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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 as submission 13. Do you wish to make any amendments or alterations to your submission?

Mr Slavich —Nothing that is material, Chair.

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

Mr Slavich —Yes, I would like to. We would like to thank the committee for the opportunity of putting in a submission and also for being able to answer questions that you may have with regard to our submission. TransACT has been in this space for over 10 years, delivering high-speed fibre broadband services over a customer access network, or a CAN—this industry is full of acronyms, as I am sure you are aware.

CHAIR —We haven’t noticed!

Mr Slavich —We deliver over a CAN to over 200,000 premises in the ACT, Queanbeyan, Geelong, Ballarat and Mildura. We have good market penetration in all those areas. Since 2006 we have been involved in delivering fibre to the premises, which is exactly what NBN Co is looking to deliver. We now have under contract or under negotiation 16,500 premises in the ACT in the suburbs of Forde, Franklin, Bonner, Crace, Casey 2, Flemington Road Corridor, Harrison 4, north Weston and, more recently in the big growth area of the ACT, Wright and Coombs. Of these areas, 1,800 sites are now live with fibre to the premises and 3,500 have been passed. We offer voice broadband, pay TV and mobile phone services. The other thing that we do is bundle with our sister company, ActewAGL. We do an energy telecommunications bundle to our customers.

We have an open access network. We have 11 ISPs on our network. We provide that open access over a layer 3 delivery in the open system interconnection model, or the OSI model. We are also very active in the local community. We sponsor the Mildura Country Music Festival. We sponsor a ladies basket ball team, who happen to be in a final this Sunday in Melbourne against Bulleen.

Senator IAN MACDONALD —No advertising!

Mr Slavich —We are a very big active community participants. We are not just about the telecommunications side of things. We have 270 employees who work for the company. Clearly, we do have some concerns with the bills that are currently before the Senate. We absolutely share the government’s vision of rolling out broadband to Australians; however, we are concerned with some of the aspects in the bill, particularly the requirement for layer 2. We provide layer 3 over an open access model. Anything that requires upgrading or altering or that gets rolled out in the current environment will be required to have layer 2. The statement of expectation that was released by the Prime Minister and the Minister for Broadband, Communications and the Digital Economy indicated that there will also be an amendment to this bill to provide wholesale only. We are not quite sure exactly what that means. Does that mean we now have to split our business between the network and the retail side? Also a levy may be imposed upon us. We do not see ourselves as cherry pickers or greenmailers, so we are concerned about some of the level playing field options.

We are also upgrading our HFC networks in Victoria to DOCSIS 3.0 and our VDSL to VDSL2. The big aspects for us are the layer 2 requirement and the wholesale only requirement. We are not a new entrant. We are not cherry pickers. We are concerned about the dollars. There is a pretty big cost to the organisation. We are a mid-sized communications company; we are not the huge end of town. We are worried and our shareholders are worried about the cost associated with layer 2 and wholesale. In effect, we are seeking amendments to the bill or an exemption from the bill because of our status. We also have some concerns about what will happen in the future to greenfield areas. This is a really big growth area for TransACT with 16,500 premises now under contract. We have been actively consulting on this. We have consulted widely with the department, with the minister—with anybody who will listen basically—and also, of course, with the committee.

With regard to the companies bill, in a very similar way to the other submissions that have been put in, we are worried about NBN Co. mission creep. We also want to make sure that NBN stays within layer 2 in the OSI model. We are part of the Competitive Carriers Coalition, so we share a lot of the views that were in their presentation last Friday. On the volume discounts, our understanding from reading the bill is that there is the ability to have volume discounts if there is a special access undertaking to the ACCC with regard to those volume discounts.

Senator BIRMINGHAM —Mr Slavich and Mr Lee, thank you both for your time today. You have highlighted just how TransACT is in a unique situation in this debate. I would like to go to the 2 v 3 argument. We have a number of submissions arguing that NBN Co. should be very clearly restricted to a layer 2 situation and in fact that it requires a tighter definition than is currently the case in that regard. Do you share those perspectives when it comes to NBN Co., notwithstanding your own concerns about the impact on your business?

Mr Slavich —I think it would be necessary for NBN Co. to stay within that mandate and not move outside the layer 2 model within the OSI model. In a previous role, I was in the energy industry, and the energy industry had structural separation from the wholesale and retail perspective. As a consequence, I think there is merit in NBN Co. sticking in that layer 2 framework, to ensure that there is not mission creep outside of that in competing with RSPs on the network directly. For example, most of our operations are in the ACT, so it would be of concern if one of the competitors we had as an RSP was the NBN Co. itself.

Senator BIRMINGHAM —In relation to your own specific situation, I assume you commented to the government on the exposure draft. Did you succeed in achieving some changes to address some of your concerns in that?

Mr Slavich —I think there is no question that they have listened to our concerns. As to whether we have achieved the appropriate amendments that we would like to see in the bill, I would say that they have not completely flowed through. The main one is, given that we have been operating in an open access environment in the layer 3 space now for over 10 years—and our model when we first rolled out within the ACT was really a function of coming from the ACT government owned ACTEW Corporation, and in some respects I think of TransACT as being the NBN but 10 years ago in the ACT—I would think that there should be provision in the bill to allow TransACT to continue to operate in a layer 3 environment, given that we are an open access network.

Senator BIRMINGHAM —Are there any examples of similar providers to you that you think would need a similar type of exemption or special treatment within the legislative framework?

Mr Slavich —I do not really want to comment on others. I really want to focus our comments on our own submission and our own circumstances.

Senator BIRMINGHAM —In terms of advancing the case of your own circumstances, if the government is attempting to provide this as a national solution—and it is attempting to do that—and essentially a one-size-fits-all national solution, what are the justifications for recognising legacy framework, in a sense, such as what exists in the ACT? Indeed, has the government or NBN Co. sought to potentially discuss with TransACT the type of commercial buyout arrangements that they have looked at with Telstra?

Mr Slavich —Logically, from a commercial perspective Telstra is the largest player in the market place, so it would make sense for NBN Co. to engage with Telstra given that they have substantially more customers than we have. We hope that in the future the government would view TransACT—we have been effectively delivering, for Australians who happen to reside in the ACT, Geelong, Ballarat and Mildura, this vision of fast broadband, so our shareholders are concerned as to what will happen to  the business in an NBN Co. environment.

Senator BIRMINGHAM —I think you almost hinted there that you are hopeful that at some stage NBN Co. will come knocking on your door. Is it the case, in terms of the risk management for your business, that, if the legislation as it is proposed goes through and therefore potentially knocks some value off your business by restricting what you currently do, you would then be in a weaker bargaining position should NBN Co. seek to strike a similar deal to access some of the infrastructure of TransACT?

Mr Slavich —I think given the way the bill is structured at present we would have to incur significant costs in order to comply with the current bill. If we are required to move from our layer 3 capability to a layer 2 capability and then also separate our wholesale and retail businesses, there is no question that there would be multimillions of dollars associated with having to do that. So they are costs that the shareholders would incur without necessarily gaining any additional revenue or margin. So those are really what our concerns are with the bill.

Senator BIRMINGHAM —This question from me is in relation to volume discounts. Obviously, the bill does allow for volume discounts to be provided. Does TransACT believe that is reasonable? You have highlighted that they could become contentious and could be anticompetitive. Should they be allowed?

Mr Slavich —We do not think they should be allowed. So what we would be proposing is that those special access undertaking provisions within the bill be removed so there are not any volume discounts.

—In relation to equivalence in general, there have been other opinions put that have argued for a more transparent process as to what arrangements are struck under an equivalence framework. Do you think the current legislation provides enough transparency there or do we need a more open process to see exactly what deals NBN Co. strikes with the individual RSPs, especially the larger RSPs?

Mr Slavich —If those provisions were to be retained in the bill, then, yes, we would like to see as much transparency as possible. Having that transparency would avoid the situation of special deals being done. Given that in the current bill there is provision for volume discounts via the special access undertaking to the ACCC, as long as it is transparent then that should be okay but if that is not transparent then any greater degree of transparency would be welcomed.

Senator BIRMINGHAM —Thank you, Mr Slavich.

Senator IAN MACDONALD —For you at TransACT, which has a very enviable record of providing telecommunications services over a long period of time, the NBN is not going to do anything. Is that so?

Mr Slavich —I think it certainly creates an opportunity for TransACT as an RSP in markets outside of where we operate. We are certainly very keen to become an RSP on NBN Co. and to be able to go into those markets in which we currently do not operate. There are still some pockets within the ACT and in Geelong, Ballarat and Mildura where perhaps the NBN Co. would be beneficial for consumers, in which case we would hop on as an RSP in those circumstances. But for the majority of our population base in Canberra, Queanbeyan, Geelong, Ballarat and Mildura TransACT does provide a very good broadband service to its customers, hence we have been quite successful in the marketplace in picking up residential customers. We are very successful with small to medium enterprises and, increasingly, in the corporate and government space with the ACT government taking their voice services from us. We have just over 40 Commonwealth government departments taking services from us.

Senator IAN MACDONALD —That is interesting. Your shareholders are effectively the ACT government, aren’t they?

Mr Slavich —Through a government business enterprise. ACTEW Corporation is a substantial shareholder in TransACT.

Senator IAN MACDONALD —There is no private shareholding?

Mr Slavich —There is a private shareholding.

Senator IAN MACDONALD —Is there?

Mr Slavich —Yes. We have Prime Television  as a shareholder, the Motor Traders Association and TVG.

Senator IAN MACDONALD —I will rephrase my original question. Are the services provided by NBN going to do anything for you in the areas that you currently serve? Will the NBN give a better service?

Mr Slavich —We do not believe there is a need for NBN Co. in areas where we have fibre deployed and are providing 80 megabits per second. For example, in our networks in Victoria we are operating to DOCSIS 3, which will provide 80 megabits per second. In our FTTP areas, the 16,500 we have under contract, we are supplying up to 100 megabits per second. I do not think it would be logical for taxpayers’ money to go into areas we are already servicing well. However, there are areas we do not service and NBN Co. would—

Senator IAN MACDONALD —But that is the current plan, is it not?

Mr Slavich —We are concerned with the potential overbuild of our network.

Senator IAN MACDONALD —Hence Senator Birmingham’s question, that the sensible thing would be for NBN to buy out your network, as it did with part of Telstra’s.

Mr Slavich —Yes, that would be—it would not make sense to overbuild where we have our extensive fibre networks in the ACT. The other unique circumstances in the ACT is that electricity poles in backyards, not in frontyards. That makes it a lot more difficult to roll out a broadband network in the ACT.

Senator IAN MACDONALD —Good point. You are having discussions—I do not want to know what they are, of course, and I would not expect you to tell me—with NBN Co.?

Mr Slavich —We are having various conversations.

Senator IAN MACDONALD —Have any of those conversations talked about price? I do not know whether you heard the previous witness, but if NBN Co. is going to make a profit, pay back $55 billion and produce a service which you have already paid the capital on and, I assume, are getting a return on, have you questioned them about, if you do join in, how they are going to charge you?

Mr Slavich —No, we have not had the conversation.

Senator IAN MACDONALD —Again, I do not want to diminish in any way your negotiations with NBN Co. but you would be in a state of high uncertainty with this legislation going through and NBN rolling out. Do you have a time when you will have to make some decisions?

Mr Slavich —As I indicated before, our shareholders have a concern with the current bill, particularly the requirements to deliver layer 2 and to be a wholesale owner, given the costs that will be incurred within our business. As I said before, I do not think it is logical for NBN Co. to roll out where we already have high-speed networks because ultimately in that scenario the penetration from both organisations will end up being low.

Senator IAN MACDONALD —Finally, and perhaps this is straining into an area where you cannot respond: do you know whether your major shareholder has had a talk to Senator Conroy about your situation?

Mr Slavich —Yes, through that process, I and the chairman representing the board have consulted widely with the minister’s office and with the department and, as I said before, anyone who will listen to TransACT’s course. That is also why we have put in a submission and appearing before this committee.

Senator IAN MACDONALD —Your principal shareholder being indirectly the ACT government—are they adding their weight to the argument?

Mr Slavich —Yes. I have certainly consulted with the Chief Minister of the ACT—I met with him last week. He is aware of the situation we are in.

Senator LUDLAM —Thank you for coming in. You have thrown up some issues which nobody else has raised. Is there anyone else in the country in the position you are in or are you feeling unique in this regard?

Mr Slavich —In terms of customer access networks, I think there are differences between organisations which put DSLAMs in Telstra exchanges—digital subscriber line access multiplexes—and what we do. We do have some DSLAMs deploy it in the marketplace but, effectively, we provide a customer access network which is somewhat different from what a lot of the other ISPs and telecommunications companies provide. We are also a member of the Greenfield Fibre Operators of Australia group. There are some members of the group who may be in similar circumstances.

Senator LUDLAM —You said in your submission you have got 10 ISPs that use your network and provide retail services. In the areas which you described to us before, do you provide retail services on those networks? Is there a degree of vertical integration with the services you provide?

Mr Slavich —Yes. For example, iiNet is an ISP that uses our network. We also have wholesale arrangements with other carriers in order to provide retail services over their network. So we do have arrangements in place. For example, our mobile phone business is an MVN—a mobile virtual network—operator. MVNO deal with Vodafone; we use their network to provide mobile phone services for both voice and data. We also have wholesale arrangements with Telstra. We do utilise the networks of other suppliers and carriers.

Senator LUDLAM —It is a tangled web isn’t it? You are one of the few network operators in the country that I would have thought is actually providing last-mile fibre services to people’s premises, which puts you in a bit of a different place to a lot of the other people who might be considering themselves competitors to the NBN Co. and backhaul space. Do you provide retail services over those networks?

Mr Slavich —We provide the retail service on our own network, yes. We provide voice services and we provide ISP services through our 100 per cent owned ISP, Grapevine. Yes, we do provide retail services on our network. We are an open access network but we are effectively vertically integrated. We are seeking clarification of what does ‘wholesale-only’ mean. There are various degrees of separation. One can be ring fenced or one can have complete separation—where you have to have a separate network business and a separate retail business—or you can go completely separate as is the case with NBN Co. being a completely separate network supplier.

Senator LUDLAM —Are you a bit concerned that we might be 10 days out from legislating this package and you are still seeking clarification? I feel that is getting very close to the wire.

Mr Slavich —We have picked up this concept of wholesale-only and the potential for a levy being imposed in the statement of expectations that was released on 20 December. We do not see that in the current draft bill. We would like to see clarification on what exactly that means so we can comment on it.

Senator LUDLAM —That is probably fair enough. I would not have thought you folk would really qualify as being a cherry picker in the sense in which I think the bill intended.

Mr Slavich —Absolutely not. Transact is definitely not a cherry picker. When we deliver our network, we deliver that across a broad geographical area. We also have situations where we have some customers that are more profitable than others. Therefore, one could say that a customer that is more profitable subsidises, to some extent, a customer who is less profitable. Having said that, we are a privately owned company and we are in the business of making a return for our shareholders, so we are not in the business of extending our network if it is unprofitable. Absolutely, we do not see ourselves as a cherry picker at all.

Senator LUDLAM —Thanks for turning up and for providing more questions than answers.

Senator BIRMINGHAM —Are you confident the definition and framework of cherry pickers within the legislation will not accidentally capture you?

Mr Slavich —We are concerned that the way the bill is written now would capture us as a cherry picker, and we do not see ourselves as a cherry picker.

Mr Lee —Picking up on your comment that we are leaving it too late; prior to the bill being introduced on 25 November, we did consult with the department on the bills. We saw the bills just prior to their release. At that point in time we did raise the issue that we had serious concerns with the level playing field provisions in the bills. Since that time we have continuously consulted to try and get clarification around those provisions. We also tried to get a bit more detail around criteria for exemptions. To date we have not seen that. It is not that we have not been trying extremely hard and consulting widely with the department on the issues.


Senator LUDLAM —I certainly did not intend that as a criticism.

Mr Lee —No; just a comment.

CHAIR —In relation to discussions you had with NBN Co.—I do not want to go to any of the commercial issues you are raising—do you think there is an opportunity to use some of your network as an interim measure until the full fibre rollout is concluded?

Mr Slavich —Without question, TransACT’s network is state-of-the-art; in fact, the technology that we are deploying in our fibre-to-the-premise areas is the same kit: it is Alcatel-Lucent. Some three years ago we used Corning fibre, which is the same fibre that NBN Co. is rolling out, and we provide a UPS service. We note that originally NBN Co. were not going to provide a UPS service but they are now—that is an uninterruptible power supply. The other thing we provide is an RF overlay, which means that homes receive free-to-air television in the fibre-to-the-premise footprint which we understand NBN Co. will not be doing with its rollout. Without doubt, I see that there would be significant advantage to the government to talk to TransACT about speeding up the NBN rollout, particularly in markets where we operate.

Senator WORTLEY —Mr Slavich, you would be aware that the default position in the bill is that the NBN not discriminate between access seekers but that there is limited scope for discrimination where this aids efficiency. This is a process overseen by the ACCC. Do you agree with the principle of discrimination that aids efficiency?

Mr Slavich —We believe that there should not be any volume discounts provided and there is provision within the bill under the special access undertaking with the ACCC to get those discounts The concern we have, given our size, is that the larger players could gain the system by getting a price point which is lower than what we could gain in terms of supplying an end customer. I do not see how that would necessarily be efficient.

Senator WORTLEY —In your view, are there any circumstances where it would be warranted?

Mr Slavich —It is hard to have a crystal ball and think of every conceivable or possible situation. Where we are coming from is as a retail service provider on NBN Co. We would be concerned if we missed out on a customer because we were not able to access the same type of pricing or services as perhaps a larger player would be able to access.

Senator WORTLEY —What do you think is wrong with the current protections against the pure volume discounts?

Mr Slavich —I think it is better than having no protection in there. I think that the protections that are in there—that is a fact that an SAU is required with the ACCC—go some way towards providing that protection, and it is better than having no protection at all. Our view is: we just cannot see why that is necessary.

Senator WORTLEY —Thank you.

CHAIR —Mr Slavich, would it be fair to describe you as a mini Telstra in the ACT: vertically integrated—

Mr Slavich —Our company names starts with T. The reality is that, where we are rolling out our network in greenfields areas—and I listed all those suburbs that we are going out to—we are the only network, and Telstra are not rolling out their network in those suburbs. We see ourselves as a very valuable organisation, particularly in those markets that we operate, providing valuable voice, broadband, pay TV and mobile phone services to our customers.

CHAIR —In the national bill there is a carve-out for utilities. What is the situation in the ACT with your broadband?

Mr Slavich —We certainly have arrangements in place with ActewAGL to use their electricity infrastructure in order to roll out our broadband network. We have ActewAGL as a customer of TransACT on our network, but it is all done on a commercial basis. If other utilities wanted to use our network, we have a wholesale area within TransACT and we ringfence that wholesale area from our retail area to ensure that anyone who wants access to our network gains access on the network through our wholesale delivery mechanism.

CHAIR —Do ActewAGL have their own internal network?

Mr Slavich —Yes. They have their own electricity network. We do provide fibre services to ActewAGL, and that helps them with control of their network.

CHAIR —At the national level, do you see the ability for utilities to have their own internal networks as an issue?

Mr Slavich —Yes. Having come from the energy industry sector myself, I think energy networks certainly utilise their own fibre networks in order to control their equipment on their network. I do, however, see telecommunications companies being able to provide that service to energy utilities or water utilities in order to help them provide cons to their equipment. Traditionally they have built those networks of their own accord, and there are probably commercial reasons for doing that, or for the purposes of having a secure network. I think telecommunications companies can provide that security and competitive pricing in order to control those.

CHAIR —But that has not been done nationally up until now, has it?

Mr Slavich —Traditionally energy utilities have put in their own fibre networks. Indeed, many of the transmission companies have fibre across the electricity transmission lines that they sell to other suppliers as well.

CHAIR —So the market has not penetrated utilities’ internal provision of services, has it?

Mr Slavich —Not extensively, but certainly within the ACT we have a very close working relationship with ActewAGL and help them in their provision of communications services.

CHAIR —You have a special relationship with them, have you not?

Mr Slavich —Effectively, TransACT started from ACTEW Corporation. As I said before, TransACT was effectively the NBN in the ACT 10 years ago.

CHAIR —So actually it has been the other way around: the utilities have built out to the community?

Mr Slavich —Correct.

CHAIR —You are saying that the retail providers should now be moving into utilities. You see a potential there.

Mr Slavich —I think there is certainly scope for business activity both ways between utilities and telecommunications providers.

CHAIR —The submission we have from the Energy Networks Association is very strong about the specific skills and the specific technology in utilities and the experience they have built up over the years. They are very strongly arguing for that exemption. It seems to me, because they have that experience and they have those efficiencies internally, that is probably reflected back in some lower cost to consumers.

Mr Slavich —From a B&A perspective, these internal networks and these capabilities have been developed over many years. There would need to be a transition period, I would think, before it was all handed over to telecommunications companies. All I am saying really, as a telecommunications service provider, is that we cherish the idea of being able to provide those telecommunications services to network companies. Whether that should completely happen tomorrow is another question.

CHAIR —But cherishing the idea is a bit different from utilities handing stuff over, is it not?

Mr Slavich —Correct.

CHAIR —There would have to be a commercial reason for utilities to use the retail services of providers. That would be lower cost and better technology, would it not?

Mr Slavich —At the end of the day, I probably should be talking about our submission and not necessarily what is beneficial for the energy industry, other than to say that as a telecommunications supplier we certainly look to provide telecommunications services to energy utilities.

CHAIR —You see, Mr Slavich, when you sit up there you are not completely in control, are you?

Mr Slavich —No.

Senator FISHER —Hearing your concern about the level playing field and level two, what if the legislation were to allow networks to be able to be at level two or higher, so referring to a level three prospect? Would that change your view?

Mr Slavich —I think the fundamental principle is that a network ought to be open access. The reality is TransACT has had an open access network for over 10 years and, indeed, we have 11 ISPs using our network in an open access environment. I think that is the fundamental principle. Whether it is layer two or layer three in the model is not necessarily the deciding factor. I think the deciding factor should be whether it is open access or not.

Senator WORTLEY —It has always been government policy for NBN Co. to operate as wholesale only. The government is certainly not trying to create another vertically integrated monopoly. While I share some of your interest in keeping NBN Co. from moving into retail, I am sure the committee would be interested in hearing what you actually think is deficient about the current drafting.

Mr Slavich —In the companies bill or the access bill and the companies bill?

Senator WORTLEY —Both.

Mr Slavich —In summary, our main concern is the layer two requirement. That would impose significant costs on our business and we would like to be able to continue to operate an open access network in the layer three environment. We are also concerned with the cherry picking level playing field provisions within the bill. Also the statement of expectations on 20 December that was released by the Prime Minister, the minister and Deputy Prime Minister said that we would have to operate in a wholesale-only model. We are concerned about the cost being imposed on the organisation as a result of operating just in that environment and also the possibility of having levies imposed if we are able to do it more efficiently than NBN Co. given that we do not see ourselves as a cherry picker. I understand that provision for organisations that are very selective in what they do. But from a TransACT perspective we do not see ourselves as a cherry picker and therefore would not want to have that imposed upon us.

In terms of the companies bill, it is really a concern about the volume discounting concern. We do not think there is a need to have the SAU or the ACCC involved. We just prefer there to be no volume discounts at all.

CHAIR —Thanks very much, Mr Slavich and Mr Lee, for your information today. It has been very helpful. We will reconvene at 1.30 pm.

Proceedings suspended from 12.29 pm to 1.31 pm