roughly what it would cost and how long it would take.

Senator O'NEILL: And the reason you informed them of that was because it was a superior technology that was becoming more affordable.

Mr Morrow : Is that a question?

Senator O'NEILL: Is that correct?

Senator Fifield: It was a developing technology, and it's important that the government be aware of developments in technology and what the costs of those are, and what the cost of it would be in different scenarios. We have FTTC being deployed in the situation where it's cost-effective to do so.

Senator O'NEILL: If I can just push through a couple of questions quickly: Mr Morrow, did you advocate to dump the HFC network?

Mr Morrow : To the minister, I did not.

Senator O'NEILL: To other people?

Mr Morrow : No.

Senator O'NEILL: At any point, was it your view that the HFC network should be pulled and be replaced by a fibre-to-the-curb technology?

Mr Morrow : I wouldn't take that sort of decision; that's not my call. That's a policy-based decision. I don't set policy.

Senator O'NEILL: Did you present options to the minister where he could have made a decision to dump the HFC network and replace it with fibre to the curb?

Mr Morrow : I did.

Senator O'NEILL: Did you take to the minister options to dump the fibre-to-the-node network and replace it with fibre to the curb?

Mr Morrow : I never suggested or presented anything on dumping anything. You can't use your language and expect me to—

Senator O'NEILL: Yes, okay. That's fine. Did you ask the government to reconsider their Statement of Expectations?

Mr Morrow : No, I did not.

Senator O'NEILL: Did the board at any point of time?

Mr Morrow : No, they did not—not to my knowledge.

Senator O'NEILL: How did you convey your conversations with Senator Fifield in your reports back to the board about the options of fibre to the curb replacing HFC and fibre to the node?

Mr Morrow : How did I convey Senator Fifield's response?

Senator O'NEILL: Yes.

CHAIR: Accurately, I'm sure.

Mr Morrow : Yes. I went back to the board and it was, 'Keep innovating and finding ways to reduce the cost further and the time it takes to build. Until then, stick with the plan.' I will say the senator also gave latitude to say, 'If you can stick to this notion of fastest, least possible cost and put more fibre to the curb than FTTN or HFC, go for your life.' It wasn't quite those words, but he encouraged us to do that. At the time, if you recall, we were thinking 100,000/200,000 homes would get FTTC, but because of this innovation we've talked in the past, with the initial name of 'skinny fibre', and because of the great procurement work with our equipment suppliers to reduce the cost of the DPUs, the innovation for the network, we have actually been able to reduce that original estimate of cost and the time frame of builds and move from 200,000 to 1½ million, still meeting the expectations of the government.

Senator O'NEILL: With regard to the cost, $51 billion—I just put that number out there—was that the peak funding requirement?

Mr Morrow : We have in the corporate plan a peak funding range of $47 billion to $51 billion.

Senator O'NEILL: That peak funding envelope that you were talking about, did you determine that before or after the election?

Mr Morrow : This $47 billion to $51 billion was determined in August of last year.

Senator O'NEILL: After the federal election?

Mr Morrow : In that one. However, I will say that that range has existed for some time. It was a bit wider. It started at 46-56, and then we narrowed as we started knowing more about the cost of the network, having procurement plans and contracts in place, and that range narrowed to the 47-51 last year.

Senator O'NEILL: On how many occasions did you discuss that funding envelope up to $51 billion with the Prime Minister?

Mr Morrow : Well, when he was communications minister, a lot. Then, as Prime Minister, we presented a corporate plan, was it last year, to him? I can't remember if it was last year or the year before, but we presented a corporate plan to him, the Prime Minister is still quite interested in NBN and keeps close tabs on it.

Senator O'NEILL: Was he aware of the proposals that you were putting to Minister Fifield?

Mr Morrow : Not that I'm aware of.

Senator O'NEILL: Minister Fifield did you have any discussions with the Prime Minister about the ideas that were being presented to you by Mr Morrow and costed by Mr Rue.

Senator Fifield: I don't believe so.

Senator O'NEILL: So you didn't give them serious consideration—certainly not serious enough to advance them with the Prime Minister?

Senator Fifield: I looked at NBN's analysis, I saw that the options that were presented would have taken NBN beyond our objective of 2020 for completion and significantly increased costs, so that was the conclusion of the matter.

Senator O'NEILL: Minister, the decisions that you have described here this evening have significant impacts. You clearly indicated this evening that you rejected out of hand the opportunity two years ago to shift technologies from fibre to the node to the HFC that were costed and put before you and you determined to continue on the path to roll out the HFC until it had to be paused because of technology failures, and you continued on the path—

Senator Fifield: I wouldn't say technology failures, because that implies that HFC, as a technology, is not fit for purpose; it is, but there were particular challenges, which have been addressed.

Senator O'NEILL: Minister, because of the decisions that you made two years ago, nearly 40,000 households and small businesses in the electorate of Braddon are now on the second-rate copper instead of fibre to the curb?

Senator Fifield: No, that's not correct.

Senator O'NEILL: Nearly 58,000—

Senator Fifield: Senator, that's not correct, because Tasmania would have been in design, in construction or complete.

Senator O'NEILL: In the electorate of Longman, 58,000 households and small businesses could have been on fibre to the curb if you changed your mind two years ago.

Senator Fifield: Senator, if we had not stuck to the mandate, people around Australia would be waiting longer for the NBN.

Senator O'NEILL: In the electorate of Fremantle, 62,000 households and small businesses are stuck on the second-rate copper network instead of fibre to the curb because of your refusal to acknowledge the technological advice you were given by NBN.

Senator Fifield: Senator, I don't think you can make that statement. Western Australia, I think, proportionally is further advanced than most states. You can't just make an assertion, because you are ignoring where construction and planning would have been at in those places. You can't just say that everything in those electorates would have been fibre to the curb. You just can't make that assertion.

Mr Morrow : You've mentioned Tasmania a couple of times and western Tasmania in particular. I am happy to report that most of the local work, in terms of building up that fixed line network, has been completed. We're just now waiting on the transit bit to come through. So Minister Fifield's qualification and description of Tasmania being well ahead, western Tasmania in particular, is a correct statement.

Senator O'NEILL: I'm still trying to figure out the way in which the dynamic of this meeting that you had with the minister occurred, Mr Morrow. It's hard to believe you would have gone to the effort of getting a costing—giving serious consideration to the technology, as you said, by having significant conversations with stakeholders in the sector—and not been serious about your articulation of this being a good option for the government to consider. You wouldn't have taken it if it had been a bad option, and the board wouldn't have let you take it if it had been a bad option.

The consequences of those decisions are quite significant. In advancing these propositions, Mr Morrow—you say you care about people. You put that on the record again this evening. All these people we've been talking about, in Braddon, Longman and Fremantle, their lives are significantly affected by the conversations that you have with the minister, where he didn't take your advice. How did this play out? Did you advocate for these changes? I can only think the answer must be yes; if you took it, it's a form of advocacy. Can you explain to me why he rejected it and how you managed that and what you think about it?

Senator Fifield: Organisations such as NBN are not in the business of advocacy, they're in the business of analysing technology options.

Senator O'NEILL: Which they gave to you, and you rejected it.

Senator Fifield: They are in the business of analysing technology options and scenarios, looking at what those might cost. Staying on top of technological developments and providing analysis is what NBN does. It's not an advocacy organisation.

Mr Morrow : I do believe in people and I love helping people and, again, I think you have 6,000 people that put their name to NBN because of that. I'm a recovering engineer. I will say that the difference between FTTC and FTTN or HFC, right now, does not matter. No-one has been negatively impacted, to my knowledge, by not having FTTC. In fact, it's important to understand we have four million homes between HFC and FTTN that are now ready to connect, either connected or can order a service, that would not have that today if we were going with FTTC, because FTTC is just getting started. Couple that with the AlphaBeta research around jobs and equality for females, around people being more socially connected, having better education, and the speed of the network really matters. Maybe in the future, when the applications outstrip the capability of these other infrastructures, we may need to migrate or we should have migrated before. I don't care and I don't try to do that sort of analysis. As far as the good of people goes, I do believe that what we've done is the right thing.

Senator KENEALLY: I appreciate that statement from you on your intention to do the right thing. What I'd like to just be clear about though: you said you took these different proposals or plans or presentations to the government, costed, and you said it was two years ago. Can we be clear as to whether that was before or after the 2016 election?

Mr Morrow : When was the 2016 election again?

Senator KENEALLY: It was in July.

Mr Morrow : It would have been before—maybe the March-April time frame.

Senator KENEALLY: Thank you for that. I also want to put a figure to you. Was $51 billion the peak funding requirement to deploy fibre to the kerb instead of copper?

Mr Morrow : No. It would have been substantially more.

Mr Rue : Absolutely.

Senator O'NEILL: I want to ask for a little bit more detail about the proposal that you put forward with regard to the FTTN. Did the proposal that you put forward preserve the FTTN footprint? Or did it just seek to reduce the scope of the fibre-to-the-node footprint?

Mr Morrow : That's the same thing.

Senator O'NEILL: Did it seek to preserve the footprint, then?

Senator Fifield: Which footprint?

Senator O'NEILL: The FTTN, the original footprint.

Senator Fifield: Did the FTTC proposal seek to preserve the FTTN footprint?

Senator O'NEILL: And replace it, in that FTTN envelope, with FTTC? Was that the model of what you took forward? Or were there multiple options?

Mr Morrow : No. Their model was essentially, let's look at capping the correct FTTN. So, again, today we have 3½ million homes ready to connect on FTTN. Two years ago—I don't remember what it was, but it was a heck of a lot smaller—we would have said, 'Stop the construction on that' and in this analysis look at putting FTTC in the place of wherever else FTTN would have been, and what was the cost of that? I'm sure I probably threw something in saying, 'We'll go back, if necessary, and replace those that had FTTN with FTTC after the company was profitable. Preserving the footprint—you know, there would have still been some FTTN within that high-level analysis.

Senator O'NEILL: Right. So, the size of the FTTN footprint under that option was, you just discussed, basically the same, with FTTC fill-in from potentially two years ago?

Mr Morrow : Yes, but—sorry: I think we're getting twisted up on the language here.

Senator Fifield: FTTC wasn't available two years ago.

Mr Morrow : Yes. So, all of these people who would have been currently connected to FTTC would have been waiting until now. We would have slated those premises for FTTC. And I don't know the rules, so I'll let you guys determine this and guide me, but there are often suggestions to me—any presentations that I give to the minister are actually held in confidence. I just want it make sure I'm not violating any of the longstanding conventions of GBEs with whoever's in power, in office. Our legal and government experts had advised that anything I talk to Mitch about is up to Mitch to reveal, not up to me.

Senator O'NEILL: Okay. I think Senator Keneally will go along a slightly different line. I might come back.

Senator KENEALLY: I'll ask some questions that I believe don't go into the territory of things you've discussed with Mitch, so we can talk about medical alarm trials, please.

Mr Rue : Before you do that, perhaps I could deal with two very small issues. You asked about the cost of 'Bring it on'—the trademark. We haven't been able to get that for you, so we'll have to take that on notice. I apologise. It didn't work this time—the iPhone. The other thing is: Senator O'Neill, you asked me what the infrastructure costs were, and I said they were in the plan. To be clear, they're in the 2016 plan. It's on page 67, if you want to refer to it.

Senator O'NEILL: Okay. And what was the amount, Mr Rue?

Mr Rue : It's 700. The number hasn't changed, but I just wanted to clarify where it was.

Senator Fifield: And two points to close off on the FTTC discussions—through you, Chair. Let's not forget that NBN did and has adopted FTTC for 1.5 million premises. NBN did continue to examine FTTC. It did continue to pursue its evolution, and it has done so in a way that makes it a good option in the case of 1.5 million premises. The other point, Chair, is that billions of dollars of additional cost to the NBN would have meant higher internet prices for Australians, and that's something that we're mindful of.

Senator O'NEILL: Minister, can I ask a question: if FTTC is a sufficiently good idea for you to do it eventually, when will you apologise to the thousands of Australians you could have given that technology to two years ago?

Senator Fifield: Senator, FTTC did not exist as a technology two years ago.

Senator O'NEILL: It was presented to you by—

Senator Fifield: FTCC is only just coming online now. If that particular scenario had been accepted and put into effect, it would have meant that there were many, many Australians who would have been essentially parked for the best part of two years and more. Australians would have been waiting years and years longer in the electorates that you mentioned to get the NBN, and, also, they would have been paying higher bills as a result. That's the point. That's the big difference between our approach and that of our predecessors—if $30 billion extra had been spent, as your colleagues proposed, that would have meant internet bills of $500 a month more.

Senator O'NEILL: No. I'll never agree with those numbers that you just characterised.

Senator Fifield: How much more would people have been paying for their internet bills under you?

Senator O'NEILL: How much faster would they have been able to operate? How much more productive would the economy have been? How much more opportunity would there have been? How much less digital divide would there have been? Answer those questions, Minister.

Senator Fifield: In eight years time the whole nation would have had the opportunity under you—eight years time—and paying more.

Senator O'NEILL: You sold out thousands of Australians.

Senator Fifield: No. We've ensured that thousands—millions—of Australians have the NBN years ahead of what would have been the case under the proposal and the plan of our predecessors.

Senator O'NEILL: I'll let Senator Keneally go ahead, because we're not going to get anywhere.

Senator KENEALLY: Under that theory, Minister Fifield, the Sydney Harbour Bridge would have been a shed under your administration.

Senator Fifield: It would have been a what?

Senator KENEALLY: It would have been a backyard shed.

Senator O'NEILL: Or a single lane.

Senator KENEALLY: Things that are worth doing aren't worth doing right, according to you!

Senator Fifield: I think you need to work on your analogies.

CHAIR: That was a bit of a skinny one!

Senator McALLISTER: I'm just amused at the senator's arguments that, if you're going to do something, you may as well not do it right.

Senator Fifield: That's not the proposition of the government, Senator.

Senator McALLISTER: Okay. Let's go to medical alarms—a far more serious matter than the senator's arguments about the previous administration. Mr Morrow, I'd like a brief update on the medical alarm trial with non-monitored alarm users. Can you explain where that's up to?

Mr Morrow : I can, Senator. We have commenced a trial to assist users of the unmonitored medical alarm. We're also working with device manufacturers and a trial group of medical alarm users in order to kind of refine the process. We expect this to be ready to go by the second half of this year, so we're potentially just months away. We think that this will be the right balance of the system to assist those people that have these devices that need to convert over to the new digital network.

Senator KENEALLY: Will candidates receive assistance based on some kind of means-testing criteria?

Mr Morrow : They will. We will offer a subsidy to replace the device, under certain conditions—where they can, for example, show the receipt of the device that they have bought, the old device that they are replacing—and we will have a third party administer this to be sure that it is fair and reasonable.

Senator KENEALLY: Is there some kind of subsidy involved as well?

Mr Morrow : Yes.

Senator KENEALLY: Do you know what it is?

Mr Morrow : The details of it are still being worked out. I think we're very close to being able to announce what it will be, so I would ask the senator to hold off for just a little bit longer, and we'll reveal those details.

Senator KENEALLY: Okay. Forgive me if you said this in your first answer—I had a bit of trouble hearing you: do you know how long the trial is expected to run?

Mr Morrow : In the second half, between July and December, we'll have this completely wrapped up and made aware of all the people that feel that they would apply to this sort of subsidy.

Senator KENEALLY: How much funding has NBN set aside for the trial?

Mr Morrow : We have it incorporated in the budget. Again, until we iron out the specific details, I wouldn't reveal that, but it's going to be well within our budget.

Senator KENEALLY: Following the completion of the trial, what do you anticipate the next steps would be?

Mr Morrow : We're still encouraging everybody to register on our website so that we are aware of the situation and that we would agree on the final subsidy. Again, we are targeting around 80 per cent of the retail of up to a maximum amount. We want to make sure that it's managed properly. We'll test the processes, as we are already today, with both our managed provider, the equipment suppliers and even a number of end users that are interested in this subsidy. We expect that trial to be complete by the end of this month, and then we go into what we call the business readiness testing, which will start in June and last for up to a couple of months.

Senator KENEALLY: I want to ask about enterprise revenue. I understand the amount of revenue NBN generates from enterprise is an increasingly important driver as to whether or not NBN Co meets its financial objectives. Would that be a fair characterisation, Mr Rue?

Mr Rue : I think you're referring to business revenue.

Senator KENEALLY: Yes.

Mr Rue : Business revenue is an important part of our business, yes.

Senator KENEALLY: All right. I want to understand whether the NBN is making good progress in this space. I want to touch briefly on the enterprise segment. Is the NBN currently hitting its take-up targets and its market share?

Mr Morrow : We're satisfied with our progress on the enterprise business segment in terms of the revenue, in terms of the penetration, in terms of what we're putting into the pipe for future revenue generation.

Senator KENEALLY: You're satisfied with it?

Mr Morrow : Yes.

Senator KENEALLY: In what ways is the competitiveness of NBN constrained—or is it constrained—by the regulatory framework it operates within?

Mr Morrow : On the regulatory framework, I don't see any particular constraints. We operate within that. There are some complexities as it relates to the processes that we have with revealing a particular price to an RSP that wants to compete for a business. If we reveal that price to one, we have to reveal it to everybody. If that other RSP happens to be a competitor on bidding for the same end user or same business, that's actually not good competition and it's something that we're working to address.

Senator KENEALLY: Is the business segment still projected to make up 20 per cent of company revenues in steady state?

Mr Morrow : I don't think we ever said 20 per cent. What are you drawing your 20 per cent from?

Senator KENEALLY: That was what we had understood, and, based on your reaction, we haven't understood that correctly.

Mr Rue : I doubt we've ever quite got into the details because of the competitive nature of the market, which I was referring to earlier, on the average revenue per user, but it is an important part of our business, and we are satisfied where we are. There's a lot of work to go still, but we're happy with the trajectory we're on, absolutely.

Senator O'NEILL: I have a few questions with regard to the deployment of fibre to the premises in brownfield areas. Mr Morrow, can you confirm that NBN has effectively ceased deploying fibre to the premises in brownfield areas?

Mr Morrow : There might be a few stragglers left, but the majority, yes. Again, there could be a few that still are coming through.

Senator O'NEILL: Is there any particular jurisdiction in which those stragglers are still operating and rolling out fibre to the premises?

Mr Morrow : The stragglers would be spread out, and it wouldn't be a particularly geography that would be driving that.

Senator O'NEILL: What would be driving it?

Mr Morrow : Typically, they're really hard to be able to build into. These would be very complex premises or there could be heritage home related issues. It could be getting the right-of-ways to get cable pulled through. There are typically a variety of issues.

Senator O'NEILL: Mr Morrow, can I take you back to 22 October last year. You're nodding. Are you remembering that date?

Mr Morrow : Exactly, from morning till night. Please go ahead and ask your question.

Senator O'NEILL: For those of us who have that date slightly less ingrained in our memories, that was the actual day that Four Corners on the ABC was due to air a program about the NBN rollout. I'm sure you remember, and your public relations team would remember it, too. There was a whipping of the government into a frenzy, and it was a bit of an odd spectacle. In the days prior to the Four Corners show, the NBN company provided to the media outlets across this country a list of the ten most expensive fibre to the premises installations across each state. Do you recall that document?

Mr Morrow : Yes, I do.

Senator O'NEILL: Who directed the collation and the release of that information?

Mr Morrow : I don't remember the specifics of it, but I would certainly have endorsed it, if that's the case. The reason behind it is that, through a number of media inquiries, there was a lot of speculation and incorrect representation of why our costs were higher than those of New Zealand, as an example. So it—

Senator O'NEILL: Which was the topic of some discussion in the course of that program.

Mr Morrow : Indeed, as well as much interest from a number of journalists well before that program aired. There's often a misunderstanding, as this is so complex, so we wanted to provide facts to make sure that we put in perspective why, when we cost out something, those numbers are legitimate. For example, in fact, I remember it was, I think, a 40 minute television interview that I did for that Four Corners report and, as is typical—and it's not a complaint—you get a minute and a half of that 40 minutes displayed on air during the viewing of the program, but, in it, I also explained that, because—

Senator O'NEILL: That's why watching that sort of program and watching estimates is a very different kind of visual experience.

Mr Morrow : Estimates is far more riveting, I assure you. The comparison, for example, to the cost of New Zealand, is not even near an apples-to-apples comparison. I'm not faulting anybody because they wouldn't have known what has actually gone on with New Zealand and the difference here with NBN. But, trying to break all of that down, for example, there is the cost that we paid to Telstra for the ducts and the leases. Chorus doesn't have to worry about those costs because that's the incumbent company and the asset that has had that written off for many years. Therefore, there's no cash cost to it, whereas for us, it is a material cost, as Mr Rue was just explaining before.

Senator O'NEILL: While you're on this, can you give a comparison between their and our capital costs? We were hearing before that our costs carried forward were hundreds of dollars per—

Mr Morrow : Premises.

Senator O'NEILL: Do they have the same sort of costs?

Mr Morrow : No, they don't, and nor do they have to worry about the fees paid for leases and ducts and pits, those sorts of things. That's why our cost is inherently higher. Forget about even the labour cost, the vast land issues; just merely that point alone drives the cost per premises up. In fact, if you normalise against all of that, we're actually doing better.

Senator Fifield: It's important to recognise the reason why this is the case is because the previous government said that incumbents could not be involved in this, that a brand new, bespoke company that employed no-one and had no experience would actually deliver the rollout rather than incumbents. That's just a historical observation.

Senator O'NEILL: Mr Morrow, can I go back to your acknowledgement that you endorsed it—

Mr Morrow : Yes, I did.

Senator O'NEILL: because you think it was a good way to get information out.

Mr Morrow : Yes. Can I explain. I didn't get to it. That was the prelude to it. Therefore, people were saying, 'I still don't understand $444 average per premise when New Zealand is something less'. The reason is as I just explained with the ducts and leases. And also, because of the landmass, I wanted to show, we wanted to show, how some of these homes are in this incredible cost per home, which, in a private industry, you'd never do. In fact, New Zealand does not have 100 per cent obligation; they had 80 per cent, I think, or 70—

Unidentified speaker: 75.

Mr Morrow : and then they took it to 80—took it up to 75 per cent, because they recognised that some of the extremities of the country are going to be so outrageous from a cost point of view. Again, whether it's the former government or current government, there has been consistency that it's universal access and everybody is going to get a good quality broadband service. But that's the reason I would have endorsed it and said let's get it out there so people are aware. We're giving everybody access, but it comes at a high cost.

Senator O'NEILL: Clearly, you take efforts at communicating clearly very seriously, and, to correct that, your strategy was to get the 10 most expensive fibre-to-the-premises installations and put that piece of information into the public space.

Mr Morrow : Yes.

Senator O'NEILL: I'm sure you put the same sort of energy that you've just displayed there into preparing your presentation to the minister, about which we've had considerable discussion. I doubt you would have taken anything to him that you weren't equally passionate about, as you've just indicated in your answer to me there. Regardless—

Mr Morrow : I was pretty passionate about that too. I'm passionate about everything.

Senator O'NEILL: Yes. Well, I'm surprised the minister didn't listen to the sound advice that you had given him.

Mr Morrow : Ask Mr Rue.

Mr Rue : He's a very passionate guy.

Senator Fifield: Mr Rue just conceals his better.

Mr Rue : I'm passionate too, don't you worry. He's taller than me.

Senator O'NEILL: NBN is, of course, free to provide, whatever information you see is appropriate to the media, and sometimes we've disagreed with the way that you've done that. That's a judgement for you to make. But the Senate asks for information and, we expect responses from a GBE. I want to put on the record that the Senate has now asked on two occasions for the NBN to provide a list of the 10 cheapest fibre-to-the-premises installations in each state, but the NBN have refused to provide that information, and the rationale that has been put to me, which seems extremely inappropriate, is that the NBN is unable to disclose these figures, as to do so would 'reveal cost structures and prejudice future negotiations with delivery partners'. I'm not asking you to reveal every cost; we've asked for the 10 cheapest to balance off the 10 most expensive. How can it be that the NBN can disclose a list of the 10 most expensive fibre installations to media outlets, but cannot provide to the Senate the 10 cheapest installations in Australia?

Mr Morrow : I'll give you the answer. The economic model we have can be harmed by the reputation of the company, by the brand trust that people have in the company. When people are saying, 'This is outrageous. You're too expensive. There's no way your fibre to the premises could have been that high', we had a credibility issue. People were stomping their fists on the table—

Senator O'NEILL: But, can I put to you, you have a bit of a credibility issue if you can't answer questions from the Senate.

Mr Morrow : I'm getting to that. People were slamming their fists on the table, saying, 'I can't believe that fibre to the premises would be that expensive', and we responded by doing a little bit of analysis and making that public, 'Here's part of the reason why'. It did settle some of the issues. Now, no-one is pounding their fists on the desk, saying, 'Why is this so cheap?' They're not saying that, so we don't need to go in and do the analysis to prove why the cheapest are as cheap as they are. I appreciate that the Senate has asked us for information against this, but it would require analysis and I think it's not necessary to spend the company resources and money to provide the analysis to you when it's not a company reputational related issue. Again, Senator, I'm happy to be—

Senator O'NEILL: Mr Morrow, I find that very offensive on behalf of all the senators who serve in this place, regardless of the colour. The Senate asks a question of a government industry, which you are, and you choose to use resources in all sorts of ways, and you're telling me that you're making a conscious decision not to use some resources of up to $51 billion to provide one answer to the Senate about 10 cheap premises.

Mr Morrow : That's correct, yes.

Senator O'NEILL: It makes a mockery of the NBN.

Mr Morrow : I disagree, Senator. I can recall you even asking me in the past to produce tables and run analysis in a different sort of way, which I politely refused to do. I don't believe we work for the Senate. I'm here to run analysis and expend company resources to answer what questions you have.

Senator O'NEILL: Who do you work for Mr Morrow?

Mr Morrow : I work for a board of directors, and the board of directors is appointed by the Minister for Communications and the Minister for Finance.

Senator O'NEILL: But you did a lot of analysis for the minister, and he just ignored you. I'm asking you for the 10 cheapest houses in Australia. My question isn't anywhere near as difficult as what you put to the minister, and he said, 'Forget it; I'm not even taking your advice.' I'm asking you to give us 10 of the cheapest with fibre to the premises.

CHAIR: How many questions on notice did you have to answer, Mr Morrow?

Senator O'NEILL: Can he answer my question first? Why do you continue to refuse to respond to a question—

Mr Morrow : Because it requires company resources to go ahead and do that sort of analysis. We don't have that readily available. If we had it readily available, we would provide it to the minister, but we don't.

Senator KENEALLY: I'll go back to our previous conversation regarding the proposals, presentations and plans that you took, with the board's knowledge, before the election to the government so that they could consider changes in technology and various options. What was the size of the fibre-to-the-node footprint under the option you presented?

Mr Morrow : I'll answer that question: 6.1 million would have been the total targeted footprint at that point in time. Actually, that was two years ago or a year ago, so it could have been slightly different in the previous year's plan. Sorry, the corporate plan that was in effect at the time would have had 4½ million homes that would have been targeted to receive FTTN or FTTB.

Senator KENEALLY: Thank you. I think we have two more questions, Chair.

Senator O'NEILL: Can I just indicate that after reviewing what we've discussed, there may be some more questions on notice.

Mr Morrow : Fine. I'm happy to.

Senator O'NEILL: Mr Morrow, you said on 27 November that NBN could deploy fibre to the premises for $3,900 per premises. That was your evidence. Is that correct?

Mr Morrow : That would be if you took a lot of averages, so I'm being careful with that number. It's kind of the high-level analysis like what I did for the minister before. Yes, that would be roughly it.

Mr Rue : It's an approximation, I suggest.

Senator O'NEILL: That means the underlying construction cost of fibre to the premises would be $3,200. Is that correct?

Mr Rue : If you take out the Telstra lease and you assume that $3,900 is correct, that would be correct.

Senator O'NEILL: That's the $700 we have been talking about today?

Mr Rue : Correct.

Senator O'NEILL: Thanks very much for that. I look forward to the Senate receiving the details of the 10 cheapest plans. I don't think it's too much to ask of a company that's spending $51 billion.

Mr Morrow : How about I make this commitment to you. I'll look at how much effort is required within it. If it is not much effort, if it is easy to do, we will provide that; if it is not easy, then I'm sorry.

Senator O'NEILL: I think you should have more respect for the Senate than that.

Mr Morrow : You know I have huge respect for the Senate.

Senator KENEALLY: How about this. If you come to a decision that it is too difficult to do it, too costly, at least provide us with some information as to why you think that is the case.

Mr Morrow : Okay.

Senator KENEALLY: Thank you.

CHAIR: What a delight it is to now draw to a conclusion the estimates hearing for the Environment and Communications portfolio. You are all reminded that written answers to questions on notice should be provided to the secretariat by close of business on Tuesday, 5 June. I thank all officers, including Mr Morrow and Mr Rue from NBN and the minister and his office, for their attendance. Importantly, I thank Broadcasting, Hansard and the secretariat for their support.

Committee adjourned at 20:56