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Role and potential of the National Broadband Network

CHAIR —Welcome. Do you have anything to say about the capacity in which you appear before the committee?

Mr Lindsay —I am the general manager of regulatory and corporate affairs for Internode and its sister company, Agile.

CHAIR —Although the committee does not require you to give evidence under oath, I should advise that the hearing is a legal proceeding of the parliament and therefore has the same standing as proceedings of the respective houses. We have received a written submission which I do not think committee members have had a chance to look at yet, so I will ask if you would like to make some opening statements to your written submission. Committee members are always very keen to ask questions, so we will then go into a question-and-answer session.

Mr Lindsay —Yes, I would like to make some opening remarks here. Working within the committee’s terms of reference, I would like to address some of the areas in which Internode has specific and direct knowledge. Internode is a longstanding supporter of the NBN and the concepts and values behind it. We are particularly supportive of the Terria principles that were developed during the G9 process and then the Optus submission that Mr Fletcher was very heavily involved with when he worked for Optus. The Terria principles are those of open and equitable access for all access seekers, a strong ACCC mandate and structural separation of the National Broadband Network.

Internode have built and we operate several licensed spectrum WiMAX networks, and we are quite intimately aware of the advantages and limitations of wireless technology, so naturally we are very supportive of the fibre-to-the-premises network. We have invested well over $20 million in building DSLAMs to date and we have done that in 170 sites so far. We continue to build DSLAMs, which is a sign not that we fear the failure of the NBN but merely that it is going to take 10 years to build out. We have coverage in South Australia, Tasmania and the ACT in the order of 90 per cent of population, so we have made a strong commitment in a number of areas in Australia.

Our network has a number of key characteristics. Essentially, it has a fixed cost of operation regardless of the number of subscribers that are connected to it, other than the small cost of the line-sharing service or unconditional local loop. We are now faced with a period where the NBN is to be built over 10 years, and we will have to continue to operate that network at its largely fixed cost for a lot of those 10 years. We are very uncertain as to how long we will have to do that, because, of course, NBN Co.’s actual build-out plans are somewhat opaque.

Addressing regional economic growth and employment, when we started building DSLAMs we started in regional South Australia, and we have received numerous testimonials from people who had plans to leave towns like Tailem Bend and Meningie and move closer to the city because their professional life meant they needed the connectivity. Some of those testimonials are quite moving, because those people and their families were going to leave the places they enjoyed living in and where they enjoyed being part of the community just to move closer to connectivity. So, when we provided that connectivity, well in advance of Telstra, for instance, providing it and well in advance of 3G wireless services being anywhere close to affordable, that was really life changing for those people.

Addressing the issue of the delivery of government services, we believe that there is a key requirement that government service content be delivered to regional service providers, to their network, at some key locations and at no cost. The easiest way to achieve that would be to require hosting connectivity providers to ‘peer’—that is a technical term meaning to cross-connect their networks—and to do so at no cost. We do this for the South Australian government. We are the South Australian government’s service provider. Any ISP that connects to the peering point that is operated by PIPE Networks here can gain access to all of the government content without any extra cost. There are similar arrangements in the ACT, New South Wales and also Victoria. Mandating free peering for government agency hosting arrangements would have no real impact on the cost of providing those services to government and it would ensure that Australians are able to use the next generation of high-bandwidth services economically.

Addressing the issue of business efficiencies, when NBN Co. finally released its product and pricing documents to the public during the busy Christmas holiday period, we made numerous submissions to NBN Co., the ACCC, DBCDE, the ACMA and some parliamentary committees on various topics, starting basically in October last year. Many people might conclude that that release cycle was designed to wear out the interested parties. It certainly took its toll on me. Yesterday, Senator Conroy claimed on Inside Business that Internode had made no submission on the issue of NBN points of interconnect. However, in November last year I made an extensive submission on behalf of Internode to the ACCC and in fact made a second submission on 1 February after the 120 POIs were released.

When we apply the NBN Co. product and pricing construct to our business product set, we notice something that is quite concerning. We see that, while the NBN enables 100-megabit-speed internet services, it is only economically viable to provide those services if the customers, the subscribers, do not actually use the internet a lot.

When we look at the cost to provide a point-to-point business-grade service at 100 megabits, we see it would cost us around $9,000 a month using NBN Co.’s current product and pricing construct. That is disappointing because it is about the same cost that we currently pay existing wholesale providers for gigabit ethernet services, for a 10 times faster service.

Looking at community and social benefits, in the United States there is a legal movie subscription service called Netflix. It costs $8 plus applicable state taxes per month to subscribe to the service. Recently that has become the largest single piece of traffic on the internet in the United States. It is based on legal file downloads, which is fascinating. It demonstrates that, when there is a good commercial model, consumers are quite prepared to pay for legal content. However, if you were to apply that service NBN Co.’s current pricing construct, it would increase Internode’s cost of providing services to customers by around $66 a month, which suddenly pushes the access service out into the realm of completely unaffordable, which seems to be very unfortunate.

Another emerging service is off-site backup. There is an Adelaide company called Memory Box which has developed that service. If your house is burgled or it burns down, if your backups are in the house, you might not only lose your computer with the data but your backups too. Services like Memory Box need fast, fat connections, but, again, under this price construct, it would be prohibitively expensive to use them, particularly as the quantity of data that people store on their computers keeps spiralling up. New computers come with a terabyte hard drive these days, which is astounding.

Addressing the optimal capacity and technology requirements, Internode services around four per cent of all broadband users in Australia. We have noticed over a decade that their usage, their downloads, increase by around 1½ per cent per month. That is a 10-year trend. We cannot see that reducing. If we map that to NBN Co.’s current product and pricing construct, that would see our underlying costs over the next decade for delivering those services increase by a factor of six, whereas, as we have built out our own DSLAMs, we have enjoyed that flat cost, so, as the usage has risen, it has not actually incurred extra cost in our access network.

During the last decade, Internode has been able to reduce the per-gigabyte cost of ADSL service delivery such that, since 2002, our subscribers have been paying between $50 and $80 a month. The vast majority of our subscribers pay that sort of subscription. Last week our managing director, Simon Hackett, presented his concerns at the CommsDay Summit in Sydney. He detailed the issues and proposed a solution, which is to raise the access price slightly, by a few dollars a month, and to reduce the connectivity virtual circuit charge, the CVC charge, from $20 a megabit to, he proposed, a dollar. It does not matter what the exact dollar figures are, the concept of decreasing the cost of CVCs by an order of magnitude and increasing the per-port charges slightly will be a key factor in the success or failure of the NBN, and it does not have any impact on NBN Co.’s actual business plan. You can rebalance those two inputs and end up with exactly the same cashflow for NBN Co. but it will reduce a major barrier to the use of high-capacity services in the future and also help to smooth the path over the next 10 years while the NBN is being built. Thank you.

CHAIR —I would like to ask a few questions. There is quite a full committee present today, so I alert everyone to the fact that I will limit them to two questions each, otherwise we will never get through the full day’s hearing. Once people have an answer, they can cross it off and think about what else they want to ask. John, I am particularly interested in the evidence you were giving around the issue of government content. Clearly, with regard to our terms of reference, part of the evidence we are receiving from all levels of government—and quite proactively by local government, I have to say—is about the capacity to deliver government services. Could you expand on the experience you may have had working with local government in those sorts of areas and address where the importance of that content issue is for you?

Mr Lindsay —We have had a very close relationship with Coorong District Council over the last decade. We built a network for them after they were merged—the state government took three district councils and turned them into a physically larger council. They enjoyed savings from not having to run three separate groups of councillors, but they incurred significant extra costs in telecommunications linking these three sites together. It spans a diameter of about 150 kilometres. They put out a tender, which we won, to build a network to link the sites. We then delivered some voice over IP services that we made available to ratepayers in the area, which meant that they could call Adelaide for the cost of a local call.

That was an intriguing project because the cost of doing that from the incumbent ex-monopoly carrier was just astronomical, and so we built a microwave network for them. We have kept building that sort of network. We are now up in the Riverland providing services for local government there. We provide the internet service for the Adelaide City Council, in fact. We make that content available to any other service provider who will connect to the peering exchange in Adelaide—

CHAIR —Is it part of the agreement you have with the level of local government when you get the contract that you are required to do that? Where does it actually happen?

Mr Lindsay —It is not a requirement; it is something that Internode and many competitive service providers choose to do. Of the large carriers there is a group called the gang of four by the rest of the industry, and the ACCC mandated an arrangement about a decade ago with Telstra, Optus, what was then OzEmail and what was OzEmail ultimately became Verizon Business and the whole service is part of AAPT. Those four providers transfer traffic between themselves under arrangements that are opaque but essentially have no direct cost. But they, particularly Telstra and Optus, refuse to do that with anybody else. They charge at the edge of their network when other retailers want to access the content that is hosted or connected via those networks. That means that, when one of our subscribers accesses some local, state or federal government content that is behind those networks, we incur significant cost in the order of or higher than the $20 per megabit CVC cost. For the content that is actually hosted by people who peer at the peering exchanges, the incremental cost to Internode is effectively zero. We have some cost in moving it around inside our network, but we do not pay a toll at the edge of the network.

We have a particular concern that, as the number of directly connecting networks via the NBN—and we certainly do not think there are likely to be more than 10 networks that actually connect to the NBN directly—becomes concentrated, we may find this vital government content squeezed out into these networks where the other service providers have to pay a toll to access it. That would have the effect of reducing the accessibility to that content for subscribers who are downstream of those other retail service providers.

CHAIR —Another area we have had a lot of evidence around comes to the example that you touched on: the capacity for regional development and economic development in our regional and rural areas with professionals being able to base themselves and stay in the regions of Australia because good-quality upload and download connections enable them to run their businesses and participate. I think you mentioned the testimonial. Would you give us a bit more of an idea of the circumstances you have encountered in your business.

Mr Lindsay —The specific example from Tailem Bend was an architect. His work obviously involves creating CAD documents. He used to design something, print it out, put it in a tube and post it; he now has to send the file electronically. We have numerous testimonials from people who are essentially information workers. IT now impacts on most areas of professional life. From accountants through to lawyers and medical professionals—all of them need that level of connectivity just to function. You cannot operate as a medico without access to the internet because most of your interface with the government, departments of health, hospitals and so forth is all conducted electronically.

CHAIR —One of the interesting areas of evidence we have had is around cost savings and efficiencies to businesses in not having to fly people all over the place to participate in meetings. Also, there is the ability to access expertise and top-notch people in a field without requiring them to relocate and live wherever the business is. Are those the sorts of testimonials you have received? I am just trying to get a sense of the flavour of those.

Mr Lindsay —It is somewhat early days for video conferencing. Internode operates telepresence between all of its capital city offices. We have directly calculated the cost savings from that and it runs to hundreds of thousands of dollars a year in airfares and hotel accommodation. You get a fascinating response when you invite someone to a meeting and you send them the address of your office in Sydney and they are shown into a room with you smiling at them from a very large screen. It is a completely different way of working, but using telepresence requires bandwidth that approaches 50 megabits. Today, that is affordable in a corporate setting but it is not really affordable in a domestic setting. The NBN will enable that.

CHAIR —Or in a community setting?

Mr Lindsay —Indeed. The cost of telepresence and video conferencing is just crashing through the floor at the moment. There are numerous vendors who are providing services that only two years ago would have been only usable in a corporate environment; they are now providing that to small business and domestic users.

Mr NEVILLE —In your submission, you say:

For the government to realise the benefits of the NBN it must recognise that Internet services delivered by the NBN will be delivered to each premises by a single retail service provider. The idea that users would disconnect their computer from their Internet provider and plug in to the government Internet feed is absurd.

Would you like to expand on that? That seems to run contrary to your opening statement that you are a great supporter of the NBN.

Mr Lindsay —No, not at all. The NBN is the enabling network that delivers the high-speed connection.

Mr NEVILLE —You were very critical of the costs to your company, so how do you reconcile these two points of view that you are putting to us? Would you like to expand on what you mean by that?

Mr Lindsay —I will see if I can cover the various issues. The first thing that I am talking about with disconnecting and connecting to something else is that a sizable number of people have a view of something like an old fashioned telephone switchboard where you might unplug from the internet and plug into government services. That is an unrealistic expectation for accessing those sorts of services. The internet is the one access network. You do not need to have multiple physical connections for user interactive services. That is not to say that the other ports that the NBN will provide will not have some good uses.

Mr NEVILLE —You are talking about the junction box ports on the houses and businesses?

Mr Lindsay —Yes, exactly. There are other likely applications around energy utility monitoring and the smart grid—the concept of turning off heavy-load devices during times of high demand and turning them on at times of high availability. We have had that for years with off-peak power for hot water and, indeed, I charge my electric car with off-peak power. It is a sensible thing to do because it is cheaper. But it is not practical to conceive of residential consumers unplugging their computer from the internet in order to plug into the government when there is a perfectly viable mechanism for delivering those services today via the internet. It is only a matter of ensuring that the path between government services and retail service providers is very cheap for the retail service providers to be able to use.

Mr NEVILLE —Surely cost would be the critical factor in that decision.

Mr Lindsay —The thing I am trying to address in terms of NBN Co.’s current product and pricing construct is that it is simply something that has been published and we are a long way away from connecting paying customers. So there is an excellent window of opportunity at the moment to finetune that model using the benefit of the experience of retailers. NBN Co. is being put together by network designers, accountants and, to some extent, lawyers of the ACCC. It always scares me when lawyers start designing networks!

Mr NEVILLE —I think I get where you are coming from, but let me ask a second question. You said in your opening remarks that you are a supporter of the NBN and structural separation, notwithstanding the fact that you complained about the charging mechanisms of the NBN. How did you, a company with so much contact with the corporate sector and government, react to the announcement about 10 days ago that the NBN was talking about dealing directly at a retail level with certain entities? What is your reaction to that?

Mr Lindsay —It depends on what those entities are actually going to use the NBN network for. We are very comfortable with the energy sector using the NBN to enable things like smart metering—

Mr NEVILLE —Purchasing at the wholesale rate?

Mr Lindsay —We do not find that troubling. What concerns us is when that is then extended into providing retail internet services leveraged from what they receive from providing the smart metering type services.

Mr NEVILLE —How would you react to a state government becoming its own internet provider, through the NBN, wholesaling services for the whole of its departments and making itself the retailer?

Mr Lindsay —We find it troubling—but then everyone finds change troubling.

Mr NEVILLE —I am talking about the principle. We were told very firmly that the NBN would be a wholesale entity, but now there is this codicil creeping in that there will be certain instances in which they can sell direct. I want to hear what your company, which is in that sort of field, feels about that.

Mr Lindsay —Our specific view is that NBN Co. should only provide services to entities that then resell them to individual consumers. That is our direct reference.

Mr NEVILLE —In other words, not do it themselves?

Mr Lindsay —We would significantly prefer them not to do it themselves.

Mrs PRENTICE —In your submission you talked about peering, and I was wondering if you could elaborate on that. Are you saying that where there is existing high-quality fibre we should not be building over the top of it for the monopoly or connecting into it?

Mr Lindsay —They are actually quite distinct things. Peering is a concept whereby network operators make the content of the network available to each other at some agreed location or multiple locations. There are a number of peering points in Australia. A lot of them are operated by PIPE networks. There is a significant one in Western Australia, the Western Australian Internet Exchange, or WAIX, which is operated by the Western Australian Internet Association. There is also another one operated by Equinix in Sydney. Those peering points are the facilitation of the cross connections. Internode peers privately with hundreds of organisations around the globe. We peer directly with Google and Microsoft, for instance. We do that where the volume of traffic is so large that doing it over a shared peering exchange is not economically sensible. As a way of taking lots of small sources of content and aggregating them and making them available at very low incremental cost, peering is phenomenally powerful.

The ACCC looked at peering a decade ago and revisited it a number of years ago. I cannot quote them but they concluded that the current arrangements were essentially satisfactory. We do not agree with that view. We see the scaling up of traffic that should occur if the NBN is done right—and is inevitably going to occur because the volume of traffic increases by 1½ per cent per month—becoming a significant barrier to the use of high-volume content. If it can be placed behind a toll booth the service providers who own that toll booth will actually have an opportunity to make an extraordinary profit, and I think that is fairly unfortunate. But this has got nothing to do with the overbuilding of fibre.

Mr STEPHEN JONES —In your written submission you talk about the lack of backhaul fibre being a constraint on regional development in this state. Do you think the rollout of the NBN will have a significant impact on the concentration of businesses in CBD areas?

Mr Lindsay —Under the current model, with 121 points of interconnect, it will stimulate the extension of competitive fibre to those points of interconnect, but at that point the NBN is the only network that is available to connect consumers. We are concerned that the addition of over 100 extra points of interconnect did not actually make any significant change to NBN Co.’s business model. They have all the same costs whether they have 121 points of interconnect or 14. They have to link all those points together regardless. The last federal government provided a very large subsidy to build up the regional black spot network. Indeed, Internode is using that network today to deploy DSLAMs in places like Victor Harbor, Strathalbyn, Darwin and Alice Springs. Without that network we would not be able to do that. However, the promise when that network was conceived was that the NBN Co. would acquire that network at some time in the future and use it as the core of its own backhaul basically to facilitate these capital city points of interconnect. It would now appear that NBN Co. is not going to be allowed to do that, which means service providers like Internode are going to have to buy services over that network and others in order to connect to the regional points of interconnection.

We would much rather that there were only the capital city points of interconnection, and that is for two key reasons. One reason is that it would be significantly more economically efficient for Internode and the other is that the design that NBN Co. had for those 14 points of interconnect provided for redundancy in the capital cities so we could see our downstream customers from either of the capital city points—and in the case of Sydney and Melbourne they were contemplating four points. We would be able to see our customers from either of two points of interconnect, so if there is a failure at the point of interconnect we would still be able to see the customers who are downstream from it.

What concerns us about the 121 model is that there is not actually any redundancy at those 121 points of interconnection and that to achieve that redundancy would require a doubling of the points of interconnection or, in parallel, to bring it back to the capital cities anyway. This is significant because, according to the ACCC’s list of points, there is going to be around 80,000 to 150,000 premises downstream from each point of interconnect. The current plan has them located within Telstra exchanges, and it is not unheard of for a single exchange site to end up going dark because some sort of disaster occurs at the site. We saw it in Brisbane during the floods. My own local exchange in Glenunga back at Christmas time was shut down briefly because a battery in the battery room caught fire, which filled the exchange with sulfuric acid fumes and smoke. So everything was turned off and the fire brigade came in and made sure that it was safe. While that occurred, the approximately 20,000 people who connect via that exchange had their services turn off briefly. If there are 150,000 people downstream from the point of interconnection, that sort of event will not go unnoticed. It is inevitable that that sort of failure will occur. There is a long history of large data centre sites going dark for some period of time. You cannot engineer a single physical location to be that resilient, without essentially duplicating it over a reasonably sized site.

CHAIR —I am going to go to a second question but I would remind committee members of the terms of reference of this inquiry. We have spent a lot of time discussing the infrastructure—

Mr STEPHEN JONES —My second question is going to be the same as the first. I understand the technical issues that you have raised which impact on ISPs and other subsidiary carriers such as you or retail providers, but in terms of businesses that might see the attraction of now locating themselves outside a CBD area because there are more high speed broadband facilities available to them. I was after your views on that proposition because you quite clearly stated that the lack of backhaul fibre caused businesses to concentrate, presumably, in the Adelaide region around the CBD. Does the rollout of the NBN provide an alternative incentive to locate elsewhere?

Mr Lindsay —It will do if the product and pricing construct enables it. The $20 CVC charge will cause that not to happen, not for real high bandwidth applications for hosting and so forth. But if the construct is fixed in a way that enables that, then certainly we will see that decentralisation being enabled. It is not just an Adelaide phenomenon. There are certain key pockets in each of the capital cities—

Mr STEPHEN JONES —I live in one of them.

Mr Lindsay —It will also enable higher bandwidth applications in rural and regional areas and not just the usual suspects around health and education. It will make it significantly easier for content based businesses to function in regional areas, and I think that is of vital importance to ensuring regional economies grow rather than shrink.

Mr SYMON —I would like to go to the question of demand for services. You mentioned the increase of 1½ per cent per month. I would like to clarify that. Are you talking about an increase in the number of subscribers or the data downloaded or are we talking two different things there?

Mr Lindsay —We are talking two different things. I am talking about the increase in data per subscriber. Intriguingly, the number of fixed line subscribers in Australia has essentially been flattish for the past three years. Interestingly enough, it seems to have coincided with the announcement of the NBN, which is a little ironic. Certainly for all of the competitive service providers, it has been very difficult to build business cases to build DSLAMs for the past three years and to raise funding for building DSLAMs, because the usual response is, ‘Oh well, it’s going to be rendered obsolete by the NBN.’

We have gone somewhat against that trend by continuing to build DSLAMs. The number of people using the internet in Australia via some sort of broadband service, be it a fixed line service or a wireless service, has reached some sort of saturation point over the last three years. The OECD published its broadband growth statistics for OECD countries back in December and, if you plot that, you can see that in Australia broadband penetration has essentially plateaued over the last three years.

Mr SYMON —Following on from that and looking at ADSL connections and wireless connections, for many people a wireless connection is a better option at the moment than an ADSL, to my knowledge, depending on how far you are from the exchange. When we go to NBN fibre, do you think that take-up of fixed line will increase substantially once there is a much faster service available?

Mr Lindsay —I think there are a number of factors that drive wireless demand. One of them is that the value for money from it has significantly improved over the last few years, such that a monthly subscription in the $30 to $50 territory has gone from being enough to support a mobile phone to being enough to support a computer that is used modestly.

Another factor is that subscribers have to make a long-term commitment to a fixed line service, typically for 12 or 24 months. If they do not do that, either they will pay a significant premium in the set-up or they will pay a large penalty fee for disconnecting early, which means that young people and low-income people, who have a tendency to move regularly, will not make that commitment because they know they will not be able to keep it.

So wireless and fixed line are complementary technologies. There is no good reason why, with an NBN fibre connection to a premises, that cannot be used economically, as long as the price construct around it enables that, particularly ensuring that the ability for the occupants of the premises to change without the service providers incurring artificial costs associated with service establishment and churn and so forth, which will be quite critical. It is not as if anybody will have to visit the premises when there is a change of subscriber, if it is set up correctly. Therefore, we think that the charges around that should be very modest. If they are, then the use of the NBN by those young and disadvantaged people will be significantly higher.

Mr SYMON —Thank you, John.

Mr HUSIC —If I understood you correctly, Internode sprang from regional Australia.

Mr Lindsay —The history of Internode is fascinating. It actually began in metropolitan Adelaide. It had its origins when Simon Hackett was working for the University of Adelaide and the vice-chancellors decided to hand the internet over to Telstra to take it commercial because it was beyond their charter to provide commercial services. When that occurred, there were a number of corporate and government organisations who were connected via Adelaide university, and Telstra basically sent them a note saying, ‘Hey, welcome to the commercial internet and now it’s going to cost you.’ Simon sent them a note saying, ‘Hey, it doesn’t necessarily have to cost you nearly as much.’ As a result, several large corporations and the South Australian government connected to Internode.

We built our own first DSLAMs in regional areas partly because it was a good opportunity to learn. Internode is not full of ex-large-carrier people. We came to this from the internet. We have actually come round full circle and, in the last couple of years, we have finally become a fully interconnected voice carrier, using technology from the 1980s, which is really deeply ironic for us. But we have had to do that because the NBN Co. are going to going to sell voice and data simultaneously, essentially, as a bundle to retail service providers, and any retail service provider who cannot allow the consumer to keep their phone number and get an internet service simultaneously will find themselves losing an internet customer.

Mr HUSIC —I am asking the question because I am interested in regional employment impacts, particularly given that a few moments ago you indicated that a lot of your employees were not necessarily from major carriers. Obviously that suggests that you undertook a degree of training of those employees. Is that the case? I am really interested to find out how much you dedicated towards training and upskilling your employees.

Mr Lindsay —We have a significant training operation. We have a full-time training manager and a full-time induction trainer. We bring in external professional trainers. Every Internode new hire goes through an extensive induction process that takes, in some cases, a couple of weeks. We have a lot of staff with a lot of internet experience. We have had to acquire some staff with old-school voice skills and we have had to learn it as we have gone along. We make a major investment in staff and we have a pretty good track record of retaining them. We are South Australia’s largest IT operation. We have over 20 people who are software developers who work full time on our back-end systems, and they are able to do that in Adelaide, which is fabulous for the regional economy. We would hope that that is something that other organisations are able to continue to do around Australia.

Mr HUSIC —Are you finding a lot of interest from people pursuing ICT, in terms of their wanting to take up employment with Internode or others?

Mr Lindsay —Our research shows that prospective staff rate Internode as their preferred ICT employer. We have a lot of casual staff who are university students. You would think that most of those people would actually be from an ICT background but, intriguingly, a lot of them are in other areas and, as they have graduated, they have moved into the ranks of our finance department and our legal department.

Mr HUSIC —On the network side, though?

Mr Lindsay —We hire people in the network area fairly continuously and we have built a pretty phenomenal team of network people. We are the leading provider of IPv6 services commercially in Australia, and that is something that we have invested in. We have sent a lot of people to conferences and training and so forth in order to gain those skills, and now we are going through all of our help desk staff to make sure that they know how to support customers who are using IPv6.

Mr FLETCHER —John, you talked about the very important role that Internode has taken in delivering services ahead of Telstra into areas in regional South Australia—putting DSLAMs into exchanges that Telstra had not bothered to do, for example. Do you envisage being able to do similar things in a world where NBN is the monopoly owner of a broadband network, or would that mean that that sort of competition in infrastructure would essentially be a thing of the past?

Mr Lindsay —That is an intriguing question, Paul. Clearly, the competition is going to move generally away from the binary question of, ‘Can you provide access or can’t you?’ into services, the quality of service, the quality of support, flexibility and the enabling of new applications. It has been a significant struggle for Internode to provide competitive services in regional areas. One of the prices we have paid is that we have not been able to grow as rapidly in built-up areas as we would perhaps have liked. So I think, on balance, the lack of access competition is a price that we are prepared to pay for the ability to address the national market on an open and fair basis.

Mr FLETCHER —In relation to the wholesale pricing construct that NBN has announced and that you talked about and that Simon Hackett has commented on quite extensively, are there any precedents for that in the wholesale market place today or is it the case of NBN Co. seeking to capture the upside of greater volumes which today would sit with the retailers and effectively be your reward for doing a better job of meeting customer needs?

Mr Lindsay —In terms of precedents, we have seen the price squeeze that Telstra has managed to push upon its wholesale ADSL customers where by imputation you can conclude that when BigPond uses Telstra’s ADSL network the internal cost at that aggregation layer must be under $10 per megabit per month and that is a service that is provided from capital cities to all areas, both metro and regional, whereas the wholesale customers have paid significantly more than that for the aggregation and it makes it very difficult for retailers to build a competitive product on top of that wholesale network. That has driven organisations like Internode, iiNet and Optus to make the investment decision to build their own DSLAMs and enjoy those economies of scale for themselves. The lack of affordable backhaul from regional areas has of course limited the reach of those networks to capital city areas. What was the second half of that question, Paul?

Mr FLETCHER —I want to know whether it is a case of NBN Co. capturing the upside as the customer increases volumes that would today sit with the retailer and is in essence your reward for doing a better job of meeting customer needs.

Mr Lindsay —I think that the product and pricing construct that we have before us at the moment was largely centred on trying to produce some numbers that looked reasonable for the migration from current fixed line PSTN and ADSL services over to the NBN for consumers but, while trying to avoid anything that smelt like a volume discount, it has ended up producing a result that actually penalises growth and will effectively crimp it economically.

CHAIR —We need to wrap it up there because we are well over time. Thank you very much for giving evidence today. I take this opportunity to remind all members of the committee of the terms of reference of this inquiry as we progress through the day. If you have been asked to provide any additional information—and I do not think you were—send it through to the secretary. You will be sent a copy of the transcript of evidence. It was a very interesting presentation, John. Thanks very much for participating.

Mr Lindsay —Thank you very much.

[11.55 am]