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National Broadband Network Companies Bill 2010; Telecommunications Legislation Amendment (National Broadband Network Measures—Access Arrangements) Bill 2011

CHAIR —Welcome. The committee has received your submission—submission No. 9. Do you wish to make any amendments or alterations to your submission?

Mr Hill —No.

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

Mr Hill —Yes. We have outlined briefly in our submission that we have links to the worldwide Internet Society. For your benefit I want to expand on the role of that society, a global, non-profit organisation which was founded almost 20 years ago. It has a key role in relation to the development of standards by which the internet operates all around the world.

A key point I would make about those standards is that they are entirely voluntary. There is no compulsion that you adhere to internet standards except that if you want to connect to the internet you need to use those standards, so from that point of view they are voluntary. ISOC, the worldwide Internet Society, embraces the processes called the Internet Engineering Task Force and the Internet Architecture Board. The Internet Engineering Task Force develops all these standards.

We are one of probably more than 80 chapters of the Internet Society around the world, and our mission is to promote the development of the internet in Australia for the benefit of the whole community, including business, academic, professional and private internet users. As a result of that mission we are very keen to see development of the National Broadband Network and you should mark us down as a strong supporter of the development of the National Broadband Network.

In our submission we have made a few high-level points about principles by which we would like to see that National Broadband Network developed, but I will just draw out three implications from those that we would recommend to the committee in your deliberations at the moment as being key factors. One is reach: in order for Australia to maximise its benefit, the reach of the National Broadband Network has to be as wide as possible. We have heard discussion about the 93 per cent target for the National Broadband Network. We do not want to see the rest of Australia left behind in that movement; therefore, the speed which reaches the rest of the population is absolutely as critical as the reach to the 93 per cent. The second point I make is in relation to competition. We regard the previous history of telecommunications policy in Australia as having produced not very effective results in competition, particularly in relation to delivery of the internet, so, as we move forward in this discussion about the National Broadband Network and legislation related to that, we want to see action taken that allows for maximisation of competition in delivery of services. The third point I would make is that we need public reporting of the performance metrics of the National Broadband Network to ensure that people know what they are getting. We have just heard discussion of some reporting in the UK about the delivery of internet speeds to users which have been pretty short of the marks advertised, and we want to make sure that when we come out of the NBN process people know what they are getting.

That is the end of my overall opening remarks, but there are a number of other technical issues that we raised in our submission, so Holly Raiche and Paul Brooks are available to comment on those as well.

CHAIR —Thank you.

Senator BIRMINGHAM —I will start off on the first couple of points you raise. You state fairly openly in your submission that you are supportive of the wholesale-only service provisions in the legislation. We have heard that both Telstra and Optus have queried whether those provisions are tight enough and whether there is potential for some delivery of services directly on a retail level by NBN Co. Do you genuinely think those provisions are tight enough, or could they be tightened further to stop the potential for NBN Co. acting as a retailer to public utilities and the like?

Mr Hill —I might pass that question to Paul Brooks.

Dr Brooks —The carve-out for public utilities is similar to the existing Telecommunications Act 1997, where utilities are one of the organisations, along with Defence, emergency services and a number of others, that are exempted from acquiring a carrier licence to roll out their own facilities. Those utilities, to the extent that their services are for themselves and for the monitoring of their own networks, are quite different from the types of products and services that NBN Co. would provide for residential or small business internet or communications access. So, as the Internet Society, we do not actually have a problem if utilities purchase directly from NBN Co. provided that they are not then on-selling that to other end-user organisations and it is just for internal use. It is the same as if Defence needs a point-to-point link for internal use or some other aspect like that. That is not a problem in our view. They already have the ability to buy directly from a telecommunications carrier.

Senator BIRMINGHAM —Telstra have highlighted particular concerns about the risk of onselling, the definitions that apply to carrier and carriage service providers, and the potential for misuse of those definitions by organisations. Do you think that is a real potential and do those aspects need to be tightened up?

Dr Brooks —The definition of a carriage service provider does need to be looked at because at the moment a carriage service provider is effectively anyone who puts up their hands and says, ‘I’m a carriage service provider.’ So even if the definitions were tightened to say, ‘only carriage and carriage service providers’ there is nothing that really prevents the IT department of an electricity authority putting up their hands and saying, ‘I’m a CSP and I provide communication services to the electricity industry’ and then being perfectly legally entitled to purchase directly from NBN Co. in that regard.

Senator BIRMINGHAM —Or there would be nothing to stop a big bank with a nationwide footprint, who would be a very lucrative customer for an RSP to have, to declare themselves or seek to have themselves declared as a carriage service provider and buy directly from NBN Co.

Dr Brooks —That is correct, absolutely. If they were happy with taking on the obligations of a carriage service provider under the act, including being members of the TIO and all the other obligations under that, then there is currently nothing stopping an organisation doing exactly that.

Mr Hill —I can just add something to that answer. One of the concerns that we have is that the number of customers of NBN Co. might be low. If that happens we do not think the interests of competition will be served. Anything in the legislation that has implications about reducing the number of potential customers for NBN Co. would be a problem from our point of view.

Senator BIRMINGHAM —That probably flows nicely into debates about equivalence, and the potential for distortions in what may or may not be equivalence to ultimately compress the number of carriers or RSPs operating. If NBN Co. is providing favourable terms to those who have large volumes, does that risk shutting out smaller RSPs and leading to a potential duopoly or something bordering on that?

Ms Raiche —We have made a submission on that.

Dr Brooks —The word ‘efficiency’ is so broad that any lawyer can drive a truck through it, and it is unclear whether those efficiency gains, as the legislation is currently drafted, would be enjoyed by NBN Co., by an RSP or by the end user. More to the point of the volume discounts specifically as a criterion for price discrimination, if NBN Co. is doing its job properly and has set up all its automated flowthrough provisioning, there should not be any rationale for a reduction in cost to NBN Co. to service a volume of customers. Whether that gets presented to them as one block of 10,000 or as 10,000 individual orders, the cost to NBN Co. to process those should be identical because they are automating the whole thing. We find it difficult to see how there could be an argument that there is an efficiency gain on volume or volume forecast grounds in any case.

Senator BIRMINGHAM —You have been relatively supportive of the way that the government ownership requirements are structured. Optus, however, have proposed that even before you get to the 50 per cent threshold or get to the government totally selling off, there should be some limitation on how much an RSP can invest in NBN Co. Do you think they would be valuable additions to the legislative framework?

Dr Brooks —I did not hear what the comments from Optus were but—

Senator BIRMINGHAM —I do not know if they touched on it this morning, but they are proposing a 15 per cent cap, from memory, in their submission.

Dr Brooks —Optus, as a carrier, obviously has quite different commercial interests to the Internet Society, which represents end users rather than the service provider community. So I do not know if the Internet Society has a comment on the degree of RSP ownership within NBN Co, to the extent that it does not create a conflict of interest within NBN Co. in providing identical services to all RSPs, and keeping that level playing field and wholesale ethos that the NBN is based on.

Mr Hill —There is an additional dimension to this, which is the way in which some of the competition provisions of the telecommunications regulation regime relate to the general competition regulations within the economy. We have found a problem with the way in which those two things seem to interact. We find a situation where issues can fall through the cracks between the two regimes or situations where there can be delay in resolving issues for years, which can frustrate competition. So if any of those factors came into play in the scenario that you are talking about, they would cause considerable difficulties. That is why I made the point in my opening remarks about competition.

Senator BIRMINGHAM —Surely the Internet Society would not want to ultimately see a situation where effectively you ended up with a functionally separated outfit somehow by virtue of an RSP acquiring ever-larger stakes in NBN Co.

Mr Hill —In the debate up to this point we have not had much confidence in solutions around functional separation.

Senator BIRMINGHAM —I would not have thought you would in future though.

Dr Brooks —We certainly would not want to see any situation that resulted in a conflict of interest with NBN Co. as to who they served and how.

Senator FISHER —Gentlemen and Ms Raiche, thank you for coming. You are concerned that ‘ethernet’ is not defined. Are you suggesting that it should be?

Dr Brooks —No. We are actually suggesting that the word ‘ethernet’ should be removed. Layer 2 is an area sufficiently broad so that is a reasonable way of defining a service, but ‘ethernet’ is a very technical term. It might be valid for today, but if this legislation had been drafted five years ago, we would have used a different form of technology and in five years time we might want to use a different form of technology again that is not ethernet. ‘Ethernet’ itself is a very precise technical technology which comes in a 1,500- to 2,000-page technical standard from the IEEE with a number of options and things. So if the word ‘ethernet’ were to be enshrined in legislation it would need to be defined much more clearly as to what that actually meant. In fact, doing so could well prevent innovation in the future if a newer technology were found by the industry to be more preferable than the ethernet technology that is being rolled out today. So we would actually prefer to see the word ‘ethernet’ removed and see the provisions for the industry to do technology standards for what a layer 2 service might be and leave that process for defining what the actual technology and implementation should look like.

Senator FISHER —I presume you would not be accepting that a future legislative amendment could insert ‘ethernet mark 2’ or whatever might be the successor, because forever you would have the dog chasing its tail?

Dr Brooks —Absolutely; that is right.

Ms Raiche —I think you can do that as there are ways, through legislative instruments and licence conditions, if in fact there is a need to prescribe something. That is far less prescriptive and far easier to change if you want to use a legislative instrument to do something specific. But to put into legislation something that is ill defined and perhaps temporary and perhaps something that will be succeeded does in fact limit it.

Senator FISHER —Hence your submission that the regulation should be outcomes based, so it is regulation of the outcome rather than of the medium.

Ms Raiche —Yes, absolutely.

Senator FISHER —Can you detail a bit more how you would regulate that outcome? I ask because I do not get that from your submission with sufficient particularity. Occupational health and safety is outcomes based as an employer shall provide a safe place of work, which has inherent in it a whole lot of difficulties in itself. So how are you going to do that?

Mr Hill —Can I state some general principles that we are interested in in relation to this. One of the critical issues here is to do with the speed by which there is change or that the policy or regulations can keep up with the development of the industry. One of the major benefits out of the internet has been the generation of innovation in the economy, and the OECD has commented on how important that is to economic processes. What we see here is the potential to get slowed down if we start defining technical terms in the legislation.

Senator FISHER —I understand that but I am wanting a bit more detail around your solution, because I do not quite see your solution. It would be nice but how?

Dr Brooks —The intention of the legislation is to create the wholesale-only framework and to provide some limits to how far up that communications stack the wholesaler should be able to go and where the retailer should take over. For our purposes, leaving it described as layer 2 is sufficient. As an analogy, all the areas in the legislation about voice network interconnection do not ever mention ISDN or C7 or any of the currently used signalling protocols. That is left up to the industry to work out what is the best way to achieve the outcome. If the outcome is wholesale-only infrastructure services then that, in our view, is a sufficient description.

Senator FISHER —In respect of the exemptions and the ability of exempt utilities and potentially others to purchase wholesale directly from the NBN, what is wrong with that and is it only wrong if those purchases are then utilised—for example, in the case of utilities—internally?

Dr Brooks —We do not think there is a problem.

Senator FISHER —Then I have misunderstood.

Ms Raiche —We do not think there is a problem. Our response to Senator Birmingham was those exemptions are already in the Telecommunications Act, in provisions that describe when you must acquire a carrier licence. If you look at the wording of those exemptions in that context you will see it says—to paraphrase the legislation—that if you actually have what is called a network unit and you use it for your own purposes then it is not a problem. If you look at the wording of that part of the Telecommunications Act that exempts providers from having a carrier licence, that does confine what a person who is installing a network unit under the exemption can do. If you are the defence forces and you are acquiring a network unit then you have to use it for your own purposes. If you want to confine it, that language is the sort of language you might use as a model.

Senator FISHER —Thank you, I had misunderstood. I thought you said it was a bad thing and that is why I was asking why.

Dr Brooks —It is understandable that service providers might want to make sure that they can get as much business as possible. Utilities are already capable of running their own fibre and not having a carrier licence. We do not see a problem with them buying services directly from NBN Co. for their own internal purposes.

Senator LUDLAM —Thank you for coming in. Noting that I do not think any of us around the table are network engineers, can you talk us through why you pulled out the issue of the definition of a super fast carriage service and what you propose we should do with that?

Dr Brooks —Again, one of the issues is that it is likely to become very dated very quickly. What might be considered super fast now at 20-odd megabits is, in three of four years time, likely to be laughably slow. The other definition for the superfast network issue that we have a problem with is that it is defined in only one direction. The definition includes only a download speed and does not include any parameters on what the upstream speed should be and does not even require that there be an upstream data connection component to the broadband network. A one-directional broadband service is pretty useless.

Senator LUDLAM —Television.

Dr Brooks —It may be television or it may be upstream dial-up and download over satellite or something. The definition itself seems rather artificial. Why it is 25 megabits, compared to 30 or 100 or 10 does not seem to have any logic to it.

Senator LUDLAM —So what is your proposal?

Dr Brooks —I do not know that we had a proposal.

Ms Raiche —We did not have a proposal. We thought high speed would probably do because it is going to change. What is high speed today is going to change to what tomorrow—

Dr Brooks —By enshrining the number of 25 megabits in there you are effectively limiting the ability of the legislation to encourage innovation in decades down the track for when 25 megabits may be too low as a benchmark for what people need to participate in society.

Senator LUDLAM —I do not get too hung up on it. I thought it was worth pointing out that you have made that distinction. I would have thought staying silent on where the threshold should be is just a recipe for lawyers’ punch-ups into perpetuity.

Ms Raiche —Possibly; but it may be a better way around that if you actually do need a definition. I suspect that definition was used to say that this is not ADSL and as a way of saying, ‘If this is not ADSL; it’s something else,’ and if you want to have some kind of legislative instrument that could be used to define it over time and include both upstream and downstream speeds, then that would be a better mechanism than putting 25 megabits into a piece of legislation.

Senator LUDLAM —Okay.

Mr Hill —Could I just add something to that: I think it would be a mistake if Australia felt too self-congratulatory about having discussed speeds up to 100 meg. If we are not planning now for 1,000 meg then we are probably at risk of falling behind. We are on record as saying that.

Senator LUDLAM —You are one of the witnesses who have come forward with no declared commercial interest, unlike some of folk, who are advancing public interest arguments under the cover of commercial self-interest—or the other way around. I just wonder what your take is on the proposed ubiquity of the network when something like up to a quarter of Australian households do not yet have a computer in them? How do we look after people and make sure we are not just deepening the digital divide? Is that something that the society has a view on?

Dr Brooks —Certainly, one of the society’s main aims is to increase the ubiquity of broadband access and to ensure that everybody can get access to broadband services regardless of where and who they are. One of those methods of increasing participation is to make sure that there is, in fact, a means of getting access to the network. Computers are not the only ways of accessing the internet and broadband services any more. There are those types of technology which are being built directly into televisions, telephone handsets and all sorts of devices and appliances that a home might have installed into it, even though people do not feel that they need a computer.

And broadband is not just about access to the worldwide web and visual-type media, which are typically thought of as what people access on the internet. There is communication with electronic voting systems, there is communication with utilities for paying bills, all your internet banking and all that sort of stuff conducted over the broadband network, whether or not it is conducted from a computer, as it is currently recognised, or by pressing the red button in the front console in your car, which happens to have a wireless connection to a base station or to the highways. That is all part of broadband networking. The increasing ubiquity of the network through the NBN as a way of allowing organisations like highways to create smart traffic signs which benefit the population in those areas, whether or not they use a computer or not, is all good stuff.

Ms Raiche —Can I just add—

Mr Hill —We all want to add to that!

Senator LUDLAM —That is a great answer to get us started with—carry on.

Ms Raiche —In other submissions to the Senate—not this submission, which has focus on the two pieces of legislation—we have also stressed the importance of education; educating and making sure there is a skill set so that people can take advantage of the use of a computer, whether it is in their car, their television set or whatever. This has been concentrating specifically on legislation, but we do have a much broader look at education in schools and by other means to ensure that people have the ability to actually use the technology.

Dr Brooks —It is important to realise that one of the properties of optical fibre, and one of the attractions of the NBN is not the speed—that is actually a very handy by-product—but it is the distance. Copper-networking technologies can travel to a distance of only two or three kilometres for reasonable speeds from the exchange. Optical fibre can go 20, 30, 40, 50 or 60 kilometres and effectively bring broadband connectivity of whatever speed the service is to places that have absolutely no connectivity whatsoever at the moment. We feel that is more important than the high-speed aspect. That is actually a bonus from the optical fibre technology; it is the reach that optical fibre provides in eliminating black spots that is actually more important.

Mr Hill —We would recommend that the committee focus on how widely that fibre can reach. Current plans have certain boundaries being developed for them, but the wider that reaches the better.

The other point that I think we need to make, and it sounds like a bit of a technical point but it has to do with internet technology, is that the more extensively people can have access to the internet protocol, then the cheaper their services are likely to be. I think there has been an interesting analysis, for instance, on the cost per character of sending information via SMS versus email. The difference in price is typically orders of magnitude. So in terms of outreach to a wide population, use of the internet protocol has turned out to be an enormous cost-saving and price-saving advantage.

Senator LUDLAM —Thank you.

CHAIR —Senator Macdonald?

Senator IAN MACDONALD —You mentioned earlier 93 per cent; what about the other seven per cent? Are you satisfied that there are provisions in place to look after the other seven per cent at a reasonable cost; and do you agree it will always need to be cross-subsidised in some way?

Mr Hill —I will not deny that we are on a mission here. We want to see this go as far as possible and therefore we would not necessarily accept that 93 per cent is good enough—it is fantastic to have it, but we would not accept that it is good enough at the moment. The discussion about the solution or the solutions for the other seven per cent is interesting. It tends to revolve around voice communications to some degree, because we think in terms of the previous telephone network. From our point of view, the full range of services that are available via the net at the fastest possible speed is what this is about. If you get a differential, say, between at least 100 megs download on a fibre connection and, say, 12 megs on a wireless or a satellite connection, if you are in the seven per cent there would be a substantial differential in experience.

Senator IAN MACDONALD —Is there anything in either of these pieces of legislation that comforts you that it will get to 100 per cent or indicates that it will not?

Mr Hill —I am not sure that we can answer that straightaway but we might be able to come back to you with some more information on it.

Dr Brooks —I do not think there is anything in this legislation that actually refers to the wireless or the satellite aspects of the network at all. Most of it is focused very much on the optical fibre footprint of the network. In terms of being satisfied of the extent to which the radio parts of the network might satisfy the requirements for internet access at a reasonable cost, we simply do not have the information from NBN Co. yet on their technical specifications for the service to be provided via radio or satellite. We have a lot more information and technical documentation from NBN Co., currently, on the fibre part of the network, much less on the wireless and satellite parts and, of course, no indication of what the costs are likely to be other than the cost will be uniform regardless of whether you are in a satellite, wireless or fibre area.

Senator IAN MACDONALD —So it will be subsidised in some way.

Dr Brooks —Yes, absolutely.

Senator IAN MACDONALD —Which?

Mr Hill —To draw out a bit of an implication there, previously we have had a universal service obligation regime in Australia which produced different technical solutions for different locations. To a high degree, that paid for a lot of copper to be laid to premises where the price might have been astronomical compared to the average price of doing it to any other premises. I am not sure to what extent that has been taken into account in planning the NBN. People might have drawn a line and said, ‘Obviously, the cost is going up per premises when you get to this distance,’ but that may not be the kind of public-objective criterion involved. You might be able to wear a cost increase if you want to reach another two, three, five per cent of the population.

Senator IAN MACDONALD —Who might be prepared to wear a cost increase?

Mr Hill —If you took a universal service obligation attitude to the policy.

Senator IAN MACDONALD —It is always my view, as one who has an interest in remote Australia, that it is a service that always has to be subsidised by a government.

Mr Hill —And we certainly are keen to fuel debate on that question.

Senator IAN MACDONALD —I asked Telstra and Optus this, privately: are you as representatives of the end users concerned that, somewhere in the distant future, having a monopoly provider of the wholesale network without any competitive pressures, they might fall back into the old Telecom days of not bothering to keep up with the rest of the world? Is that something that your society has had a look at?

Ms Raiche —I would say that there are two answers to that. The first, which I think is a flaw in the drafting in part 3 of schedule 1, is that the monopoly should be confined to the access network, and the way that this is drafted it is not. That does leave a lot of room for competition in terms of both backhaul transmission as well as—right now, if you think about the so-called structural separation, all that really will happen will be that Telstra will gradually migrate its copper wire. It still has a wireless network and people still have wireless so there is still some competing infrastructure. In fact, we did not say much in our submission about the cherry-picking in terms of whether we are happy or not because we probably do take a deep breath and ask: ‘Do we need to have that monopoly?’ I realise the government in its a statement of expectations has said that this is what will be a natural monopoly because we have to cross-subsidise. I think we have taken a deep breath and thought, ‘Do we have a level of conflict with this?’

Senator IAN MACDONALD —After the deep breath, what conclusion did you come to, or are you still breathing?

Ms Raiche —I would still like to breathe for a little while. Certainly what we have said in the context of other issues is that we would like a review of the competition regime. We do not know how it will play out. We are basically at the stage where NBN is trialling sites and we are still working through what the regime is. I think it would be appropriate in the not too distant future to look at the competition regime and whether NBN is behaving in a way that the former monopolist did.

Dr Brooks —In a sense, the wholesale only aspect of the NBN Co. fixes a conflict of interest in terms of dealing with wholesale customers while also having a retail customer base. But the monopoly aspect of it, when there is no risk of losing business to another network, could create a degree of complacency in terms of not further innovating the network because you really are not going to lose any business by not doing so, and that could be a concern. But it is still at the stage that it is now and we will not actually know whether that is the case for four, five or 10 years down the track. There are certainly many technical innovations that will come down the line over the next 10 to 20 years that we can forecast, and there is a lot of concern by service providers as to whether NBN Co. will have any incentive at all to take on those improvements and that new technology if they are still trying to pay off the old stuff as part of trying to maintain their business case. We probably will not know for many years down the track whether that is an issue.

Senator IAN MACDONALD —Is there an authority to what you have just said?

Dr Brooks —I am sorry?

Senator IAN MACDONALD —When you said that a couple of the current retail service providers are concerned about whether NBN Co. will move forward; is there some authority for that?

Dr Brooks —Historically, there are arguments that Telstra’s network, if we look at the installation of ADSL1 and ADSL2+—they brought that on—it is an analogy that NBN Co., having a monopoly on the network operation, may not have the incentive to invest more in upgraded equipment if they think these will do.

Senator IAN MACDONALD —It stands to reason.

Ms Raiche —I would like to make just one comment. In the UK, where, in fact, there was a genuine functional separation between BT and its wholesale arm, openreach. Probably two or three years down the track now, certainly last year, when an OECD representative was speaking at a conference that I attended he said that there is genuine concern that, openreach, even though it deals equitably with all of the comers who want service from it, is falling behind in terms of innovation. That probably supports Paul’s point.

Mr Hill —I guess the three points we would be looking to closely watch, because obviously monopoly is always a concern, are: firstly, how do you define the remit of NBN Co. in performing the NBN function, particularly vis-a-vis other fibre providers in the country? Secondly, what is the competitive regime in which they are operating? And, thirdly, there is the point I mentioned in my opening remarks about publicly available performance information.

CHAIR —We have a number of questions, so we might just run a little over. Can I ask you to be as concise as possible and not have everyone answer the same question, please. You keep talking about 93 per cent, but the NBN footprint is 100 per cent. That 100 per cent is made up of wireless and fibre and satellite, so you do except that it is a 100 per cent coverage?

Dr Brooks —Yes.

CHAIR —Are there technical issues that you are aware of that NBN might need to deal with that would be a difficulty if it were classified only as layer 2?

Dr Brooks —There are some aspects that are picked up in the current technical documentation relating to the delivery of television services where their equipment needs to look at the layer 3 information that the service provider and customer’s equipment is sending through to affect things like channel change on IPTV services and things like that. They are very minor. We do not see any issue with the drafting of the legislation that would prevent that from occurring, because effectively they are reacting to the service provider and the service provider’s customer’s layer 3, not really providing a layer 3 service in their own right.

CHAIR —But you are saying there has to be a little bit of flexibility there between layer 2 and layer 3 for technical reasons?

Dr Brooks —Yes, layer 3 services drive layer 2 performance.

CHAIR —Is that similar to why you say do not define ‘ethernet’? You think we should not define layer 2 for similar reasons?

Dr Brooks —No, we think layer 2 is a sufficiently good definition for legislation and that anything more specific than that should be left to an industry technical standard.

CHAIR —You say there are no technical reasons that costs should decrease with volume, but wouldn’t you need different access terms to allow a small, nimble entrepreneur and a provider to compete effectively?

Dr Brooks —Not if you are NBN Co. NBN Co. can deal with that organisation the same as all the rest. Certainly, if you are a small organisation, the economies of scale are stacked against you in terms of building a national footprint, but NBN Co. are not holding that back.

Mr Hill —Our concern was that a large wholesale service provider buying services from NBN Co. might achieve a lower price from NBN Co. and that would disadvantage a small and nimble entrepreneur.

CHAIR —The other area you have raised is the minimum speed. Would it be better if minimum speeds were set over time—say, 25 now, 50 in year X and 100 in year Y? Would that solve some of the issues you are raising?

Dr Brooks —No. I do not think it is possible to forecast that accurately, even a few years into the future. The minimum speed that an individual house might need will depend entirely on what services they are looking to access, so trying to specify that, particularly in legislation, I think would be a mistake.

CHAIR —I want to come back to the issue of wholesale services and layer 3 characteristics. We had a bit of discussion at the last hearing that there are some layer 3 characteristics on satellite and wireless, so wouldn’t there need to be some flexibility for NBN there?

Dr Brooks —This is one of the reasons why ethernet should not be specified in legislation. It is possible to build something that looks like a layer 2 service using layer 3 tunnels that act like point-to-point virtual links the same way that the ethernet does on fibre. So, without the word ‘ethernet’ used, you can create something that looks like layer 2 on layer 3 infrastructure, but at the end of the day you are limited to the capabilities of the technology platform. If a satellite is fundamentally incapable of providing multiple customers with parallel layer 2 streams then the industry will need to work out something that is close enough to achieve the desired result.

CHAIR —What would be your preference: a legislated wholesale only network, an open access monopoly, which is basically what we are proposing, or a vertically integrated incumbent? What sort is the best?

Dr Brooks —The open wholesale network is by far preferable to what we have seen over the last 20 to 30 years that we have been trying to unwind.

CHAIR —You said there would be access on other than computers. What would that access be?

Mr Hill —All sorts of mobile devices are becoming widely accessible by internet technology. In fact, that layer 3 internet technology is becoming a platform of choice for all sorts of provisions. The key question is whether the users can get open access to that internet protocol on their device so that they get a free choice of applications that they can implement.

CHAIR —Thanks Ms Raiche, Dr Brooks and Mr Hill. Thanks for giving evidence here this morning. It has been helpful.

 [11.15 am]