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National Broadband Network Companies Bill 2011; Telecommunications Legislation Amendment (National Broadband Network Measures—Access Arrangements) Bill 2011

CHAIR —I welcome Ms Tanya Barden and Mr Andrew Deme of the Energy Networks Association. Thank you for talking to us today. The committee has received your submission as submission No. 4. Do you wish to make any amendments or alterations to your submission?

Ms Barden —No, thank you.

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

Ms Barden —Yes. Thank you for the opportunity to appear before you today on behalf of the Energy Networks Association and to provide evidence in support of our submission. The Energy Networks Association is the peak national body for Australia’s gas and electricity energy network businesses. We represent this industry on economic, technical and safety regulatory matters as well as energy policy issues. With me today is Andrew Deme, who is the group manager of telecommunications for one of our member companies, Ergon Energy, which owns and operates the electricity distribution network in regional Queensland. Mr Deme is here to assist the committee today, particularly in relation to issues surrounding the critical nature of electricity network communications and, if it pleases the committee, is able to provide some insights given the recent experience with Cyclone Yasi. Mr Deme was intrinsically involved with restoring Ergon’s telecommunications, which was critical to the restoration of power following that dreadful cyclone event.

I wish to emphasis the main points covered in ENA’s submission and to make brief comments on Telstra and Optus’ submissions to this inquiry and statements made by opposition members during recent debate on these bills in the House. The Energy Networks Association’s submission is fundamentally about ensuring regulated providers of critical infrastructure are able to access essential inputs in order to deliver their services. Electricity network businesses are facing several pressures to modernise their networks with smarter technologies; in particular, these include the need to meet growing demand for energy supplies, particularly in peak periods, the need to moderate electricity cost increases through the delivery of more efficient and cost-effective network services, the need to ensure that the energy networks are secure against threats such as terrorism and natural disasters and the need to facilitate a reduction in carbon emissions. Electricity network businesses are meeting these challenges by modernising their networks with smarter technologies.

The fundamental elements of a smart network are a large number of intelligent devices distributed throughout the network and a two-way broadband communications network that is ubiquitous, secure, reliable, cost effective and interoperable. Each electricity distribution business is at a different stage of determining their communications architecture and needs for smart networks, and this decision will be driven by each individual business’s cost-benefit analysis of the various communications technologies, taking into account the geographic, population density and other parameters they operate within. This will involve a mix of technologies as there is no single technology that is appropriate for all circumstances. The NBN is an important candidate technology for many of the electricity distribution businesses and in order for this to be a viable option it is essential that utilities have the ability to purchase NBN services direct from NBN Co., as proposed in sections 9, 11 and 12 in the NBN Companies Bill. These sections of the bill appropriately limit the ability of utilities to purchase from NBN Co. where it is solely for the purpose of managing and charging for the network operations. This thereby eliminates any concerns that utilities may onsell these services to the public.

Some have queried the justification for utilities’ wholesale access to NBN. Quite simply, the main reason is that the nature of the service that is sought by utilities does not require transformation or value-adding by a retailer or by NBN and is significantly different from the enhanced service that retailers would on-supply to the public. The reason for this is that utility service level requirements are higher than those of a retail customer. Evidence has shown that utilities need a high degree of control over communication services in order to attain the necessary service levels. Once a retailer takes an NBN Co. service and integrates this with their own network or adds their own electronic equipment, then this introduces a range of complexities and unknowns that add risk for the reliable operation of energy networks.

A smart grid depends on access to smart infrastructure and, as proven in Cyclone Yasi, a more resilient grid depends on direct access to resilient telecommunications infrastructure. Understandably, retailers would want to service a market in which they add value to NBN’s layer 2 service and on-sell that transformed product to the general public and commercial customers. If NBN Co. were to supply services further up the OSI stack utilities, then one could understand the position expressed by Mr Turnbull and carriers that NBN was competing at the retail level and seizing territory from the existing PRI-affected telecommunications companies.

However that is not the case. Utilities are not looking for value-added services either from NBN Co. or retailers so NBN Co. would not be taking away an opportunity for retailers to offer enhanced services. The energy network sector is concerned that the proposals by Telstra, Optus and the federal opposition to amend sections 9, 11 and 12 of the NBN Companies Bill would prevent electricity and gas network businesses from direct access to the NBN. This is likely to increase the cost of delivering network services in instances where the NBN’s direct access would have otherwise been a cost-effective and feasible solution.

The effect of these amendments would be to leave utilities with three options: firstly, to purchase NBN services retail where experience indicates that it is uncertain whether retailers will deliver the basic service sought by utilities and, even if they do pass on a basic layer 2 service, it would be at an additional cost especially given that we are talking about connecting millions of devices. This would increase the cost of delivering energy network services.

The second option would be to purchase other retail communications services such as wireless services. However, previous experience with recent cyclones and floods has shown that commercial wireless carriers have been unable to provide the level of reliability required for mass deployment of smart technologies.

A third option would be for energy networks to deploy their own communications infrastructure. Analysis and recent experience indicate that if utilities are unable to purchase directly from NBN, the next most efficient option is likely to be for them to deploy their own infrastructure. This would potentially result in an inefficient duplication of infrastructure for the Australian community, however, and a higher cost to serve than wholesale access to the NBN.

In conclusion, the energy network sector urges the committee to recognise that the carriers’ and opposition’s proposed amendments to the NBN Companies Bill, which changes the effect of section 9 and removes exemptions in sections 11 and 12, may have the effect of deterring energy network businesses from using the NBN. It may encourage socially inefficient duplication of communications infrastructure and may increase the cost of delivering energy network services in instances where the NBN would have otherwise been cost effective or viable.

While my comments today have focused on electricity networks, this is due to the pressing drivers for this sector to move towards smart technologies such as the need to manage peak loads and enable the integration of renewable technologies. However, it is important that the exemptions also be retained in relation to gas network businesses to give them the option of using the NBN in the future when they consider smarter technologies to aid efficiency—

CHAIR —Ms Barden, I am sorry to interrupt you but we need some time to ask questions.

Ms Barden —That was actually my final statement.

CHAIR —So we will go to questions.

Senator WORTLEY —Thank you, Ms Barden, for a very comprehensive opening statement. In fact you have gone some way into answering some of the questions that I am going to ask, and perhaps you could expand on those. You state in your submission that proposed amendments to the bills would lead to the adverse result that you could purchase from other existing telecommunications infrastructure providers, not just the NBN. Given your experience in public policy, would you regard this as an appropriate public policy outcome?

Ms Barden —No, I would not—thank you for the question. I think that it is a perverse outcome that in legislation you would have a bias towards particular technologies, so the impact of the proposed amendments to remove the exemptions for utilities would encourage us down the path of alternate technologies rather than having the open option of using both NBN or alternate services.

Senator WORTLEY —You also make a comparison with wireless and you state:

wireless carriers have been unable to provide cost-effective prices, or the level of reliability and ubiquity …

You touched on that in your opening statement; can you expand on that?

Ms Barden —Recent experience with the cyclones in Queensland has indicated that wireless networks at times of critical disasters often become quite congested. These are times in which the utilities really need access to a resilient communications infrastructure. Having a retailer providing those sorts of wireless communication services can add an extra layer of complexity and risk around ensuring that those services will be delivered reliably.

Senator FISHER —Thank you for your submission. Taking first the three reasons that you have listed as what might be the effect on the organisations you represent of removing the exemptions. In your submission you say it may deter energy businesses from using the NBN; encourage socially inefficient duplication of infrastructure—this is from page 1 of submission—and increase the cost of delivering energy network services. But if those disadvantages are so for energy organisations, won’t those disadvantages be so for other organisations that use broadband but are not able to utilise the exemptions that you currently are?

Ms Barden —You are essentially askin: why are utilities different from other—

Senator FISHER —No, it is not the same. That may be part of the answer but the question is: even if these disadvantages are suffered by your organisations, won’t those same disadvantages be suffered by others who are not proposed to be exempted? A further question may be: why are you different? But I am asking you to answer the first question first.

Ms Barden —I think it is difficult for me to answer on behalf of other organisations and how they would be impacted by not having direct access to the NBN. What I can say—

Senator FISHER —Fair enough.

Ms Barden —is that utilities deliver a very critical infrastructure service and it is essential to the efficient, reliable operation of those networks that they have access to resilient telecommunications networks.

Senator FISHER —Yes, but that is like saying, ‘We’re special, so we deserve to be special.’ It is also saying that the government’s regime for the rest of the population is not good enough for you who are special, and I am not getting enough from you as to why that should be so, excepting of course the necessity of the services that your organisations provide.

Ms Barden —I think it comes down to the nature of the service that utilities are seeking and the fact that it is fundamentally different from the broadband service that will be provided at a retail level. Utilities need a basic bare service that enables them to then have a great degree of control and influence over the reliability of how it is delivered.

Senator FISHER —So what are the sorts of things that you do over the top?

Ms Barden —I might defer to my telecommunications expert, Mr Andrew Deme, to respond to that.

Senator FISHER —Mr ‘Official Nerd’—I mean that in an entirely complimentary way.

CHAIR —Senator Fisher, you should be complimentary: they are here as witnesses.

Senator FISHER —I have been.

Mr Deme —Please restate the question.

Senator FISHER —Ms Barden has said that retail service providers, if I understand it correctly, require a basic service over which you put that which you need. What do you put over the top to make it work for you that retail service providers cannot or do not do?

Mr Deme —I will try to answer as best as I can. It is probably more the reverse: a retail broadband customer would typically require more value-add. They require connectivity to the internet, voice over IP capability, et cetera. They require more than a utility would require. The utility is much more interested in the most basic reliable service that they can possibly have. While the utility in the future may be interested in connectivity to the house, they are much more interested today in connectivity between points on the grid. The infrastructure needs to be designed in such a way that communication between two transformers—one that might be on fire—is instantaneous and does not pass through a POP in Sydney or a POP in Brisbane.

Senator FISHER —In one way, retail service providers are providing unduly complicated services that you do not need, is that right? Are you saying that you could not unpick those to get what you need?

Mr Deme —My experience is that it is very difficult to get existing carriers that provide retail services to provide the basic type of service that a utility requires.

Senator FISHER —You cannot really speak on behalf of universities and hospitals, but take hospitals—who are not, as I understand it, proposed to be exempt. Why would they not run the same sort of arguments, particularly the essential services argument?

Ms Barden —I think it comes down to the critical nature of the electricity industry. Hospitals cannot operate if they do not have an effective electricity network underlying them. As we have indicated, resilient communications are necessary for the electricity industry to get up and running after major disasters, and that is intrinsic to delivering so many other essential services to the community.

Senator FISHER —Nonetheless, as I understand it, many hospitals and academic institutions already have their own networks up and running, and it is likely that they will not access the NBN. Does that change your answer at all or add to it?

Ms Barden —It is difficult for me to understand the needs of the types of services they are after, but my understanding is that they would be after more of a retail broadband-type service. So they have more options available to them in the retail market to purchase a product that suits their needs than utilities have.

CHAIR —In your submission, you raised three points. You said that if you were not given an exemption you would have to purchase from the NBN at the retail level. The second one is that you would have to access wireless. And the third one was that you would have to deploy your own infrastructure. You would have to take one of those three options, is that accurate?

Ms Barden —That is correct.

CHAIR —In terms of purchasing from retail, what are the prospects of you getting the kinds of input that you need from a retailer?

Ms Barden —The current experience has shown that utilities generally find it very difficult to receive the service levels that they require from a retail service provider. Mr Deme is able to speak on behalf of Ergon, but I am also aware that many of our other energy network businesses face similar issues. That is not to say that they do not use retail telecommunications services. They do in some instances, but it tends to be where the utility’s own infrastructure does not have a reach and where there is no current alternative.

CHAIR —Is it a significant cost impost if you had to purchase retail?

Ms Barden —Yes it is, particularly when we are talking about millions of devices across the country. If you are talking about a difference between $10 versus $5—and these numbers do not reflect anything; they are just examples—when you multiply that by millions of devices you are talking about significant cost differentials that could potentially apply if you went through a retailer rather than through a wholesale provider of a service.

CHAIR —When you say ‘devices’, what is the definition of a device?

Ms Barden —It can be number of things. It can be circuit breakers and reclosers, or it can be smart meters and monitoring devices throughout a network. Mr Deme may wish to add to that.

Mr Deme —That pretty much covers it. It could be monitoring the temperature of a transformer—the amount of energy a transformer uses; it could be a switch on the network for a safety requirement and if there is an issue then the switch turns the network off. They will be prevalent throughout the entire grid in the future.

Ms Barden —The reason for this is about trying to get more visibility into the network. At the moment, a lot of the businesses have no visibility about where there are problems or faults within a network because you have no way of communicating with them. One example I often refer to is that Country Energy has a 1,000 kilometre piece of line—and I am sure Ergon has the same—where, if there is an outage along that line, you have to send someone out in a truck to find that outage and to fix it. With these sorts of communication technologies, you are able to remotely detect and isolate a fault, re-route power around it and minimise the amount and length of any disruptions to customers.

Mr Deme —Probably the most important requirement that a utility has for telecommunications—and these are issues worldwide that have taken down power grids—is that, if you have a surge on part of the power grid, the quicker you can isolate that fault then the less of the grid is affected. There have been incidents around the world where large portions of power grids have shut down because they could not protect the rest of the grid in time. That is the key requirement: the fastest, highest voltage telecommunication service money can buy. Most power companies install these themselves, so they are very hesitant to use any other service to start with. You need to be able to identify the fault and turn the grid off before it passes through the grid.

CHAIR —These are devices that are predominantly used in the power industry.

Mr Deme —Absolutely.

CHAIR —So they are unique to the power industry?

Mr Deme —Yes.

CHAIR —Is there a growing number of these devices being used, or less?

Ms Barden —The scope and the scale of the deployment of these devices is rapidly increasing, certainly at a transmission network level. A lot of these types of monitoring-control devices are quite widely deployed through transmission networks. A lot of this is about taking that down throughout the distribution network and having greater visibility of the distribution network right down to the customer level.

CHAIR —So for maintenance of power supplies both in times of crisis and in normal times, these are very important devices for the power industry.

Ms Barden —Absolutely, and particularly looking to the future where we have an increased number of adverse weather events, and growing demand on the networks, which puts stress on the ability to deliver reliable power supplies. These sorts of devices will ensure that, looking to the future, utilities have the ability to offer the level of service that customers demand.

CHAIR —Do retail companies have the level of technical expertise on these issues, Mr Deme?

Mr Deme —I cannot answer that so far as technical expertise is concerned. I can say that it is very difficult to buy the service with the service level to the requirement that you need for protection services—that is the term that we use in the industry.

CHAIR —I think you answered some questions on wireless but can you remind me about the problems of why you would not use wireless.

Ms Barden —It is not that we would not use wireless per se, certainly the utilities themselves are looking at the options of 4G or radio mesh—different wireless technologies in certain circumstances. The issue again is more about retail provision of those services and, again, once you have the retailer introducing extra layers of their own equipment then there is greater scope for it to fail. Also, on those public carrier wireless networks, you do tend to get a lot more congestion at certain times. The 3G network, following Cyclone Yasi, was down for quite some time in comparison to utilities’ own infrastructure.

CHAIR —How do your wireless networks operate? Do they operate off a fibre network?

Mr Deme —They either operate off a fibre network or a microwave network. Microwave is the older technology but it is very reliable. We do not need the super high-speed capacity; we need the reliability and the performance. One of the other things that we noticed from Cyclone Yasi was supplying power through to sites. After the cyclone there was no power because there was no power network, so the telecommunications at that point was very difficult to find reliable columns.

CHAIR —If you had to deploy your own infrastructure, is there any estimate of costs associated with that?

Ms Barden —Sorry, we do not have that sort of level of detail at the moment. What I can say is that each of the businesses faces their own unique circumstances, so those costs will vary across the industry depending on topology, geographic features, population density and so on. No complete assessment of that sort of cost has been undertaken.

CHAIR —If the cost were to increase, would that have to be passed on to the consumer?

Ms Barden —Certainly. What we are aware of is the relative cost rather than the absolute costs. The industry is united in the view that if you are unable to achieve wholesale access to the NBN then the alternatives will lead to higher costs.

CHAIR —Senator Troeth?

Senator TROETH —No, I do not have any questions, Chair.

Senator FISHER —Isn’t the effect of what you are seeking that NBN Co. will effectively compete with retail service providers?

Ms Barden —Short answer: no. Because we are seeking such a basic service, NBN Co. is not clawing away market opportunities for retailers. Retailers would be looking to take the basic NBN service, enhance that and sell it as a more complete service to the market. It is not really taking away a service from NBN; if they were to offer a service—which is uncertain—it would only be a very basic service of the same nature, so there is no opportunity for them to value-add.

Senator FISHER —But in saying that, Ms Barden, aren’t you presuming what retail service providers would want to do?

Ms Barden —To some extent, yes. But I think it is quite easy to see that there is very little incentive for retailers to offer the basic service because it would purely be a pass-through. If there is no enhancement that they are offering then there is not really much opportunity for them to add additional profit margins through that sort of transformation.

Senator FISHER —That may be subject to negotiation. That is what choice is all about. In the third last paragraph of the conclusion of your submission you say:

… the NBN is an important candidate technology being considered by many energy businesses.

Like it or not, that says to me, and probably to anyone who reads it, that those who are in your business are looking to the NBN in comparison with others to provide what they need. In my book, that puts NBN Co. in competition with others who might—even if they do not today—choose to try and compete for that business.

Ms Barden —Across a smart grid there are a number of different communications functions that the utility network needs provided. There is no one technology that is suitable for all of those and no one technology suitable for every service area. For any business there will be a mix of technologies. The businesses are at the moment conducting technical assessments of the performance and the security of different technical options. They are also doing comparisons of the costs of these different options. Any utility may end up potentially with a mix of possibly some radio mesh or some wireless with some NBN in certain areas and some of their own fibre in other areas for different functions. That is really important to understand; it is not just looking at NBN or another option.

Senator FISHER —Thank you.

CHAIR —Senator Fisher raised the possibility of some competition with those who do not exist.

Senator FISHER —Who do not provide the services at the moment.

CHAIR —I thought you said ‘exist’ actually.

Senator FISHER —I may well have said it, but what does that mean?

CHAIR —I am not asking you what it means, thanks. Summing up my view of the association’s submission in shorthand: basically, because of the unique circumstances in your industry, the technical capacities of the industry and the technical requirements of the industry, it is better for you to have an exemption.

Ms Barden —That is right. Yes, I agree.

CHAIR —I am sure you monitor how you can do things cheaper. Do you see on the horizon any companies that, like the phoenix, are going to rise up and provide to you all the services that have not been provided over the last number of decades?

Ms Barden —It is always hard to gaze into a crystal ball, but I think what is clear is that utilities need a very basic service. Generally, when markets emerge and new players come in they tend to offer new retail products which are enhanced services, which is not the type of product that the industry is seeking.

CHAIR —Apart from the argument that you are unique and you get special technology—

Senator FISHER —And we need you!

CHAIR —Yes, Senator Fisher, we certainly need the power industry. Are there any other issues that you want to raise after listening to the questions that have been asked today? You are saying, ‘We need this exemption.’

Ms Barden —I think it really does come back to understanding the very critical nature of electricity supplies—the fact that electricity is intrinsic to the operation of everyday life and the fundamental need for a reliable telecommunications service to provide it. As I said, NBN is a part of the mix. Even if we do have the ability to purchase direct from NBN, that is not to say that that will be the one and only service that we will use. But, where it is appropriate, utilities certainly would like it to be in the bag of technologies that they are able to use.

Senator FISHER —Why would a retail service provider not bundle together the bag and onsell it to you?

Ms Barden —Do you mean bundle together a mix of a wireless and an NBN service and so on?

Senator FISHER —Yes.

Ms Barden —Potentially they could. Again it comes down to whether or not it is able to meet the service-level requirements we have, and the current experience of the utilities has been that when they go to the retailers they have not been able to achieve that on a ubiquitous scale. I think that is a really important point. There may be patches within a network where you are able to receive a service from a retailer, but smart grids really require ubiquitous coverage, and that is quite a different proposition for a retailer.

CHAIR —There is anther issue for your industry. I used to be a power station maintenance fitter, so I have some idea of the industry in terms of its wholesale side and the generation side. The big generators who supply the retailers are regionally based.

Ms Barden —Generally they are.

CHAIR —Yes, predominately they are regionally based. For instance, the bulk of the power supply generation capacity in New South Wales is on the Central Coast and in the Hunter Valley. They do not have access to high-speed broadband through an NBN equivalent at this stage, do they?

Ms Barden —Sorry, we are here on behalf of the network part of the industry, so I am not able to speak on the services available to the generation sector.

CHAIR —But your network runs up into those regional areas.

Ms Barden —That is right.

CHAIR —That is the point I am making. You generate regionally. Your network comes from the regions, and the area that your network runs through does not have access to NBN type high-speed broadband.

Ms Barden —Generally the utilities will have their own fibre deployed to those areas.

CHAIR —So again the utilities have done it themselves.

Ms Barden —Yes.

CHAIR —Ms Barden and Mr Deme, thank you very much for outlining your position and for assisting the inquiry in its deliberations this morning.

Proceedings suspended from 10.13 am to 10.31 am