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Environment and Communications Legislation Committee
NBN Co Limited

NBN Co Limited


CHAIR: Welcome back, Mr Morrow. Thank you for joining us so quickly. Would you like to make an opening statement?

Mr Morrow : I think in light of the time, we would just like to welcome any questions that you may have.

CHAIR: Jump straight in? Thank you very much.

Senator URQUHART: Fabulous, thank you. So, Mr Morrow, I want to start with some questions about some comments that you made in your last opening statement at the recent budget estimates. You noted that NBN Co rely on a geospatial database to estimate the number of premises in an area, but as the company undertook detailed designs, it was seeing fewer homes than what we expected. How many fewer homes are we talking about, and can you provide a range of what that is?

Mr Morrow : Again, it varies, and we are still making a number of estimates, but it is in the 200,000-ish range.

Senator URQUHART: 200,000?

Mr Morrow : Correct. Out of a base of close to 11 million.

Senator URQUHART: Are their inaccuracies of the database an issue NBN Co has only identified recently, or has the picture of this been emerging over a period of time?

Mr Morrow : It has been emerging over a period of time. Right from the beginning it was well understood that there were some discrepancies within the database. Some assumptions therefore were made in terms of the number of homes, but, as we continued through a neighbourhood, we found there were far fewer homes than even with the assumptions that we were making, and hence the correction that we are now driving to in terms of what the end of the rollout will look like.

Senator URQUHART: So it has been a gradual sort of process, but when did it become more noticeable in terms of the volume? Because 200,000 houses is a lot to lose, isn't it?

Mr Morrow : As we accelerated the rollout, we obviously were in a lot more neighbourhoods, and we could see and have more statistically valid examples of what the database shows versus the number of homes that we actually found in the area, and hence the calibration.

Senator URQUHART: In terms of those non-existent premises, that 200,000 roughly, where are they primarily located? Are they in particular areas such as city suburbs or regions—where are they primarily located?

Mr Morrow : It is pretty much nationwide. We will find that in certain city centres it might be a little bit better; because it is just so dense those addresses had been known for some time. Apartment blocks or complexes kind of go in, and that is easier to be able to calculate. But there is no particular area, I do not think—Pete?—that has stood out.

Mr Ryan : No.

Senator URQUHART: Are the majority of these non-existent premises in the fixed line footprint?

Mr Morrow : They are all over the nation.

Senator URQUHART: Just all over? Everywhere?

Mr Morrow : Right.

Senator URQUHART: Even in satellite areas?

Mr Morrow : Correct.

Senator URQUHART: And in terms of their distribution, are they more likely to occur in areas scheduled to receive a particular technology? Are you noticing that there is a higher volume in areas that are getting one type of technology over others?

Mr Ryan : No.

Senator URQUHART: There is no pattern?

Mr Morrow : It is not by technology at all; again, it is a blanket across the nation. So often we find it both ways: we thought a home was in a particular place, there is not a home there. Equally so, people would call up and say, 'When am I going to get NBN?' We would look it up and say 'There is no record of your home even existing within these databases.' We have to go through a process to be able to actually record that, enter it into the system. Again, it is no particular area or state or territory that stands out differently from the others. Clearly it does not relate to the technology.

Senator URQUHART: What are the financial implications of identifying these non-existent premises? What is the impact on peak funding?

Mr Rue : There is no change to the build cost. Typically, you are just building to fewer premises. There will be a slight reduction in long-term revenue, but in terms of peak funding it has no real impact.

Senator URQUHART: All other things being equal, are you expecting this to have a small negative impact on the internal rate of return and the value of the NBN business as a whole? Or is it not going to make a difference?

Mr Rue : It would be a very, very small impact.

Senator URQUHART: What do you classify is very small, Mr Rue?

Mr Rue : Less than 0.1 per cent impact on the IRR.

Senator URQUHART: Does this have any impact and, if it does, what would the impact have on subscriber payments to Telstra and Optus? Does it impact the value of those deals in any way?

Mr Rue : No, it does not, because that relates to services disconnected. Services disconnected do not change.

Senator URQUHART: Do you expect the rollout to be completed any earlier as a result of this?

Mr Rue : No, because, once again, you are building the same infrastructure, just to fewer homes in an area.

Senator O'NEILL: I have a couple of questions around service class 0. I was processing a bit of the information that you gave in the last estimates period about service class 0. There was another category of people who were not in service class 0. Could you explain that to me?

Mr Morrow : Let me offer clarity, and Pete can give you some of the details. We call it service class 0. That is more for a fibre to the premise. Then we have a 10 and 20, which just reflects the different types of technology. It is that last digit, zero, that implies that this house is not ready yet for selling into by the RSPs. Typically, as we roll through there is a cohort of homes that get categorised in this way.

Mr Ryan : Correct me if I am wrong, Bill, but you made a comment last time around describing a specific cohort as 'complex'.

Mr Morrow : Yes.

Mr Ryan : Within 'unserviceable' we have a range of types of premises. For example, one is long copper lines, as we often refer to, where the premise is a long way from the node. Within that same cohort of unserviceable we use the term 'complex'. These are things like large shopping centres, stadia, markets—they are abnormal things, which we therefore describe as complex, which take longer than the normal period to provide the design and construction for. They end up being unserviceable, but we describe them as complex.

Mr Morrow : Therefore they can take longer than the ones that are more simple to be able to resolve.

Senator O'NEILL: So the ones that are service class 0, how do you communicate with them?

Mr Morrow : We let the retailers know which homes are not ready for sell.

Senator O'NEILL: How long is the time frame before you will get back to that?. This is what you were discussing last time. There was a certain number of months, but then you were saying that there were some that you would not even talk to until—I am trying to get a sense of the timing and the scale.

Mr Morrow : What I said last time is, first of all, no-one will be left off. Before 2020 everybody will be connected. It is unfortunate that some people are at the end of that build rather than the fortunate ones that are at the beginning of the build. I think we have roughly 200,000 homes that are in this 0 category. Some are more complex than others. It takes us, on average, a little more than six months to go back and get them rectified to where they are available. That is an average. As Pete says, some of them are far more detailed in their complexity and it takes quite a bit longer to be able to go back and sort those homes or shopping centres out.

Senator O'NEILL: The most recent weekly report of 8 June shows that there are now 200,722 currently in NBN's too-hard basket. Your answer to a question on notice from November last year gave us a rough breakdown of the time frames to fix these service class 0 customers. From some rough calculations it looks like around seven per cent of customers wait more than two years and 14 per cent wait more than one year to get connected. Would that be correct?

Mr Morrow : The average is little over six months. I think the average total of all of these is 6½ months. As I mentioned last time—I think it was asked by yourself or Senator Chisholm—how long could it be? It could be a year; it could be two years. The point is that not every home is going to get done overnight, but all homes will be done by the year 2020. It is really unfortunate if somebody is in a complex area that requires this to be towards the end of the build. It is what it is, but everybody will get taken care of by the year 2020.

Senator O'NEILL: In March this year, in the published figures, NBN had around 100,000 premises in service class 0. At that stage you had about 4.2 million premises ready for service. But in June 2017 you have 200,000 premises in service class 0 compared with 5.3 million premises ready for service. It looks like the RFS footprint has grown by about 26 per cent but the service class 0 pool has grown by 100 per cent. What is the reason for that? It is a pretty amazing set of numbers.

Mr Ryan : If I have the maths right—correct me if I have it wrong—we have released about 1 million extra premises RFS, at the same time as the service class zeroes have gone up by about 100,000. So that is about 10 per cent unserviceable relative to the footprint, which on average is about what we do. We constantly try and get the balance right between having enough construction complete to release a footprint to enable the houses in that area to get access to the NBN, whilst continuing to build for those parts that we have not quite completed to build four. About 10 per cent is the metric we use. We get the build complete to about 90 per cent of the houses available out the front, then we release the footprint and continue working on the final 10 per cent.

There can be a range of reasons for that 10 per cent. We talk about long copper lines in fibre to the node. Another example is, in fibre to the premise, if we have a body corporate that we are struggling to get agreement with in terms of how we are going to run the cabling inside the building, then, rather than hold the entire footprint back, we will continue to work with that body corporate, and that may take a number of months extra. They go into service class 0 straightaway upon release, but some months later we finally complete the agreement, build out to the block of units, and then declare it serviceable.

Senator O'NEILL: That sounds very reasonable, but this is a very big lump, isn't it? It is from 100,000 to 200,000 in the space of three months.

Mr Ryan : We will have released about one million premises ready for service in this current quarter, across April, May and June. Roughly about 10 per cent of all footprint we release could be unserviceable.

Mr Morrow : This is going to vary over time. The reality is that when we started the whole NBN build we went into certain areas that were outside of the city areas. It was fibre to the premise, and it took a long time. There was a heap of the service class zeroes that occurred, far more than the 10 per cent that we are talking about here. As you go through different neighbourhoods you are going to find a different percentage of properties that have more complexity.

Senator O'NEILL: Have you hit a complex place in the last couple of months, that has caused this?

Mr Morrow : It is no particular area. This is across the nation. You are just seeing the accelerated build. This number will probably go up before it goes down, with the volume and rate of the build that we are currently doing. Last week alone there were 140,000 homes within a single week that went to RFS. The pace that the company is operating at has big numbers associated with it. The fact that this small percentage of homes is going to take a little bit longer than their cohorts in the same neighbourhood or general vicinity is just an issue of the complexity of the build. Just because they are not a part of a different group within the neighbourhood does not mean that they are being left forever without broadband service. As I said, we have a plan to go back on every one of these, and everybody will be complete by the year 2020.

The other thing to think about is that if we said, 'We are not going to let any home have to wait longer than their neighbours,' then you would be saying to 90 per cent of the million homes that we just turned on, 900,000, 'Wait six months or a year.' I would argue that those 900,000 homes would be calling your office, asking, 'Why do I have to wait because the other 10 per cent of these homes are too complex to get to?' Why does NBN have to focus on those when we can turn up 900,000 for service? So this is really addressing the majority of the people, and the recognition that no one home will be left without broadband by the year 2020.

Senator O'NEILL: Is the growing service class 0 a reflection of the speed of the rollout?

Mr Morrow : No, it is a reflection of the neighbourhood. You want to get as many homes as you can. If I think just strictly from a social point of view of giving them broadband, the more Australians you can give broadband to sooner the better it is, right? I do not see how you can argue against that. Equally so, from the finance point—

Senator O'NEILL: You should come to some of our hearings, Mr Morrow. Some people in regional areas are saying to us that they would like the reliability of their ADSL back rather than NBN.

Mr Morrow : Again, that is a different issue. You asked whether or not the rollout speed is affecting this. Of course we want to get as many homes connected to good-quality broadband as soon as we can. That is exactly why we are doing it the way we are. We have a commitment that is set by the expectations that everybody will be covered by the year 2020. That is definitely on schedule. I would even argue it is a little bit ahead of schedule. Again, you do not want to wait for a neighbourhood until the last person to go, because you are going to deprive 90 per cent of that neighbourhood the right to get onto broadband.

Senator O'NEILL: We have discussed that at length. As you would expect, these customers who are in the service class 0 are coming to our offices. They are coming to senators; they are coming to members. They have had that experience of being bounced around between the RSPs and the NBN, trying to figure out what is going on. My question is: what protocol does the NBN have in place to inform customers that they are in the service class 0 category?

Mr Morrow : Again, the primary form of communication is through the retailers and, if you are interested in a service, we encourage you to talk to your retailer—

Senator O'NEILL: I want to just clarify that: the primary source is through the retailers?

Mr Morrow : Yes, correct.

Senator O'NEILL: But that is not the only way.

Mr Morrow : No.

Senator O'NEILL: Do you communicate with them?

Mr Morrow : We have our address checker. That is on the website. That will tell you whether or not your home is in an area that is ready to go. In some cases, for service class 0 either it is going to reflect that there is a problem or in another form you will be told, 'Yes, you are part of an area and it may be six months or it may be a bit longer before your home is actually ready to go.'

Senator O'NEILL: Do you send that communication?

Mr Morrow : We do not push that communication out to the home, no.

Senator O'NEILL: It just sits there for those who inquire on your website, and they can find out if they are service class 0 if they want to?

Mr Morrow : They can. Or, again, they can talk to the retailers. The retailers are very well aware. They have the IT systems to be able to check that, so we encourage everybody, as our communication does get pushed in: 'NBN is coming into your neighbourhood. Speak to a retailer about the service, when it is available and what options you have.'

Senator O'NEILL: So to be clear, you do not provide information directly to people to tell them they are service class 0. You do not communicate that?

Mr Morrow : We do not use that language, because that is not something that the common person really understands or cares about.

Senator O'NEILL: So what do you say—'You are in the too-hard basket; just wait'?

Mr Morrow : No, we tell them, like we tell the other half of the nation that is waiting to get broadband as well, 'Your service is yet to arrive, but everybody will be connected by 2020.' As you know, this thing is not going to turn on overnight. It is a decade-long process to get everybody connected. The great news here is that people are desperate to get on it. They want it. That is why our take-up rate is over 75 per cent after the coexistence period of 18 months before the Telstra copper shut-off. This is a great new story. We want to get everybody connected, but there is a sequence that we have to go through. I mean, no-one imagined that we would be doing 140,000 a week—

Senator O'NEILL: There is a different conversation happening in the street where I live, Mr Morrow, and a lot of conversations happening around the country different to the one that you describe there.

Mr Morrow : I suspect we have far more data around the people who are happy with NBN. We have a third-party service that polls thousands of people—far more than I would suspect are calling your office. Eighty-five per cent of these people are satisfied and super satisfied with their NBN service that is there. We do not want to let anybody be unsatisfied, but the fact is with a construction program like NBN you are, essentially, touching everyone in the country, turning it up, and it is bound to have some dust that is kicked up going through it. The company, along with its partners—the retailers, the service delivery partners, the delivery partners—are all focused on making sure everybody has a good experience and, to the point of your questioning, making sure everybody gets it as soon as possible, which is why we are deploying the kind of approach that we are.

CHAIR: Senator O'Neill, I have just taken Mr Morrow's advice and, while you were questioning, Senator Duniam and I both managed to find the website and check the availability for our addresses. So it works—in under a minute.

Senator DUNIAM: Great service.

Mr Morrow : Thank you.

Senator O'NEILL: My question is really about the mode of communication. You know that it is service class 0. It seems that there is a gap between you and the people finding out about what is going on. I have an example of a customer who, I believe, is in the service class 0 category and that has not been explained to them. This is what they say: 'We have been visited by NBN contractors on five occasions since 12 January 2017. On each visit the technician has said that there is no joint in the pit. They said, "We will report it to the NBN, and they will have to send a remedial crew out to connect the joint in the pit." I asked if they could do it. They said, "Yes, it's a simple job but we are not allowed to do that work." The NBN contractor advised me that the fibre node at the end of the street was alive and working. A number of our neighbours in the street have already been connected to the NBN. A joint in the pit is a simple connection of the copper wire coming from the house to the copper wire that is connected to the fibre node that is situated at the end of the street. The pit is on the footpath directly in front of the house, and it has in it the house telephone cable and the street telephone cable bundle. The two simply need connecting. This is not a brain surgery. Any communications technician can do it. The claim that the property is unserviceable by NBN is therefore clearly false. Our neighbour is having the same problems trying to connect to the NBN. It would appear that NBN connected a few of our neighbours, but then could not be bothered connecting the rest of us.' Would this person be in a service class 0 category now, Mr Morrow?

Mr Morrow : Pete may have more detail on this. It is not always what it seems. And maybe there is a stuff-up on it. That does happen and we can get that sorted. If we can get the addresses for that we will check, and if it is a simple fix then we will get it sorted and they can jump on the NBN. But, oftentimes, there is a whole lot more behind the scenes than perhaps the technician in the field told the customer. It is not that we do not care about people. Again, we are trying to get the entire nation connected as soon as possible with the least possible cost. I think the thousands of hardworking employees at NBN would feel that they are doing that, with the rates that they have being on schedule and on budget and meeting the needs of the majority of Australians. So we will look into that, but we do specify on the website that more work may be required. We are not going to use the terminology 'service class 0', but if more work is required it is the same thing as the 5 million more people who are waiting to get NBN as soon as we can get out there—it is just: are you lucky that you got on the first half of the build, or are you waiting for the second half of the build?

Senator O'NEILL: The people who are waiting would like to know if they are in a too-hard basket, and they would like to know the reason they are in the too-hard basket. That is what they are saying—that they are not getting any transparent communication about what is going on.

Mr Morrow : But if you think about 11 million homes out there, do you really think we should go in and define exactly the network detail of what it is going to take to get all of them in?

Senator O'NEILL: People would like to know why their neighbours are getting it and they cannot get it. They would like to know why they have not got a response. They would like to know why they have two years to wait, in some cases. They would like to know. If they are capable of figuring out how to use the internet they are probably capable of figuring out service class 0 as well. I have one final question. You talk about 'by the year 2020'. What date are you talking about when you say the year 2020? Is it the financial year, or January, February, March—what are you talking about?

Mr Morrow : The middle of 2020.

Senator O'NEILL: The end of the financial year?

Mr Morrow : Correct.

Senator HANSON: I am relatively new to the NBN, and I have been learning as I have gone along. I have just got onto this Senate estimates inquiry that we are holding into it. I can only relay what I have heard and what people are telling me on the streets and that type of thing. Mr Morrow, you are the head of a huge company. I estimate that it is costing about $49 billion to the Australian taxpayers to roll this out. Would that be about correct?

Mr Morrow : No, it does not cost the taxpayers $49 billion. It is $29½ billion that it has cost the taxpayers as equity. The rest is borrowed money that we will pay back. So technically that is not costing the taxpayers. Think of what it costs the taxpayers as $30 billion roughly.

Senator HANSON: Do you stand by the product that you are putting out there? There are two services—fibre to the premises and fibre to the node. You are actually putting out fibre to the node—is that correct?

Mr Morrow : It is.

Senator HANSON: Do you stand by that, that it is the best service to put out?

Mr Morrow : To qualify my answer on this, if I think of taking care of Australia, of creating a digital foundation that will offer a digital economy that will carry forward for the decades to come, I think that getting everybody connected as soon as possible is really important. The government felt this way as well, and said, 'Leverage the existing infrastructure—the wires that are already in the ground—because you know you can go faster and do it cheaper if you do.' In that context I very much stand behind fibre to the node as achieving that. I am a recovering engineer, as I like to call myself, and I know that fibre can go faster than the copper. From a speed point of view fibre is superior to copper.

Senator HANSON: Fibre to the premises is superior?

Mr Morrow : On a speed basis, it is superior to fibre to the node, which uses the copper. However, over 80 per cent of all our customers—that is 2.3 million of them now—only have chosen to go up to 25 megabits per second, which fibre to the node is suitable to provide. If the mass market of Australia is saying, 'I'm good enough with 25 for now' then fibre to the node is good enough for now. If they decide to take that up from 25 to a couple of hundred megabits per second in the future, then we have to upgrade that fibre-to-the-node technology. That is what Pete, beside me, has laid out plans to do when that demand actually comes from the consumers.

Senator Fifield: Just to give some context to what Mr Morrow is saying, the government's mandate to NBN, as you know, was to pursue what they call a multitechnology mix, where NBN can use the technology that makes sense to get the NBN rolled out fastest and at lowest cost. As you rightly identify, that may be fibre to the node, fibre to the premises, in some areas fixed wireless, in others using the HFC pay TV cable. One of the reasons why the government gave NBN that mandate was because it would see the NBN completed about six to eight years sooner than would otherwise have been the case.

You made reference to the $49 billion peak cost of the NBN, part of which is taxpayer and part of which is borrowed. It was likely that the complete build would have cost about $30 billion more. That is just some context as to why the government gave that mandate to NBN in relation to technology.

Mr Morrow : If we were a truly private business, and you remove the social responsibility from this, you manage your cash flows very tightly. So you build into the city areas that generate a lot of cash, because it is cheaper and quicker to get into the city areas, then you use that cash to do the suburban areas, then you use that cash to do the more remote regional areas. There is a blend of economic policy and social responsibility here in saying that we are going to do it all as economically as we can. Hence the way in which we built it, fast and at the least possible cost, and, equally important, with an upgrade plan, so that should the demand come for people to use this service with augmented reality, virtual reality, 8K television and all these wonderful things that are on the near horizon that that could come in, then we will upgrade that technology, but we will do it with the financial returns we have rather than asking the taxpayer to pony up more money.

Senator HANSON: You talk about upgrading. Is it correct to say that at the node you could put in a device or service—now you go straight to the node and then it is copper into the house. If you ever wanted to upgrade that to put fibre from the node to the premises, can you now, in laying this out, put a device in there so that it is an easy hook-up to change it over? I think at the moment it cannot be done. You would have to change a lot and it would cost a lot to the taxpayer—is that correct?

Mr Morrow : Mr Ryan is building this network and is our head engineer, so he can comment.

Mr Ryan : We have already engaged with the supplier of our nodes, who has already designed the upgrade of the node to be able to connect fibre from the node to the premise.

Senator HANSON: So is that being put in now?

Mr Ryan : We have not deployed it, but we have the capability being developed by our supplier to enable us to do it in the future, should we want to.

Senator HANSON: So that would be at extra cost? So instead of looking at it now, to have that ready and going—wouldn't it be cheaper to do it now in the nodes?

Mr Ryan : No. Inside the node, if you look at it, there are a number of slots that we put cards in. There are about 12 slots, with a number of empty ones. We just go to the empty slot and put in a new card, patch the fibres across and then run the fibres out of the node to the premise.

Senator HANSON: Isn't the maintenance of copper, which breaks down over time, going to be expensive?

Mr Rue : Yes, maintenance on copper is more expensive. The fault rate is slightly higher, and there is more cost in terms of things like power and poles. But the cost is insignificant compared to the additional capital expenditure of an alternative technology.

Senator HANSON: We have been to hearings and heard complaints from the public. You have made comments—please correct me if I am wrong—that 85 per cent of customers are happy with the hook-up.

Mr Morrow : They have responded that they are satisfied or more than satisfied, yes.

Senator HANSON: So you have got into an area and hooked up the homes, and then people are jumping on to sign up to NBN.

Mr Morrow : Correct.

Senator HANSON: I am a little bit lost because I think in the Albury-Wodonga area about 37,000 homes have been hooked up around that area, and only 7,000 have actually signed up to the NBN. Speaking to the businesses there, because the Business Council actually informed us, they are very concerned and are not jumping onto it because they are not happy with the service that has been provided. It shows in the figures that people are not happy with the service they are receiving from the NBN. Another point is that we had a meeting in Townsville about Sky Muster. You have some average mums who are not getting service and could not get answers from NBN or the retail service provider. They are frustrated to the point that they have actually set up their own organisation to try to help the community to get answers, because they are not getting a service from the NBN to answer their concerns.

Mr Morrow : To address the first part of your question, we often call it the take-up rate. When Pete builds out a network, say to 10,000 homes, then John Simon, one of our other colleagues, works with the retailers and we sell into those 10,000 homes. After you turn it on, it is going to take many months before you actually sell to this 75 per cent level that I mentioned before. It is not valid to look at how many sold in the first or second week, because it is a much longer process that people have before they shift over to the NBN. We go through an 18-month window where the retailers can move customers over to NBN. We have almost a million homes now that have exceeded that this 18-month period, and over 75 per cent have taken the service. This includes FTTN, which often gets criticised that you are not going to have as high a take-up rate, when in fact we have seen roughly the same take-up rate as we have with FTTP. Therefore, we are confident that even these areas that you referred to are going to be close to that, over the period of time. That does not mean that there are not some issues that we want to be very sympathetic towards, that we want to fix, and that we want to address. We are starting to staff up so that we can do far more in these remote communities—to be able to talk to them about their issues and how we, NBN the wholesaler, can help and come arm in arm with the retailers to make sure we give a better service. So we are trying to be better every day at providing this sort of service.

Now, if I can address the satellite area: this is a place near and dear to our heart. We often talk internally about how good we feel as employees working at NBN, because we feel that we are providing a degree of equality for anybody across Australia, no matter where you live, what your income level is, whether you are old or young: we are providing a service to bring everybody together, and we really believe in what we are doing with this. The satellite service, when it got started, was rough—and I assume you are talking about BIRRR. That is at least one of the groups of mothers who came together and said, 'How can we help communicate,' with the people in the remote areas that they are close to.

Those issues, I think, are largely behind us. We see all the statistics—and in fact we do third-party polling with people in these areas. You can now see a night-and-day difference, in terms of their satisfaction with the experience, with the dropouts, with the general attitude of the technicians coming to the house. There still is a concern about how much data they can consume, because of the limitations of the satellite. Minister Fifield has asked us to look at how we can expand this capacity and offer something else, and we are coming back to meet with him and Senator Nash on some interesting solutions we think we have to be able to expand that more than what it is. But I do not think we will ever have a level of equality of data consumption on a satellite service as we have here in the centre of Canberra.

Senator HANSON: We have two satellites, haven't we?

Mr Morrow : We do.

Senator HANSON: That service about 400,000?

Mr Morrow : That is covering 400,000 homes, and we expect to have about 250,000 homes in the end. Today about 75,000 are currently using the service. So we will see that triple over the next four or five years.

Senator HANSON: On those figures that you are telling me, should we actually be looking at getting another satellite?

Mr Morrow : That is one of the options that we are looking at to satisfy Minister Fifield and Minister Nash's requests. We will look at enhancing the existing technology with the two satellites that are up there today; we will look at a third satellite to see if that is feasible; we will look at other satellites that are third party that will be up in the sky, that maybe we can leverage those satellites to give more capacity; we will look at putting some other towers to relieve the congestion of some of the satellite beams that are coming down. There is nothing that is sacred here—we are looking at anything and everything that might be feasible to offer more capacity.

Senator HANSON: I will just raise another issue about a businessman from Townsville. He actually started his business about three or four years ago. He started with only three people, then he expanded to 108 people, and he is looking in the next 12 months to expand to another 150. He actually wants to stay in Australia; he wants to stay in Townsville. He also has a business—a company—located in America and also, I think, in England. He has indicated that they have far superior services for delivering data in these other countries than what we have in Australia. He has also indicated that he feels that the service that will be provided to Australians will be inferior, is outdated and will not provide the service that he needs to drive his business. He is saying if it is not going to give him the speeds that he requires then he is going to have to pack up his business and go overseas.

You said that, at this time, people are only taking up to 25 megabits per second. What are we doing for businesses like this man's? What are we going to do to give them the services they require to keep them here in Australia and not wanting to leave and go overseas, because this man is going to leave in 12 months time.

Mr Morrow : First of all, I think it is wonderful to see entrepreneurs grow from three to 106 or whatever you said it was. That is fabulous. We recognise that businesses, in particular, need a different level of service—higher speeds, symmetry and a different kind of reliability within that system. We actually just reorganised the company with very much a dedicated focus for business for people just like the individual you are referring to, and we are even going to think of a different business model. Rather than just going out as a blanket and saying, 'We're going to put the service in, and hopefully a retailer will sell you the product that you need,' we will work with the retailers and say, 'Maybe we'll go ahead and enhance that service and look at commitments made by the customer that will offset some of the incremental cost to give them the kind of service that they need.' So we are looking at innovative ways to be able to satisfy business across Australia.

Senator HANSON: If a business wants to, can it then pay the extra cost to put fibre from the node to the premises?

Mr Morrow : It can. Today we offer what is called the Tech Choice Program, and we have seen many businesses do this. They have said: 'I'll pay the incremental cost over what Pete has already built out there. To extend that fibre to get it into my business, I will pay that cost.' There are probably 900 applicants that have submitted their interest in this. There are about 60 that have actually proceeded to sign a contract for Pete to go ahead and build this capability out. It is a service that we offer today.

Senator HANSON: I have just one last question. Another complaint that I have heard is about new development sites. Correct me if I am wrong, Minister. Under our legislation, people have a right to have a telephone service provided to them.

Senator Fifield: That is right. That is the universal service obligation which is in place for basic fixed line.

Senator HANSON: What I am hearing is that, for people in new sites, Telstra are not going in and providing the service, because they have heard that NBN is going to go there, so these people are waiting months. Businesses cannot get a service done, and it is affecting their business. Households and pensioners need a phone on, yet they are forestalling. What is being done to work with Telstra and NBN to ensure that these people have a service?

Mr Morrow : Let me explain a little bit. Pete, kick in here if you feel there is more detail. In a newly developed area, if Pete has already gone through and commenced construction in that area, we have the obligation to be able to build services into that new development. If Pete has yet to begin construction in that area, Telstra maintains that responsibility to provide that service. I have not heard of a case of Telstra saying, 'No, I'm not going to do it, because Pete's coming soon to your area.'

Senator HANSON: Albury-Wodonga?

Mr Morrow : We will look into that. I have even had personal discussions with the Telstra executives, and they say that they do not want to leave anybody out there like this. Pete, is there anything further?

Senator HANSON: That complaint came through the inquiry in Albury-Wodonga. That was raised by the council.

Mr Ryan : No, I am not aware. I think the way he described it is right.

CHAIR: Senator Hanson, I will ask you to finish there, but you are most welcome to put more questions on notice as well.

Senator HANSON: Thank you very much, gentlemen.

Senator URQUHART: Just before I talk about some redundancies, Mr Rue, for the benefit of the committee—I am going back to the 200 homes and the cost—can you explain why having 200,000 fewer homes in the NBN build does not impact on the peak funding. Can you just explain that to me.

Mr Rue : If you build a node out, for example, and you think it is going to serve 200 homes but it actually only serves 190 homes, it is the same cost to build that node. You asked me about peak funding. There will be a small reduction in revenue, because obviously you have fewer homes to sell to. There is also a reduction in activation costs, though, because you do not actually have to build the activation into the person's home. So there is a saving in capital expenditure in that sense, but there is a reduction in revenue. The amount you are talking about is very small over a period of time, and that is why.

Senator URQUHART: So does that mean that the Australian taxpayer will still be contributing the same level of funding, despite NBN passing 200,000 fewer homes?

Mr Rue : As Mr Morrow said earlier, the 29½—

Senator URQUHART: Mr Morrow is nodding.

Mr Rue : The $29½ billion equity stays the same, and the amount of borrowing is broadly the same, which we will repay back to the government. So there is no additional impost on the taxpayer.

Senator URQUHART: I have one question on redundancies. I refer to question on notice 161, which was asked in March, I think, in regard to redundancies at NBN Co. The response indicates 91 staff were made redundant in 2016. In part 2 of the question, which was about the total cost of redundancies, it stated the redundancy costs of $10.934 million, also for the 2016 calendar year. Or does that capture several years?

Mr Morrow : That would be the total over the period of time. Stephen, did you see this question on notice?

Mr Rue : Without seeing the calculation, I think what it means is 91 people in the 12 months to December 2016, and $10.9 million in the same period of time.

Senator URQUHART: Right. That comes out at an average of $120,000 per redundancy. How can it be that high?

Mr Morrow : Typically, with contracts that are in place, for the middle management and above group there is a three-month payout window. That $100,000 could be factored into that. I think there are some other outsourcing expenses that occur. But if you want the breakdown of that detail we can provide that.

Senator URQUHART: If you could provide a breakdown and the details of that it would be useful. It seems very expensive to me. You get a redundancy and walk out with $120,000. There are not too many workers around Australia that get that after 12 months.

Mr Morrow : I can tell you that we do follow common marketplace practices. But we will double-check that and give you the details.

Senator O'NEILL: You said that it was $29.5 billion and there was a loan of $20 billion. That was originally going to come from the market. Where did it come from in the end, Mr Morrow?

Mr Morrow : From the government.

Senator O'NEILL: I refer to question on notice 354 from additional estimates, when NBN Co. were asked to provide a figure for how many technicians' appointments were missed in 2016. The NBN Co. appears to have answered part of the question, part 6, in percentage terms, but has not answered part 4 of the question, which sought to ascertain the number of missed appointments for 2016. I also note that the response to part 1 of the question confirms that the company does capture and record this information. Is there any reason why part 4 of this question was not answered properly?

Mr Morrow : I cannot answer that. I will go back and have a look at it. We should be able to do some arithmetic to figure this out.

Senator O'NEILL: You do keep those records. You have given me evidence before about improving processes around people having to report on why appointments were missed as well, to improve the quality of your data. Is that correct?

Mr Morrow : So I can make sure we get you the data, are you specifically interested in our activations or installations, how many appointments were made and missed? Is that what you are asking for?

Senator O'NEILL: Yes.

Mr Morrow : I think we should be able to give you that number.

Senator O'NEILL: How many NBN install technician appointments were made and missed. If that is the clarifying word, I am pretty sure that is what exactly we want to know.

Mr Morrow : I think we can provide that.

Senator O'NEILL: I can give you personal data of about 12.

Mr Morrow : It is 10 per cent of all the connections we made. We know how many connections we made in 2016, so we should be able to pretty much tell you that number.

Senator O'NEILL: How long do you think it will take for you to find out?

Mr Morrow : I am going to ask those people that are listening up in the sky right now to see if they can give me an answer in the next five minutes.

Senator O'NEILL: Is there any way you could give me the indication in real time of where you are this year, today?

Mr Morrow : Again, I think it is still at that 10 per cent level. There is another way, by the way: you and your staff, if you want, can look at the number of activations that we have had since the beginning of the year. Ninety per cent is the appointments met right the first time, so 10 per cent of the total activations are going to have some form of missed appointment. That is readily available by doing some simple math, but we are happy to take that on notice to give you that answer too.

CHAIR: Given the scale of your activities now in your rollout, what workforce do you have directly and indirectly involved in the NBN?

Mr Morrow : There are 56 direct employees of NBN Co. There are roughly 900 to a thousand contractors. We call them temporary staff augmentation. If you look outside NBN Co, it is a harder number to calculate. It is in the neighbourhood of 20,000 people, but many of them are part time. If you want to add them all up and look at it on what we call a full-time equivalence, it is about 9,000. If you take the 600 or 700 that we have internally running around in our offices, and 9,000 equivalent full-time bodies, that would be the total amount, changing the digital face of this nation.

There were 82,552 missed appointments in calendar year 2016.

Senator O'NEILL: Do we have this year's data yet?

Mr Morrow : Unfortunately, no.

Senator O'NEILL: I know you will try.

CHAIR: Is that 50 per cent of total call-outs? Five per cent?

Mr Morrow : This team sits around a table weekly and climbs through the results all the time, trying to understand always how to be better tomorrow than we were yesterday. We currently run about 10 per cent appointments that are not done right the first time. That is a number that we are going to close. We are going to get far better than that. That is a little bit of an industry norm, just to put it in perspective, but we want to be better than industry. We want to make sure we are providing the right service.

CHAIR: When you say industry, are you talking about telecommunications, like Telstra or whoever?

Mr Morrow : Correct. In 2009 and 2010 when service level agreements were established, the RSPs said 90 per cent was an acceptable target even back then.

CHAIR: Would that include things that are impacted by the weather, or if I forgot and I was not home? Is that all reasons, not just for the provider themselves?

Mr Morrow : It could be a variety of different reasons, yes. We look at it. We have shifted. We want to move to, 'What is the end user experience like?' We are even starting to look at how we can measure whether that service is working before our technician leaves that home. In the past we would have done all of our work and left, but the service is not working, because the retailer still had a lot of work to do that they had not completed, and the end user feels like, 'The NBN technician just left, and I'm still without service; I don't feel satisfied.' That is why we are trying to readjust this.

CHAIR: I had that experience. They came to install the NBN, and Telstra, in this case, had not installed their bit properly. It covers all of those situations as well.

Mr Morrow : There are people up in the skies that will answer any question that you have. The 82,552 missed appointments includes the second time around as well. It is not just against the initial; it includes where sometimes the second one is missed.

Senator URQUHART: I have a few questions regarding the recent organisational changes that were announced. Have the base salaries for the executive committee members been agreed for the next financial year?

Mr Morrow : They have not yet, no.

Senator URQUHART: When will they be finalised?

Mr Morrow : I would hope over the course of the next month.

Senator URQUHART: Will they be shown in the next NBN Co annual report?

Mr Morrow : We will continue with our practice that is held up as a high standard of good, strong transparency.

Senator URQUHART: Is that a yes?

Mr Morrow : We will continue to carry on the practice of what we have already reported.

Senator URQUHART: Which is that you have been putting them in the annual report.

Mr Morrow : Correct, yes.

Senator URQUHART: Do we expect to see more than a two per cent growth in the base salaries of the executive committee?

Mr Morrow : I would not think so, but again, that is a final decision that has to be taken by one of the board committees. I would not expect so.

Senator URQUHART: Do you think it would be higher?

Mr Morrow : No, I think it will be at two per cent or less, but again, there is a board committee that makes the final decision on that.

Senator URQUHART: I have a number of additional questions, so we will probably have another day. As I said, we probably would have got through this in another two hours.

CHAIR: Mr Morrow had an extra two hours originally requested. We would be grateful for anything you can put on notice.

Senator URQUHART: I think it would be better to have another day. I have one final question that I would like to finish on. Mr Morrow, I asked in question time today a question of the minister about the Charles Clinic Heart Centre in Tasmania. I understand that your staff in Tasmania have been assisting the Charlies Clinic, but the matter remains unresolved, because the Charles Clinic Heart Centre have said that it is not feasible for them to operate an outpatient clinic in Burnie, which they do, unless NBN Co can guarantee upload speeds of at least 10 megabits per second, and NBN Co refuse to do that. Can you tell me why?

Mr Ryan : Maybe I can help.

Senator URQUHART: I have a second part to the question. I will do that too.

CHAIR: I have given you indulgence. The minister has to leave at eight.

Senator URQUHART: I am just adding that a node is going to be 500 metres away from the heart centre. The node is currently 1.7 kilometres away. If you brought the node closer to the heart centre, could you guarantee upload speeds of at least 10 megabits per second?

Mr Ryan : The technicians have gone out, we have inspected it and we are currently redesigning the network in that local area. We are looking. Initial indications are that we will deploy a node closer to the facility. We have not landed on the exact distance yet. It could be in that range of 400-odd metres. Even if it is, we are very confident we will get to that 10 megabits per second upload speed.

Senator URQUHART: Can you guarantee that you will get to that?

CHAIR: We do not have time for an extra debate. I have given you an extra few minutes.

Senator URQUHART: I will take it up at the next estimates.

CHAIR: Absolutely. You have indicated you have a lot more questions.

Senator URQUHART: I will be requesting another spillover day.

CHAIR: We will deal with that separately.

Senator O'NEILL: Mr Morrow, I need to send you a couple of questions after I look at the transcript to make sure that I got the number that I was looking for.

CHAIR: You can do that on notice. That concludes the committee's examination of the Communications and the Arts portfolio. Senators are reminded that written questions on notice should be provided to the secretariat by close of business, Friday 23 June 2017. I thank the minister and all officers and officials for their attendance again. I thank the secretariat staff, broadcasting and Hansard, as always, for their great service. Have a good evening, everyone.

Committee adjourned at 20 : 03